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22 n e w h a v e n B I Z n e w h a v e n b i z . c o m But that sum buys you only the right to use the Subway name and trademark. Significantly, it does not buy franchisees any a measure of geographic exclusivity — a territory in which your Subway can operate without internecine competition. You still need real estate, renovation/construc- tion costs, equipment (typically leased from cor- porate), insurance, security, legal and accounting costs, signage and of course inventory. According to Franchise Direct, the estimated financial range for setting up a Subway restaurant for the first three months of operation can range from $90,000 to more than $325,000, depending on local real estate costs and whether the location is a "traditional" (standalone) or "non-traditional" (housed within another business, most oen a service station or highway rest stop) franchise. It costs far more to open a McDonald's than a Subway. According to franchise disclosure doc- uments (FDDs) for 2017, the initial investment amount for a U.S. McDonald's franchise falls between $1 million and $2.2 million. In 2017, the average initial franchise invest- ment to open a Subway on the U.S. was $233,325, with leasehold improvements (average $142,100) comprising the lion's share of that sum, accord- ing to Subway's FDD. In addition to opening costs, Subway has had a liquid cash requirement of at least $30,000 — an amount the franchisee must have in savings and able to access quickly in the case of emergencies and setbacks — and also to account for a franchi- sees normal living expenses before the franchise unit begins to generate a profit. Which some never do. DeLuca himself acknowledged the risks. "I really feel terrific that so many people have done so well," DeLuca told Fortune magazine in a 1998 article about Subway's franchising model. "But there are risks. People can lose money. It bothers me that people lose money, but I don't lose sleep over it. is is America." I n 1994 Fred DeLuca set a new goal of 5,000 Subway stores — he liked big, round num- bers. Soon that goal became 10,000. (His last reported goal before he died, according to QSR magazine: 100,000 stores by the year 2030.) at unprecedented growth was fueled in part by highly paid "development agents" — contrac- tors who for decades grew Subway store counts in putatively exclusive territories and supervised their day-to-day operations. DeLuca's triumph has ironically been Subway's downfall — too many locations. DeLuca "made his money from the franchise fee," a former cor- porate employee said, adding: "e more stores he opened, the more dollars he made." at would soon begin to change. With con- sumer tastes trending toward healthier fare and a host of new competitors such as Panera enter- ing the "fast casual" market, Subway traffic in 2012 flattened then began to trend downward.` e year that changed everything in Milford, however, was 2015. at was when longtime Subway TV pitch- man Jared Fogle was arrested and later went to prison following conviction on child-pornog- raphy and child-sex charges. A former airline employee who claimed he had lost 245 pounds eating "only" Subway, Fogle had helped give the chain a patina of healthy cred. en, on September 14 of that year, Fred DeLuca died. While on a business trip to visit franchises around the country that summer he had been diagnosed with leukemia. He was 67. As befits a closely held company that traced its roots to family confabs around the dinner table, Subway did not look far afield for a successor. Fred's younger sister, Suzanne Greco, started working at Subway as sandwich maker ("sand- wich artist") at age 16 in 1973. Immediately aer graduating from college at Sacred Heart she joined the chain's corporate staff and had worked at Subway ever since, primarily in research and development — an area where some franchisees feel Subway has fallen short over the years. Following her brother's death she became president and CEO of the company Fred DeLu- ca had built from the "pizza marine" days up to global domination. From all accounts it was not a good fit. Greco did not own stock in the company and had not been on the Doctors Associates board. "She surrounds herself with people who won't nec- essarily challenge her," one franchisee said soon aer her ascension to her brother's office. "A lot people in the industry feels that Su- zanne is not qualified to be the CEO of the com- pany," another franchisee told Business Insider. "She tells us like she is doing us a favor while franchisees are losing everything they own." is May Greco announced that she would retire, effective June 30. Greco, who lives in Woodbridge and Ft. Lauderdale, Fla., did not respond to interview requests for this story. T he fast-food industry may be the most com- petitive industry in the United States. McDonald's spends tens of millions of dollars each year on site selection. Burger King spends just a tiny fraction of that – mainly, BK simply opens new stores near new McDonald's locations. Subway franchisees fear competition as much as any other business owners. But it is a cruel irony that the competition they fear more than any other is from other Subway stores. at's because in many locations there are simply too many Subways, meaning too many franchisee owners are chasing too few potential customers. New Haven (population 129,000) has at last count nine Subways. Milford (population 52,000) has six. In the same communities Mc- Donald's has five and two stores, respectively. In addition to Subway saturation within in- dividual markets, many franchisees have been in open revolt against corporate for years for policies that they deem inimical to their ability to survive. In a franchise business in which 100 percent of franchise units are owned independent of the company, friction between the corporation and its franchisees seems inevitable. Policies set in Milford in recent years have been squeezing the bottom line of already marginal businesses, says Mark Shearer, an Ohio attorney who has represented about a dozen franchisees in arbitration proceedings. Shear- er has worked with Subway operators in and around Cleveland in disputes with development agents, the subcontractors who oversee Subway stores on behalf of the parent corporation. De Luca's overweening obsession with opening more restaurants has always increased pressure on franchisees, Shearer says. One independent owner saw Subway open four more stores close to his Cleveland-area franchise, lo- cated in a community of only 55,000 people. "It's just not a workable model when you have that many restaurants with the same exact concept competing with each other." In a more competitive market, development agents are increasingly taking over franchises and operating them in competition with indi- S U B WAY 'There are risks. People can lose money. It bothers me that people lose money, but I don't lose sleep over it. This is America.' - Subway founder and CEO Fred DeLuca, Fortune magazine (1998) Continued from previous page

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