NewHavenBIZ

n e w h a v e n b i z . c o m n e w h a v e n B I Z 21 closings in 2016). at downward trend is not abating — if anything, it may be accelerating. For 2018, several hundred Subway stores are expected to be closed or consolidated across North America, according to Subway spokesperson Kevin Kane. In addition, more stores are slated for relocation as the chain moves out of ailing malls and into free-standing locations. If there is a silver lining, it is the fact that even as the company contracts in North America, it plans more than 1,000 new stores across the globe in 2019. France and Germany are hot markets for Subway, along with the Pacific Rim, according to Kane. However, the overall global trend does not favor the chain. Worldwide, Subway finished 2017 with 44,014 stores, down from 44,485 at end of 2016. "I can tell you without a doubt, Subway is dying," one manager told Business Insider this summer. "Business has plummeted over the past few years, the product has dropped in quality, and the overall mood between owners and staff has dropped, but the pushback between [fran- chise] owners and corporate offices has increased immensely." at friction between franchisees and the corporate overseers in Milford has been endemic to Subway for years, indeed decades. But it's a little-told tale outside the Subway extended fam- ily. For one thing, franchise owners are enjoined from communicating with the media any infor- mation beyond basic PR boilerplate, especially anything that might reflect poorly on the brand. But that careful control of the Subway story and image has been eroding since the death of its founder and CEO, Fred DeLuca, in Septem- ber 2015. And over the last 12 months criticism from franchisees has reached a fever pitch. ere are too many Subway franchises, many of them say, corporate has been slow to adapt to rapidly changing consumer preferences in the fast-ca- sual dining marketplace, and corporate pricing policies make it hard and in some cases nearly impossible to operate in the black. at, plus small unit volumes (sales per store) and angry operators who in many cases feel that corporate doesn't care about them. A half-century aer the fact, the tale of Subway's founder, family friend and some extraordinarily good fortune is by now well worn — but continues to exert Horatio Al- ger appeal and a certain magic-pixie-dust charm. In 1965, 17-year-old Frederick DeLuca bor- rowed $1,000 from family friend Peter Buck to open a sandwich shop in a $165-a-month store- front in his adopted hometown of Bridgeport (the DeLucas relocated there from Brooklyn, where baby Fred was born). e ambitious teenager's objective was simple: to earn enough money to pay for college. In a gesture of grati- tude to his benefactor, he named the shop aer him. Recounting his rags-to-riches tale years later, DeLuca would acknowledge that "Pete's Super Submarines" was not a super-success right out of the gate. Moreover, sticking his toe into the waters of radio advertising he made the unwelcome discovery that a lazy reader of his commercial script on air made "Pete's Subma- rines" sound a lot like "pizza marines." A name change was called for. Still, business at the shop languished, though over time DeLuca was able to pay himself enough to help defray his costs at the University of Bridgeport. To create "the image of success," DeLuca opened a second store. en a third. Business must be good, right, or Fred wouldn't keep opening more sub shops? ree years into DeLuca's experiment, the shops were renamed Subway. As well, a cor- porate structure set up to oversee the budding business empire, and a private holding company established under the name Doctors Associ- ates Inc. e "doctor" referred to the Ph.D. in physics held by Buck, who worked for General Electric as a nuclear engineer. ("He's the doctor; I'm the associate," DeLuca oen said.) e collaboration would bring fabulous wealth to DeLuca and Buck. Shortly before the latter's death in September 2015 the value of their stock in the company was valued at $7 billion — or $3.5 billion each. And for his don't- give-it-a-second-thought $1,000 grubstake tendered in 1965, Peter Buck, now 87, owns a 51-percent controlling interest in Doctors Asso- ciates. (e other 49 percent is held by DeLuca's widow, Elisabeth.) In 1974, with more than a dozen Subways now dotting the southern Connecticut land- scape, DeLuca adopted franchising as the key to continued growth. Four years later Doctors Associates open its 100th Subway store, and in 1987 its 1,000th. But that unprecedented growth curve came at a cost: franchise "churn." Subway's appeal to the would-be business owner is elementary: relatively low costs — both of entry into the business and operational costs. To open a Subway store, the initial invest- ment is the franchise fee — $15,000, plus an agreement to pay a royalty amounting to eight percent of gross sales. Continued on next page

• Cover