Subway Franchise in 2024: Costs, Fee & FDD
Curious about investing in a Subway franchise? Discover key insights on costs, fees, and potential earnings, along with the comprehensive support system Subway offers to franchisees. Dive into the pros and cons to make an informed decision!
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Subway, founded in 1965 by Fred DeLuca and Peter Buck, has grown into one of the most recognized names in the quick service restaurant (QSR) industry. Originally established to help DeLuca fund his college education, Subway’s concept of fresh, customizable sandwiches quickly resonated with customers. Over the decades, Subway has become a significant player in the fast-food market, distinguishing itself through its commitment to offering healthier alternatives to traditional fast food. With a focus on fresh ingredients and customer choice, Subway has cemented its place in the global food industry.
Subway’s primary offering is its range of submarine sandwiches, or “subs,” which customers can customize with a variety of breads, meats, cheeses, vegetables, and sauces. Beyond its core sandwiches, Subway also offers salads, wraps, and a selection of beverages and sides like chips and cookies. Catering services for events and gatherings are another important aspect of Subway’s business. The franchise primarily serves a health-conscious demographic that values fresh and customizable meal options, attracting families, professionals, and health enthusiasts alike. Subway’s “Eat Fresh” slogan underscores its commitment to quality and customer satisfaction.
Today, Subway operates more than 37,000 locations across over 100 countries, making it one of the largest QSR franchises in the world. In the U.S. alone, there are approximately 25,000 Subway restaurants. The franchise serves millions of customers daily, making it a ubiquitous presence in both urban and rural areas. Subway’s extensive reach ensures that it caters to a diverse customer base, with each location designed to meet the unique tastes and preferences of its local market. This global footprint not only underscores Subway’s popularity but also its adaptability to various cultures and cuisines.
Subway offers robust support for its franchisees, including comprehensive training programs that cover every aspect of running a Subway restaurant. New franchisees undergo an intensive two-week training program at Subway’s global headquarters, followed by additional on-site training. The franchise provides ongoing support in areas such as marketing, operations, and supply chain management, ensuring that franchisees have the resources needed to succeed. Subway also offers a variety of tools and resources to help franchisees with site selection, store design, and employee training. This extensive support network is a testament to Subway’s commitment to the success of its franchisees, making it an attractive option for potential investors.
Subway Franchise Insights
- Subway’s “Footlong” sandwiches, introduced in the late 1970s, became an iconic product and significantly boosted sales, with the promotion of “$5 Footlongs” driving substantial customer traffic during the 2008 recession.
- Subway’s Fresh Forward design concept, launched in 2017, modernizes the restaurant’s look with digital menu boards, USB charging ports, and a more vibrant, welcoming atmosphere to enhance the customer experience.
- Subway’s unique franchising model allows franchisees to open new locations with a relatively low initial investment compared to other QSR brands, making it an accessible opportunity for entrepreneurs.
- The franchise offers a wide array of healthy options, including sandwiches with under 400 calories, appealing to health-conscious consumers and distinguishing Subway in the competitive fast-food industry.
- Subway’s extensive menu customization options cater to diverse dietary preferences and restrictions, from vegetarian and vegan choices to gluten-free bread options, ensuring a broad customer appeal.
- Subway’s “Subway MyWay Rewards” program, which has millions of members, encourages customer loyalty and repeat business, providing franchisees with a steady stream of regular customers.
Subway Franchise Key indicators
Net Unit Decrease 2017-2023
6,631
Consecutive Years Negative Net Unit Loss
7+
Total U.S. Franchised Units
20,133
3-Year Failure Rate
17%
vs industry 11%
How much does it cost to open a Subway franchise?
Understanding the potential investment size and capital requirements is crucial when considering opening a Subway franchise. These financial commitments, including initial franchise fees, equipment costs, and ongoing operational expenses, impact the feasibility and profitability of the venture. Thoroughly evaluating these factors ensures that potential franchisees are prepared for the financial responsibilities and can make informed decisions about their ability to sustain and grow the business, ultimately contributing to long-term success.
Min & Max Investment
Opening a Subway franchise involves several key costs, which are outlined in Item 7 of the Franchise Disclosure Document (FDD). You can see a breakdown of the costs to open a Subway below from the most recent Item 7 below:
| Type of Expenditure | Minimum Investment | Maximum Investment |
|---|---|---|
| Initial Franchise Fee | $15,000 | $15,000 |
| Real Property | $2,000 | $12,000 |
| Leasehold Improvements | $75,000 | $200,000 |
| Equipment, Furniture and Décor | $106,785 | $208,845 |
| Optional Security System (not including monitoring) | $2,450 | $3,550 |
| Freight Charges (varies by location) | $8,000 | $14,000 |
| Outside signage | $2,000 | $8,000 |
| Opening Inventory | $4,400 | $6,050 |
| Insurance | $1,000 | $6,000 |
| Supplies | $500 | $1,300 |
| Training Expenses (including travel & lodging) | $2,500 | $4,500 |
| Legal and Accounting | $1,000 | $3,500 |
| Grand Opening Advertising | $2,000 | $4,000 |
| Miscellaneous Expenses (business licenses, utility deposits, & small equipment) | $4,000 | $8,000 |
| Additional Funds - three months | $12,000 | $42,000 |
| Total | $238,635 | $536,745 |
Item 7 in the Franchise Disclosure Document (FDD) is the “Estimated Initial Investment” section. It outlines the total costs a franchisee can expect to incur when starting a franchise, including the initial franchise fee, equipment, inventory, real estate, and other startup expenses. This section is crucial because it provides potential franchisees with a detailed understanding of the financial commitment required, helping them assess affordability and plan their investment strategy effectively.
Required Capital
To open a Subway franchise, the required capital involves both the initial investment costs and a net worth requirement set by Subway corporate. Let’s take a closer look below:
- Investment Assuming that you can obtain financing, you should have at least 20% of the total investment available to invest in the form of equity (cash).
- Liquid Assets Prospective franchisees generally need to have at least $30,000 to $90,000 in liquid assets. This estimate can vary based on the specific location and market conditions.
- Net Worth The recommended minimum net worth to open a Subway franchise is around $80,000 to $300,000. Again, this can vary based on the specific circumstances of the franchise location.
How much does a Subway franchise owner make?
Calculating the salary of a Subway franchise owner involves analyzing gross sales to determine total revenue, assessing operational efficiency to understand profit margins, and accounting for franchisor fees and additional expenses such as rent, utilities, and payroll. Effective management of these factors can significantly impact the profitability and financial success of a Subway franchise owner. This comprehensive financial analysis helps estimate net profits, from which the owner’s salary can be derived. A clear understanding of these factors ensures accurate salary projections and financial planning for sustainable business operations.
Subway Revenue & Gross Sales
In 2023, Subway franchises achieved an estimated average gross sales of $490,000, reflecting a 4% increase from the previous year. This strong financial performance underscores the brand’s robust consumer demand and potential for lucrative returns for franchisees.
Which key factors impact the average revenue performance of Subway franchisees?
The growth of U.S. franchisee average gross sales revenue for Subway in recent years can be attributed to several key factors. The implementation of the Fresh Forward design likely enhanced the customer experience, attracting more foot traffic and increasing sales. Additionally, Subway’s strategic menu innovations, such as introducing new and popular items, coupled with effective national marketing campaigns, helped boost customer interest and spending. The expansion of digital ordering and delivery services also played a significant role, catering to changing consumer preferences and increasing convenience. Finally, ongoing improvements in operational efficiencies and franchisee support likely contributed to better overall performance and profitability.
Subway Franchise Operational Costs
When opening a Subway franchise, key primary ongoing operational costs to consider include:
- Rent Monthly rent for the restaurant location, which can vary based on the lease agreement and location.
- Utilities Costs for electricity, water, gas, and other essential utilities.
- Labor Wages and benefits for employees, including managers, sandwich artists, and other staff.
- Supplies and Inventory Ongoing purchase of fresh ingredients, packaging, cleaning supplies, and other inventory.
- Maintenance and Repairs Regular maintenance and any necessary repairs to equipment and the facility.
- Insurance Costs for business insurance, including liability, property, and worker’s compensation.
- Technology Fees Expenses related to POS systems, software subscriptions, and digital services.
- Miscellaneous Expenses Additional costs such as licensing fees, professional services, and local marketing efforts.
These costs are essential to manage for maintaining smooth operations and ensuring profitability.
Subway Franchise Fees
Owning a Subway franchise is different from owning an independent, non-franchised business. All franchises tend to charge ongoing fees that franchisees are required to pay to operate. Subway requires their franchisees to pay the below fees:
- Royalty Fee This is a monthly fee paid to Subway, typically calculated as a percentage of gross sales. For Subway, this fee is usually 8% of the restaurant’s monthly gross sales.
- Advertising and Marketing Fees Franchisees are required to contribute 4.5% of gross sales to a national advertising funds.
- Additional Fees There are additional fees for training programs, technology, and other items provided by Subway that may be applied.
These ongoing fees are essential to consider when planning the financial aspects of owning and operating a Subway franchise. They cover the costs of brand support, advertising, and ongoing operational assistance provided by Subway.
Subway Franchise Earnings
The earnings of a Subway franchise owner can vary significantly based on a variety of factors including location, sales volume, operational efficiency, and cost management. However, on average, Subway franchise owners can earn a significant income.
Subway franchisees have an average gross sales of $490,000. Based off of the average gross sales, we can estimate a Subway franchisee makes $74,000 in estimated earnings (EBITDA) per year, assuming that the franchisee is an owner-operator in the location. This means that you can consider the salary of a Subway franchise owner to be roughly $74,000 before interest, taxes, depreciation, and amortization (EBITDA).
If the franchisee is semi-absentee, then earnings will be significantly lower based off of the costs of having a hired manager.
How to Open a Subway Franchise
Becoming a Subway franchisee involves several steps, starting from the initial inquiry and culminating in the commencement of business operations. Here’s a comprehensive overview of the process:
-
Initial Inquiry and Research
a. Contact Subway: You or your franchise specialist submits an initial inquiry basic information about your interest and background.
b. Research: Conduct thorough research on the Subway franchise, including seeing all of the information available on the Vetted Biz franchise intelligence platform, including access to the most recent Franchise Disclosure Document (FDD).
2. Application Process
a. Submit Application: Complete and submit a detailed franchise application form, which includes personal, financial, and business background information.
b. Initial Screening: Subway reviews your application and conducts an initial screening to assess your suitability as a franchisee.
3. Meeting and Evaluation
a. Interview: Attend an interview with Subway’s franchise development team to discuss your qualifications, goals, and business plan.
b. Background Check: Undergo a background and financial check to ensure you meet Subway’s criteria.
4. Franchise Disclosure and Agreement
a. Receive FDD: Obtain and review the Franchise Disclosure Document, which contains detailed information about the franchise, including fees, obligations, and earnings potential.
b. Consultation: Seek advice from legal and financial advisors to fully understand the terms and implications of the FDD.
c. Sign Agreement: If satisfied, sign the franchise agreement and pay the initial franchise fee.
5. Site Selection and Approval
a. Select Location: Work with Subway’s real estate team to find a suitable location for your restaurant.
b. Site Approval: Submit the selected site for approval by Subway, ensuring it meets their criteria for visibility, accessibility, and market potential.
6. Training and Preparation
a. Training Program: Complete Subway’s comprehensive training program, which includes classroom instruction and hands-on training at a certified training restaurant.
b. Store Setup: Oversee the construction or renovation of the store, ensuring it meets Subway’s design and operational standards.
c. Hire Staff: Recruit and train employees to ensure they are prepared for the restaurant’s opening.
7. Grand Opening and Operations
a. Pre-Opening: Conduct a pre-opening inspection and finalize all operational details.
b. Marketing Launch: Implement a marketing plan to promote the grand opening, leveraging Subway’s national and local marketing support.
c. Grand Opening: Open your Subway restaurant to the public and begin operations, providing excellent service to attract and retain customers.
Following these steps will ensure a smooth transition from prospective franchisee to successful Subway restaurant owner.
Pros & Cons
Pros
Brand Recognition: Subway is a globally recognized brand with a strong customer base, which can drive foot traffic and sales from day one.
Low Initial Investment: Compared to other QSR franchises, Subway typically requires a lower initial investment, making it more accessible for many entrepreneurs.
Flexibility: The Subway franchise model allows for flexible store formats, including traditional and non-traditional locations like airports, gas stations, and campuses.
Strong Marketing: Subway’s national and regional advertising campaigns help drive brand awareness and customer loyalty.
Cons
High Competition: The sandwich and fast-food market is highly competitive, with many alternatives available to consumers.
Market Saturation: In some areas, the market may be saturated with existing Subway locations, which can limit growth potential and market share.
Operational Demands: Running a Subway franchise requires hands-on management and attention to detail, which can be demanding and time-consuming.
Menu Limitations: While Subway’s menu appeals to health-conscious consumers, it may not attract those looking for more indulgent fast-food options.
Franchisee Regulations: Franchisees must adhere to Subway’s strict operational guidelines, which can limit creativity and flexibility in business decisions.
Economic Sensitivity: Like many QSR franchises, Subway’s performance can be sensitive to economic downturns, impacting consumer spending and sales.
