Rise and fall and rise of SUBWAY

With more than 42,000 restaurants in over 100 countries, Subway has the most locations of any fast-
food chain on the planet. And at first, that sounds like a sign of a thriving sub giant. However,
Subway is anything but. Subway's closed thousands of stores in the last three years and saw a 25%
fall in business from 2012 to 2017. So, what happened? What is so compelling about Subway is really
an open-kitchen format. In many ways, they really pioneered that and the ability to customize your
sandwich. The brand redefined fast food with fresh ingredients that customers could see. Compared
to other fast-food chains at the time, it felt healthy. And it worked. By 1981, there were 200
locations across the US and soon after, Subway went international. In the late '70s, and in the '80s,
and in the '90s. everyone knew about Subway. While each store looks and smells the same, they are
all independently owned franchises. The format is simple. You buy a franchise, you get trained, they
help you secure a location. They help with a grand opening, and you are open You're open for
business. Follow the several-hundred-page operating manual, do the advertising, and customers will
come in. Not only were Subway franchises successful, but they were also, and still are, one of the
cheapest chains to franchise. It costs between $116,000 and $263,000 to open a Subway franchise.
Compare that to opening a McDonald's, which costs up to $2.2 million.

Because Subways were easy to open, the number of stores skyrocketed. Between 1990 and 1998,
store locations rose from 5,000 to 3,200. gross sales rose by about $2.1 billion. But by 2008, the
world was suffering from the effects of the Great Recession. And for many Americans, hunting for
deals replaced the obsession with weight loss. So, Subway changed up its message. In March 2008, it
introduced a new promotion that would come to define the chain. By August 2009, as other
restaurant chains were struggling through the Recession, the $5 footlong had pulled in $3.8 billion in
sales for Subway, a 17% jump in US sales from the year before. But even the best deals run their
course. Starting in 2014, Subway’s sales began steadily dropping. Behind the scenes, many of the
reasons for Subway's success had turned on them. They were competing against people who bring in
fresh produce every day. A lot of Subway locations only bring in fresh produce once or twice a week.
On top of that, fast-food chains that had been around as long as Subway were coming up with
healthy alternatives of their own and getting creative with new menus More and more fast-food
chains really want to have that innovation pipeline where they're bringing something out new
almost every month. Fast-food places were looking for way to bring in new customers, drive traffic,
and Subway did not try to do that in the same way other places have. But other fast-food chains
were not the only competition for Subway franchises.

With Subway's franchising model making it so easy to open locations, stores inevitably started
opening around the corner from each other in lucrative markets. Take downtown Manhattan, for
example. Within a 15-minute walk in less than half a square mile, there are 10 Subway locations.
And these locations in proximity began cannibalizing each other’s sales. The Subway franchise
agreement, the contract, it says they can open anywhere. There is no protected territory. So
franchisees really have no say-so in where the other franchisees are going to open. It was a problem.
And Subway corporate was not stopping it, because the company benefited from a high number of
locations. More locations meant more franchising fees and high royalties to Subway corporate,
which diminished the effect of falling sales from a single location. When franchisees' sales are kind of
slipping if they're staying open it doesn't necessarily hurt Subway as much as it would some other
chains. Franchise owners, on the other hand, took the hit.
In 2012, each Subway franchise generated. an average of $482,000 a year. Four years later, that
number had slipped to $422,000 a year. For comparison, the average annual revenue of a
McDonald's franchise in 2016 was $2.6 million.

All of these thing created the perfect storm for Subway. And soon, locations started to close. In
2016, Subway closed 359 stores in the US. It was the first year the chain closed more locations than
it opened. In 2017, that number was over 800, and by the end of 2018, over 1,000 locations had
closed. With all these sour ingredients, it's hard to imagine Subway could bounce back. But the chain
is certainly trying.

In 2017, Subway launched its Fresh Forward program, starting with remodeled stores. The revamped
locations featured new menu boards, Wi-Fi, USB ports, updated furniture, and music. They're doing
something interesting. They are offering grants where if a franchisee applies and everything is in line,
they can get up to $10,000 towards remodeling.

By the end of 2020, over 10,000 locations will have this new restaurant design. But Subway says food
is its next priority and it's backing it up with an $80 million investment in updated menu items.
Subway's partnered with the media company Tastemad to develop hundreds of new menu ideas,
like the Green Goddess Tuna Melt and the Southern Style French Dip. In 2018, the chain introduced
its cheesy garlic bread, its most successful promotion in the last five years. And in 2019, a line of
ciabatta sandwiches and Halo Top milkshakes hit stores.

Historically, Subway would evaluate about six or seven new menu items per month, but they have
set up a process and invested in capabilities where they are literally testing at least 100 new menu
items every month. So at last, Design thinking methodology helped them to revamp and rediscover
themselves