Subway used to be a very popular, supposedly health conscious sandwich shop just a couple years ago, but since 2015 they have been on a rapid decline closing 1100 locations in 2018 alone. So what happened to Subway and why are they failing? Make sure to stick around till the end to find out. Welcome Tahari's hobbies. So I'm going to be going over the top 5 reasons for Subway's recent demise, but first, here's some quick history.
It all started over 50 years ago when Peter Buck, a nuclear physicist, suggested to a college student, Fred DeLuca, to start a submarine sandwich shop. This was in an effort to help pay for Fred's tuition who wanted to become a medical doctor. Peter initially invested $1,000 in the company and they opened the first store in Bridgeport, Connecticut in 1965 and the store is called Pizza. Subway. They opened that store and all following stores based on three main core principles.
Providing exceptional service, providing high quality menu items for affordable prices, and maintaining low operating costs. And these served as the foundation for Subway. They found incredible early success and they were rapidly expanding opening 16 submarine shops by 1974. But despite this great success, they were only halfway to their goal of 32, and as a result, they started to franchise and after they started franchising subway experienced explosive growth adding even more than a thousand stores several years and Today they're the largest sub green sandwich shop in the world having over 40,000 location globally Unfortunately Fred never did go to medical school Even though he could eventually afford it and he served as the CEO until 2015 when he tragically died of leukemia And this was exactly the start of the decline one of the biggest issues One of the biggest issues that have plagued the franchise over the last 15 years is over-expansion.
At the end of 2006, the chain had a little over 20,000 locations, but by the end of 2011, they had over 25,000 locations. That's nearly 5,000 more stores and a unit growth of 22%. This would actually make sense in the 1990s when they were becoming popular for the first time and were experiencing explosive growth. Over from 2006 to 2011 was the 2008 economic recession. recession which was the biggest economic recession in the last 75 years.
And during this time period, restaurant revenue across the board went down, so it's very unusual that Subway was expanding at such a high rate during this time period. Many operators of Subway say that they open new locations of Subway in order to prevent competitors from coming in. But this is really not a good way to approach this as this not only hurts the consumers with their lack of choice but also the operators by losing money with the other location. And this rapid expansion didn't slow down even after traffic to Subway stores across the world started to decline. From 2012 to 2016, Subway's unit count grew by 7% which is over 2,000 more stores.
It took Subway quite a while to actually realize that they had way too many stores, over 25,000 just in the US alone. This is higher than any other food chain in America by a lot including Starbucks and even McDonald's. In 2016, In 2016, they finally started closing stores with 355 that year and 900 more following in 2017. And as I said at the start of the video, 1100 stores in 2018. And I do think that this is the right choice for the franchise as they have been over expanding for about a decade. And over the last couple of years, Subway's two main marketing campaigns have largely died out completely. This is because Jared Foggle, the guy with the really big pants who made Subway look healthy got arrested for child predator offenses in 2015. FOGO was at the center of creating a healthy perception of Subway and even other sandwich chains.
This perception had carried on for several years, and obviously it is not a good thing when your main spokesperson gets arrested. But Subway's sales and traffic were declining even before his arrest in 2015. And this is because Subway is struggling to move away from their old marketing campaign which is the $5 footlong. The company may have kept the offer for way too long which made it very difficult for difficult for them to move away from it.
This is very similar to how McDonald's struggled a lot during the same time period trying to move away from the dollar menu. Subway really struggled to overcome the loss of value perception that many people held. And since then, Subway has really struggled in creating a strong marketing campaign without Foggle or the 5-hour footlong.
And this is terribly bad, especially during a time when their unit counts were increasing. Overall, their inability to create another successful marketing campaign The company's recent campaign after loss of their two main marketing campaigns has really hurt the company over the past couple of years. They suffered.
significant losses by trying to push for breakfast onto the menu. In 2010, they put a lot of effort and money into promoting their breakfast items. But the addition of breakfast items have really not helped Subway sales over the last decade.
And the reason for this is that it is very hard to change people's breakfast habits. Usually people are very tired and mindlessly follow a routine that they have set up. It takes a lot of time and effort to actually change the breakfast routines of customers.
And clearly, Subway was not the only company that did this. was not very successful at this task. And the problem is that there are very strong competitors in the breakfast arena already. Stores such as Dunkin Donuts, McDonalds, and Starbucks have already engraved themselves as the breakfast option for many people. This failure to bring in more revenue as Subway has grown expanded and added more stores is a major issue for Subway.
Not only has its effort not brought in more money for Subway, but it has also wasted a lot of their time and money. Something that Subway What Subway hasn't had to deal with for a long time is competition once Quiznos died out. But recently, Subway's decline is also partially due to rising competition. In just 2016 alone, Subway's domestic sales decreased by about $200 million.
But the domestic sales for its competitors actually rose by over $200 million. A combined revenue increase for their four biggest competitors, Jimmy John's, Jersey Mike's, Fire Subs, and Potbelly. is $540 million.
So clearly, this is not an issue of the whole sandwich industry declining. It's just a much different market with a lot more competition than just a decade ago. Back then, Kuzno's had over 4500 locations and had a market advantage in terms of toasting.
But by adding toasters and pricing subs at $5 apiece, Subway wasn't really able to hold their own against this competition. But since then, new competitors and new strategies have risen up. For example, Jimmy John's offers delivery which Subway has not even bothered with. As a result, while Jimmy John's has fewer units, they are a much stronger and serious competition for Subway.
Subway really has to start paying attention to what their competitors are doing and offer something unique and better in order to keep their customers. And the last major problem that Subway has faced over the last couple of years is internal issues. Experts are not sure if a decline in sales causes internal issues or if internal issues decline in sales, but most of them think that it's a combination of both of these problems.
Their internal problems have been well documented by several news outlets. For example, Business Insider claims that operators want a new CEO in order to guide the company in the right direction. The New York Post states that Peter Buck, the co-founder of Subway, thinks that they need to add more premium sandwiches in order to attract more traffic. And of course, there's the death of Fred DeLuca, who was the founder and CEO since the very beginning.
Regardless of who is right and what direction the company should take, this internal strife has really hindered Subway's ability to make the right choices in order to make the company grow once again. In the end, can Subway survive? And the answer to that is absolutely if they make the right strategic decisions going forward. If they close down X's unprofitable source, get a new leader with a strong focus, and market with a clear purpose, they can definitely start to grow again. They are only in the initial stages of decline right now, and they could easily walk away from all of this without incurring massive losses.
Several restaurant chains who have been in much worse positions have been able to fully recover by completely reinvigorating the brand by investing more money. Several primary shareholders are also on board with reinvigorating the brand and have committed $25 million. In a couple of years, we will be able to see if all of this money was spent in the right places. But that's all I have for you guys on Subway, make sure to comment down below what company you would like me to cover next. Also, if you guys liked this video then make sure to drop a like and consider subscribing if you'd like to see more videos just like this one.
But until then, I'm Hari and I'll see you guys on the next one.