The Controversial History of Subway: From Struggles to Success

Subway, the popular fast-food chain known for its fresh sandwiches, has a history filled with struggles, success, and notable controversies.

Founded by Fred DeLuca at just 17 years old, Subway’s journey has seen it rise to become one of the largest fast-food chains in the world.

This article explores the remarkable story of Subway, the challenges it faced, and how it managed to overshadow larger competitors like McDonald’s.

The Humble Beginnings of Subway

In 1965, Fred DeLuca dreamed of becoming a doctor. However, being the son of Italian-American immigrants and working at a hardware store for a mere $1.25 an hour, he had no way to afford medical school.

His turning point came during a barbecue at the home of his family friend, Peter Burke, a nuclear physicist. Instead of offering a loan, Peter suggested opening a submarine sandwich shop.

Despite having no experience in the food industry or any money of his own, Fred took Peter’s advice.

With Peter’s $1,000 loan and help from his mother, he opened his first sandwich shop in Bridgeport, Connecticut, initially named Pete’s Super Submarines.

The launch was promising; they sold 312 sandwiches on the opening day, but as time passed, sales plummeted, leaving Fred with only $6 by the end of summer.

The Turning Point and Rebranding of Subway

Rather than give up after their initial struggles, Fred and Peter decided to take a bold step: they opened additional locations to create an illusion of success. In 1968, they rebranded to Subway, simplifying their name and increasing visibility.

Their ambitious goal was to open 32 locations within ten years. By focusing on prominent locations and improving their marketing strategies, they achieved their first profitable year by 1974, earning $7,000.

The duo’s success attracted attention, leading to significant growth. From a single location, Subway expanded to 16 branches in Connecticut by 1974.

However, inconsistent operations across locations presented challenges, prompting Fred to consider franchising as a solution.

The Franchising Model: A Game Changer

In 1974, Fred and Peter made a groundbreaking decision to franchise Subway. This model allowed them to expand rapidly without the burden of managing each location themselves.

Franchisees would pay to set up their own Subway restaurants while adhering to the established format and menu.

This shift led to remarkable growth. By 1981, Subway had expanded nationally, opening 200 locations in the United States and 100 more the following year.

The franchising model proved effective as it required lower startup costs compared to other fast-food giants like McDonald’s and Taco Bell.

Subway locations began popping up in various unconventional spots such as gas stations, airports, and hospitals, allowing for rapid expansion.

At its peak, Fred was reportedly receiving checks worth about $7 million every Monday from ongoing royalties from franchisees.

However, while this model benefitted Fred and Peter immensely, many franchise owners faced significant challenges.

Franchisee Struggles and Controversies of Subway

Despite Subway’s rapid growth, many franchisees reported issues with the company. Fred’s micromanaging style led to frustrations among franchise owners.

Some claimed they were misled into signing contracts that were overly restrictive and often difficult to understand, particularly for immigrant franchisees.

In fact, 40% of Subway franchise owners reported struggling just to break even by 1998. Compounding these issues was Subway’s strategy of opening multiple locations in close proximity, creating intense competition among franchisees.

The consequences of this aggressive expansion strategy became evident as dissatisfaction among franchise owners grew.

Many alleged that the contracts they signed were unfair and included clauses that prevented them from speaking out against Subway.

Legal Challenges

Subway faced numerous legal challenges over the years. In 2017, several franchise owners spoke out against the company’s slogan “Eat Fresh,” claiming that ingredients were often subpar and arrived only once a week.

Many reported receiving mushy vegetables and faced repercussions for attempting to source better ingredients on their own.

In addition to these operational complaints, Subway found itself embroiled in numerous lawsuits related to its marketing practices and food quality claims.

Accusations ranged from using chemicals found in yoga mats in their bread to misleading customers about ingredient content.

Marketing Strategies: The Rise of Jared Fogle

In the 1990s and early 2000s, Subway adopted a marketing strategy that emphasized healthiness—a key differentiator from other fast-food chains.

They promoted their sandwiches as fresh and customizable, leading to claims of having 4.9 billion possible combinations.

A significant boost came when Jared Fogle became the face of Subway after claiming he lost 245 pounds by eating two sandwiches daily.

His success story resonated with audiences, leading to a substantial increase in sales—reportedly by 20% after his first commercial aired.

However, this partnership turned disastrous when Fogle was arrested in 2015 for crimes involving children. The backlash was immediate; Subway cut ties with him but still faced severe reputational damage as questions arose about their knowledge of his actions prior to his arrest.

The Downfall: Lawsuits and Declining Sales

Following Fogle’s scandal, Subway’s reputation deteriorated further due to ongoing lawsuits regarding its marketing claims and product quality. Allegations surfaced about misleading ingredients and poor food quality that contradicted their health-focused branding.

In 2016, an investigation found that Subway’s bread contained significantly more sugar than typical loaves, prompting investigations into their tax claims regarding bread classification. The fallout from these controversies led to declining sales and disillusioned franchisees.

The Legacy of Fred DeLuca

Fred DeLuca passed away in 2015 after battling leukemia. At the time of his death, he had amassed a net worth exceeding $3 billion but remained notoriously frugal.

His vision and determination transformed Subway from a single struggling sandwich shop into a global fast-food empire with 44,000 locations at its peak.

However, without Fred’s leadership and vision, Subway struggled to maintain its competitive edge in the fast-food industry.

Franchisees reported that one-third of U.S. locations were unprofitable due to oversaturation and declining customer interest.

The Future of Subway

Today, Subway remains a significant player in the fast-food market but faces numerous challenges. Despite its past controversy, Subway faces fierce competition from other chains that innovate their menus and marketing strategies.

With ongoing efforts towards revitalization and addressing franchisee concerns, Subway has the potential to turn things around. Whether it can reclaim its status as a leader in the fast-food industry remains uncertain.

Conclusion

Subway’s journey from a single failing shop to becoming one of the world’s largest fast-food chains is a testament to resilience and innovation amid numerous challenges. However, its story is also a cautionary tale about aggressive expansion and the repercussions of neglecting franchisee satisfaction.

As Subway navigates its future amidst evolving consumer preferences and intense competition, it must focus on rebuilding trust with both its customers and franchisees to secure its place in an ever-changing landscape.

For more insights into business stories like this one or details about successful marketing strategies, explore additional resources related to subway franchises or fast food industry trends.

Additional Resources:

• Franchise Opportunities at Subway
• Fast Food Industry Trends
• Jared Fogle’s Impact on Subway

By understanding the nuances of Subway’s history, we can gain valuable insights into the dynamics of entrepreneurship and franchise management that apply across various industries.