3 huge lessons from Subway’s downfall

Hey everyone,

Subway was once bigger than McDonald's.

At its peak in 2013, it had more locations than any fast-food chain on the planet. The $5 footlong was everywhere. The brand seemed unstoppable.

Today they’re a cautionary tale. Franchisees are losing their shirts, stores are closing, and people just aren’t buying sandwiches.

It wasn’t that their bread is actually cake. 

It wasn’t that their chicken was less than half chicken. 

It wasn’t that their tuna was “not tuna and not fish”, but a “mixture of various concoctions.”

It came down to 3 key problems that are red flags in any franchise operation — and are worth understanding before investing in any business.

Let’s take a look.

Early on, Subway’s pitch was simple: low startup costs, no cooking, tiny footprint. It meant you could open a store almost anywhere, from malls to gas stations to street corners.

By the 1990s, they were expanding globally. By the early 2000s, they were on fire.

Then the cracks started showing.

Here’s why:

Red flag #1: Misaligned incentives

The $5 footlong launched in 2008. It was a marketing home run, and sales spiked system-wide.

Corporate loved it. But they make their money from gross revenue, not profit.

But it was a different story for franchisees. Food costs, labor, and overhead ate the margins. Some weren't profitable at all.

The upshot? That $5 sandwich, which was the biggest seller and core marketing message nationwide, was actually killing locations.

The franchisor cares about revenue. You care about profit. Those aren't the same.

🚩What to watch for: Is this brand supporting my profitability, or just their top line?

Red flag #2: Unlimited unit density

Subway put stores everywhere. 

Multiples in the same small town. Sometimes on the same street.

I remember in high school, we'd leave campus for lunch and stand in the parking lot debating which Subway to hit. One was two minutes that way, another two minutes the other way. Not even a big city.

For franchisees, this meant cannibalization. 

Your competition wasn't just other sandwich shops. It was the Subway down the block. Maybe the one you owned.

🚩What to watch for: Look at how territories are drawn. Good franchises balance growth with territory protection. They care about your store-level success, not just map coverage.

Red flag #3: Only volume succeeds

One of Subway's key appeals to investors was the low cost of opening each store.

They wanted people to open a bunch of them. And franchisees bit. Some opened 10, 15, 20+ locations.

The problem: Subway’s model only worked at huge volume. Because every individual store had low ticket size, thin margins, and low cash flow.

🚩What to watch for: When researching franchises, focus on what one unit produces.

I'd rather own one location that costs $1M and makes $250K/year than five that cost $200K each and make $50K each.

The total figures are the same. But the reality is very different. 

I want cash flow concentrated, not people scattered across locations, multiple properties to worry about, and every location riding on a razor-thin margin.

If you’re looking to buy a franchise, Subway's not the move anytime soon.

(Personally, I don’t touch food franchises at all. Here’s why.)

But there are great opportunities with stronger unit economics, better territories, and franchisors who care about your profitability.

Want help finding one? Book a free strategy call.

Thanks for reading,

Connor

P.S. If you want to browse some better franchise models, check out my full library of business breakdowns here. No charge.

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