Want to Own a Subway Franchise?

What You Need to Know Before Purchasing a Subway Franchise

ESCONDIDO, CA - JULY 23: A Subway store is located next to Harrah's Rincon Hotel & Casino as viewed on July 23, 2013, near Escondido, California. The interior region north of San Diego is known for citrus and avocado groves and has become a mecca for Indian Tribal casinos.
George Rose/Contributor/Getty Images News

Now in its 42nd year of franchising, Subway continues to be a top-performing franchise, having won the No. 5 spot on the 2016 Entrepreneur "Franchise 500" list.

Initial Investment

As of 2016, the initial investment required to open a Subway Franchise is estimated between $116,600 and $263,150, with a net worth requirement of $80,000-$310,000 and a liquid cash requirement of $30,000-$90,000.

Franchise Fee and Royalties

Subway charges an initial franchise fee of $15,000, ongoing royalty fee of 8% of gross sales, and ad royalty fee of 4.5% of gross sales.

Number of Locations

There are no company-owned Subway franchises. As of 2016, there are nearly 27,000 Subway franchises in the United States, and over 17,700 locations internationally in 90 countries. Subway's original international expansion focused on Australia, New Zealand, Saudi Arabia, the United Kingdom, Spain, Italy, France, Germany, Puerto Rico, Japan, Belgium, Luxembourg, and the Netherlands.

When people think of the words “franchise” or “fast food,” they almost always immediately envision McDonald’s, which was the gold standard for quick serve restaurants. One of the major reasons for this instant association is that McDonald’s historically had the most restaurant locations worldwide, and therefore was the “biggest” and most prominent.

However, in March of 2011 it was reported that at the close of the previous year, McDonald’s had 32,737 locations across 117 countries, while Subway actually had 33,749 locations across 95 countries.

The paradigm had shifted. McDonald’s was no longer No. 1. There was a new king in town, and the king sold $5 Foot Longs, not Big Macs.

There are currently over 44,000 Subway franchises located in over 111 different countries, a number that continues to increase Subway’s lead over McDonald’s. It is unlikely that founder Fred DeLuca imagined having this many submarine sandwich shops back in 1965 when he opened his first location.

The Subway Brand

Fred DeLuca was born in Brooklyn, New York in 1947 before ultimately moving to Bridgeport, Connecticut where he grew up. To pay for his college education, he asked a family friend (Dr. Peter Buck, a nuclear scientist) for a $1,000 loan. Instead of loaning the money without conditions, Buck loaned the 17-year-old the $1,000 so that Fred could open a sandwich shop, which he named Pete’s Super Submarines. By 1974, the name had changed to Subway and the duo owned and operated 16 units throughout the state of Connecticut. Subway started franchising in 1974 with its first franchised unit in Wallingford, Connecticut. The concept continued to grow, and by 2013 Subway was reportedly opening over 50 new restaurants per week.

Over the long and storied history of the brand, Subway has seen its challenges. Over its history it has been plagued at different times with franchisee dissatisfaction, litigation, claims that the length of its sandwiches are exaggerated, and among other issues has frequently been mentioned in legislative battles dealing with federal and state regulations targeted at franchising.

As new concepts have emerged with healthy food offerings, Subway's health-conscious brand positioning has come under increasing competition.

Subway has most recently responded by committing to serving antibiotic-free meats in its sandwiches, starting with its rotisserie chicken sandwich rolled out in early 2016.

Although no longer offering international master franchises, subway continues to seek new franchises worldwide. Countries in which Subway sees great future potential include Brazil, Russia, the United Arab Emirates, India, and China.

Becoming a Subway Franchisee

Subway offers regular free seminars where those interested in becoming a franchisee can meet Subway representatives and is also a regular attendee at franchising trade shows and events. The Subway franchising website provides detailed information about how to apply to become a Subway franchisee and also lists existing franchises that are up for sale.

Training

The Subway training course is two weeks long and teaches business concepts, methods of operation, and basic management skills.

The training is offered at Subway's headquarters in Milford, Connecticut, with training also available in Australia, China, Germany, India, Montreal, Canada, and Miami. The training time is spent in a classroom and onsite at a local Subway franchise for a "hands-on" experience. At the end of the two weeks, each potential franchisee must pass an exam to become a Subway franchisee. A total of 8 to 12 employees is required to run a Subway franchise.

Ongoing Support

Support offered by Subway to its franchisees includes purchasing co-ops, grand opening support, a toll-free line, field support, meetings, newsletters, and the internet.

Marketing Support

Subway's marketing support to franchisees includes co-op advertising, regional media, national media, and ad slicks.

Financing

Subway offers in-house financing to cover equipment and the franchise fee, and relationships with third party financing sources for the franchise fee, equipment, start-up costs, and inventory. For veterans, Subway waives the franchise fee if the franchise is opened on a military/government location, or 50% off the franchise fee if the franchise is opened on a non-government location but with government financing.