Too many places? The new owner of the subway has to deal with an amazing…

Bloomberg — After winning the Subway acquisition, Roark Capital Group has been awarded a company that recently managed to put a new spin on its business. However, it was inherited Tricky problem: the sheer size of this sandwich chain.

Currently, subway It includes about thirty seven thousand restaurants around the worldTwenty thousand of them are in the United States, and that the company has in recent years significantly reduced the number of its facilities in light of the intense competition environment and proximity between them, which negatively affected sales and put pressure on franchisees. direction It has closed more than six thousand five hundred in the United States between 2015 and 2022, according to foodservice research firm Technomic. However, the data shows that the capital turnover rate for each enterprise is still lower than that of its competitors.

“Subway still has 7,000 more local stores than McDonald’s,” he says. Kevin Schimpf, Director of Research and Industry Insights at Technomic. “I hope they will continue to reduce their network of establishments so that they can increase the average size of units to a certain level that is more attractive to those interested.”

The number of stores released will be among the toughest for Subway under Roark. The chain reported Thursday that the venture capital group is expected to continue with the company’s existing business plan. A Subway spokeswoman told Bloomberg News that management will remain the same under the new owners. without specifying its closing strategy in the future. The company announced several leadership changes on August 16, including a new director for North America.

Subway, which doesn’t run restaurants, has spent decades saturating America with sandwich shops, in part by making shopping relatively easy for its franchisees. This led to rapid expansion, but also attracted small owners with limited capital.

The company has seen revenue growth for some time, however Then the cannibalization began. And while long-term deals such as five-foot submarines attracted customers, they ultimately did not prove profitable for operators. Increased competition and negative press also affected.

Chief Executive John Chedsee, who took over in 2019, helped turn things around. Under his subway It revamped its menu, added home delivery across the country, and began slicing its own hot dogs. He turned to the athletes, including steph Curry, To lead an advertising campaign. That has led to sales growth in recent quarters, though revenue is still lower than it was a decade ago, according to Technomic data.

Recently, the company has focused on attracting larger operators with greater resources. Well-capitalized franchisees find it easier to invest in updating store layouts and installing new technology. Subway signed five such deals in April.

But Subway has yet to attract the biggest players in the industry, he said Alice Millerco-founder of the consulting firm Catalyst Insight Group, A sign that recovery is not over yet. That means the company will likely have to continue closing underperforming locations as it looks to strike new deals with wealthier franchisees.

“Subway is focused on the strategic growth of the brand, which includes ensuring that Restaurants in the right location“The right format, the right image, working with the right franchisees who have operational experience and a passion for the Subway brand,” the company said in an emailed statement.

Subway “invites well-resourced, experienced, and new multi-brand and unit owners” while “strategically partnering with existing franchisees, already in our system, to expand their Subway portfolio.”

A Roark representative did not immediately respond to a request for comment.

Independent stores?

Under Roarke, he said, Subway might buy back some of the franchises and operate the same sites to show how the business could be improved. aaron Allen, CEO of restaurant consulting firm Aaron Allen & Associates. He said the chain is also likely to continue to focus on making its menu more interesting, as well as boosting its takeaway business.

Since many of the chain’s restaurants are still run by family owners, this can be a challenge.

“The biggest problem will be the franchise base,” Allen said. “Whatever your plan is, you have to involve these franchisees.”

In the last years Tensions arose with the franchisees. In 2021, a group of owners wrote an open letter to Elizabeth DeLucathe widow of the company’s former CEO and co-founder, decried the high franchise fees and advertising fees along with inflexible franchise agreements that limit the ability to sell sites.

Roark, who manages $37 billion in assets, owns Deep experience in the restaurant industry, specifically with franchise chains. It controls the parent company of rival sandwich chain Jimmy John’s, which it also operates through its franchisees. Other holdings include Arby’s, Buffalo Wild Wings and Dunkin’.

Metro did not disclose the terms of the agreement. he The value of the agreement is estimated at approx Bloomberg News reported $9.55 billion. Rourke will pay about $9 billion up front, and the rest will be paid in future dividend payments, according to people familiar with the matter.

“What it tells me is that they like the plan. They like to know where management is going to tell them their business is going.” Chas HermanRestaurant industry consultant. “But they are not sure that they will give carte blanche.”

Read more at Bloomberg.com