Subway is putting pressure on its franchisees to spice up sales and profits as the struggling sandwich giant tries to lure a buyer, The Post has came upon.
The country’s largest fast-food chain is urging private equity firms into potential sales by showing them revenue and profits that suggest the corporate could possibly be value greater than $8 billion, in response to two sources with direct knowledge of the method.
Private Subway says it had between $650 million and $750 million in Ebitda last 12 months, or earnings before interest, taxes, depreciation and amortization, in response to sources near the talks. As such, bids are expected to be 10 to 12 times higher, bringing the worth to $7 billion to $8.4 billion, one source said.
Nonetheless, sources say Subway has meanwhile begun to force owners to pay for expensive store upgrades, even as it began waiving fees for prospective owners. The chain also restricts those that need to close loss-making locations.
A longtime East Coast franchisee with a dozen Subway stores recently desired to close two unprofitable stores. This could normally not be an issue as its five-year renewal options expired, the franchisee said.
As a substitute, Subway modified its policy on expiring leases, telling it it will should sell all its restaurants – including profitable ones, a frustrated franchisee claimed.
“Now they are saying you possibly can’t select your options,” he said, requesting anonymity. “If you happen to leave, they take the typical royalties you earned per thirty days over the past three years for length [20-year] agreement.”
He added that franchisees are even chargeable for leasing fees, unless a financially loss-making store is resold. If franchisees resolve to sell, they will only realistically use ReInvest Capital’s self-appointed broker, as all sales have to be approved by Subway, the sources say.
“They’re asking you to sell a store that was value between $200,000 and $400,000 for $100,000,” a West Coast franchisee told The Post.
A Subway spokesman declined to comment.
In line with sources, Subway desires to consolidate ownership of several large operators and move away from the vast majority of milf owners, lots of whom are immigrants. ReInvest advertises large blocks of Subway restaurants on your Instagram pageincluding a package of 74 restaurants in Carolina and a deal for 91 stores in Florida.
“They clean the home and make the brand present to a big investment firm,” said a West Coast franchisee.
To draw buyers to recent locations, Subway waived a $12,500 franchise fee, in response to internal documents. Existing stores are being sold at very low prices, franchisees said.
“Someone just bought two Subways for $1 a store and has a 12 months to rework,” the article reads said an East Coast franchisee. “That is an all-out corporate attack.”
Existing Subway owners must also invest 1000’s of dollars in required upgrades or be fined – and even lose their stores without compensation. Along with store renovations due in 2024, Subway is requiring operators to buy recent $5,000 ovens and $6,250 toasters if current models are greater than 4 years old, as well as recent digital money registers over the following few weeks fiscal.
Last month, the chain rolled out a plan so as to add meat slicers, ostensibly to present shoppers the impression that the deli’s cold cuts are fresh, as in its fast-growing rival Jersey Mike. While the slicers are free, the franchisee could have to pay more under employee’s insurance to operate them, franchisees said.
“They need us to take a position money within the stores now, before an investment company comes along and has to spend the cash,” the West Coast operator said.
Subway sales, meanwhile, are disappointing. The East Coast franchisee said sales are barely up, mostly because of higher prices, but still half of peak.
“Sales are stagnant, if anything, 1% to three% higher,” said a West Coast franchisee.
Subway, which doesn’t own any of the chain’s roughly 20,000 U.S. restaurants and relies on franchisees paying 8% of its gross licensing fee, said sales were up 7.8% last 12 months in comparison with 2021, beating forecasts by greater than 700. USD million.
Publicly traded rivals like Restaurant Brands, which owns Burger King, are trading at 16 times Ebitda – so buyers are in for a treat in the event that they take Subway public pondering of a lower multiple. Bid openings are expected next week. Still, one potential private equity bidder noted that chains such as Restaurant Brands are showing unit growth while Subway just isn’t.
“The primary query is that there isn’t a unit growth within the US, and the second query is what’s the level of earnings stabilized,” an investor told The Post.
Nearly 1 / 4 of all Subway franchises closed their doors between 2015 and 2021 as the corporate loses market share to rivals such as Jersey Mike’s, in response to public records. Nevertheless, there are still over 20,000 US Subway restaurants. This number is steadily decreasing, while there are about 13,000 McDonald’s by comparison.
In line with a non-public equity source, the unit’s growth must come from international openings.
Subway says in its promotional materials that sales per store fell 2% from 2010 to 2020, but increased over the past two years, so it’s now at the identical level as in 2012, a non-public equity source said. Meanwhile, inflation over the past 10 years has increased by greater than 20%.
“That is real operational growth,” said a non-public equity source.