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Subway is a terrible franchise for any number of reasons, but the #1 reason is that they don't have protected market areas. If you buy a Subway franchise, there's nothing keeping them from selling a franchise to someone who will open his store across the street from you.
In truth, any franchising requires you read the fine print with a lawyer who knows what the hell he's doing. A few years ago, I was asked to sit in on a meeting. An NFL receiver (2nd stringer. You've likely never heard of him) and his wife had gone to a financial planner for advice, chiefly because someone had tried to sell him a franchise to a Subway knockoff.
The guy was pretty smart, but his wife was way smarter. I looked over the prospectus for about ten minutes while they looked on and slid it back to them. "Don't do it. You'll lose your shirts." The franchise fees were set up in a way that it would have taken every dime of their profits. My advice to them instead was to live as cheaply as possible and make their extra cash with easy one-day hits like signing autographs at local auto dealers or making appearances in ads. But given that owning a restaurant is an all-consuming business even for people who know what they're doing, it was a terrible idea for a guy in the NFL who could get traded any day.
Subway is a terrible franchise for any number of reasons, but the #1 reason is that they don't have protected market areas. If you buy a Subway franchise, there's nothing keeping them from selling a franchise to someone who will open his store across the street from you.
They are an awful firm to get in bed with on a number of levels. For one thing, a corporate hitwoman recently rolled over on them, exposing how her job as inspector was to always find enough faults that successful franchises eventually failed on technical terms, so the company could take over the (now established and profitable) store.
They have a very cheap buy-in, though. Which is the start of all the problems.
I also have never cared for their goods - very McDonald's take on what subs/grinders/hoagies should be.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Quote:
Originally Posted by MinivanDriver
Subway is a terrible franchise for any number of reasons, but the #1 reason is that they don't have protected market areas. If you buy a Subway franchise, there's nothing keeping them from selling a franchise to someone who will open his store across the street from you.
In truth, any franchising requires you read the fine print with a lawyer who knows what the hell he's doing. A few years ago, I was asked to sit in on a meeting. An NFL receiver (2nd stringer. You've likely never heard of him) and his wife had gone to a financial planner for advice, chiefly because someone had tried to sell him a franchise to a Subway knockoff.
The guy was pretty smart, but his wife was way smarter. I looked over the prospectus for about ten minutes while they looked on and slid it back to them. "Don't do it. You'll lose your shirts." The franchise fees were set up in a way that it would have taken every dime of their profits. My advice to them instead was to live as cheaply as possible and make their extra cash with easy one-day hits like signing autographs at local auto dealers or making appearances in ads. But given that owning a restaurant is an all-consuming business even for people who know what they're doing, it was a terrible idea for a guy in the NFL who could get traded any day.
One reason is the competition from other companies that may have better products and faster service. Here for example, we have Jimmy John's which is far better and delivers, and Jersey Mike's (haven't tried it) and the delis at 3 grocery stores.
I've been disappointed to read about Subway's problems and how badly it treats its franchisees- I actually like their sandwiches.
The whole franchise thing scares me, though. About 12 years ago a coworker left to open a ColdStone creamery franchise. He was passionate about ice cream, he said. He was an actuary so knew his way (somewhat) around financial statements and understood compound interest. A few years later he was back working as an actuary. He'd given them the keys and walked away. He told me he had no idea that a company (ColdStone) could siphon off so much money from its franchisees while leaving the franchisees with nearly all of the risk.
About 12 years ago a coworker left to open a ColdStone creamery franchise. He was passionate about ice cream, he said. He was an actuary so knew his way (somewhat) around financial statements and understood compound interest. A few years later he was back working as an actuary. He'd given them the keys and walked away. He told me he had no idea that a company (ColdStone) could siphon off so much money from its franchisees while leaving the franchisees with nearly all of the risk.
1) Most people who think they can run a restaurant (of any level) are wrong.
2) Knowing 'accounting' does not necessarily give one an edge on corporate relations.
3) Franchise corporations are approximately at the other end of the "business development incubator" model from state and civic groups, if not in the next galaxy. They may not actually be predatory, but players will want to keep their hands away from all those shiny teeth.
The only successful franchisees I've ever known are those who worked their way up in the trade. My stepson went from (basically) floor-sweeper in a regional pizza chain to owner of one of the flagship stores. Another couple turned 20+ combined years in restaurant service and kitchen into a successful fast-food store. But anyone who has been something unrelated and decides they can plunk down $XXk and tie on an apron may as well go to Vegas with the money. No matter how good a weekend cook they are, or how smug they are about their own IQ and savvy over a field filled with those of modest acumen.
I used to know a successful subway franchisee. His first restaurant did so well he opened two others. But he had an angle. The state had a program where they would pay half or more of the wages of his employees, part of a "second chance" program with non-violent ex convicts. He was clever enough that he put extra safeguards in place to prevent theft. He got stung once or twice but it was never a lot of money. It's one of those franchises that can work in a socialist economic system.
If you have enough money to buy a franchise, why not just buy a triple net property with a franchisee on it, and collect rent from them?
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