Why Subway’s Sales are Falling Fast

Scott Olson/Getty Images

Scott Olson/Getty Images

It’s official — fast food is under siege. We’ve known for months that McDonald’s has been taking it on the chin in terms of sales and foot traffic for the past year or so, and other competitors, like Taco Bell and KFC, have turned to other unconventional methods to keep customers streaming in the door. But surprisingly enough, the world’s biggest fast food chain, Subway, if actually faring worse than all of them.

Subway is a private company and does not post profit information, but a recent article from The Washington Post is making it very clear that something is terribly amiss in Five Dollar Footlong-land. Per that article, Subway has spread to 110 countries and nearly 44,000 locations in half a century. But that growth has hit a snag, and the company’s profits are now falling faster than any of America’s other top 25 chains. The losses are big — a drop of 3% in 2014, or $400 million.

On the surface, it appears that Subway is falling victim to the same issues that are plaguing other fast food chains. Namely, younger diners are headed to ‘fast-casual’ restaurants like Chipotle and Panera Bread, and Subway just can’t find a way to keep up. The reason for declining foot traffic seems simple enough: the product and service at Subway’s locations has suffered significantly in recent years, and other sandwich chains are simply doing it better.

Even franchisees are “pissed off” at the company’s leadership, who are pushing deep discounts on meals, and putting significant pressure on franchisee’s already-thin margins. According to an article from New York Post published in 2013, margins for franchisees have fallen from around 12% in years prior down to near 8% — and they could be even worse as of this year.

The way that Subway has sent consumers running isn’t all that difficult to comprehend. Several years ago, Subway made a splash with a marketing blitz featuring Jared Fogle, a man who reportedly had lost nearly 200 pounds by going on a “Subway diet,” only eating Subway sandwiches. This campaign separated Subway from other fast food chains, offering a healthy, vegetable-laden alternative to the traditional burger and fries.

Subway also unrolled the infamous $5 Footlong campaign, which made a 12-inch sandwich a viable option for those on a budget. Consumers could get a cheap and healthy lunch — a hard find for many working Americans.

With those two big advantages under its belt, Subway’s popularity shot through the roof. The problem is that it hasn’t been able to stick with either pledge. If you visit a Subway store these days, you may be lucky enough to find one or two footlongs available for $5, often without meat. Also, the restaurants’ food quality seems to have suffered immensely over the past few years, as old produce and microwaved meat has quickly lost its appeal to consumers who may be more apt to head next door to Chipotle, where there’s always meat on the grill and fresh veggies to be had.

If you take a look at Subway’s menu and dietary information, half of the footlong sandwiches the chain offers contain nearly 1,000 calories, not including chips or a drink. With numbers like that, Subway isn’t going to be winning over health-conscious eaters.

Subway has forgone its two biggest advantages in an effort to bolster profits, and now it’s hitting franchisees on the bottom line. Oh, and don’t forget the PR disaster that resulted from consumers finding out that the chain’s famed footlong subs weren’t even a foot long. And the company’s response didn’t help.

“‘SUBWAY FOOTLONG’ is a registered trademark as a descriptive name for the sub sold in Subway Restaurants and not intended to be a measurement of length,” Subway said in response to public outcry about its sandwich length on Facebook, according to an ABC News report at the time. “The length of the bread baked in the restaurant cannot be assured each and every time as the proofing process may vary slightly each time in the restaurant.”

The fact is, Subway has been defeated at its own game because it’s no longer the cheap, healthy option it used to be. Others have taken the blueprint and run with it, leaving Subway in the dust. Like McDonald’s and the myriad of other fast food restaurants on the ropes, Subway will need to go through a serious reinvention, or go the way of Quizno’s.

Follow Sam on Twitter @SliceOfGinger

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