Subway franchise: the history

by Krystena Petrakas


Subway franchise: the history

Fred DeLuca opened his first sandwich shop when he was 17 years old in order to fund his college tuition fees.

Now the Subway co-founder has a net worth of $1.8bn, with 33,337 franchises in 92 different countries making over $13bn a year.

DeLuca initially had dreams of becoming a doctor, but a family friend, Peter Buck offered him a $1,000 loan and suggested the young scholar open a shop selling submarine sandwiches; a novelty food named because of the long oblong-shaped bun.

In 1965, DeLuca and Buck opened their first joint venture in Connecticut, which was then called Pete’s Super Submarines. The entrepreneurs struggled, and at the end of the summer DeLuca had a measly $6 remaining.

Still optimistic, Buck led the opening of a second restaurant and DeLuca said they wanted “to create the image of success”. However, it wasn’t until their third eatery, which they gave a different name, ‘Subway’, that the enterprising duo made a profit, earning $7,000 in its first full year.

Psychology graduate DeLuca very much had the mindset of the ambitious entrepreneur as the fast-food magnate planned to open 30 restaurants within 10 years. Falling short of his prediction, by 1974 DuLuca and Buck operated 16 Subways throughout Connecticut.

DeLuca believed franchising was the future, and convinced a friend, Brian Dixon, to become the first franchisee

The pair had difficulty keeping all 16 locations cohesive and meeting the same standards, and so decided it was time to franchise the business model. DeLuca believed franchising was the future, and convinced a friend, Brian Dixon, to become the first Subway franchisee, setting up in Wallingford in New Haven.

In the same year another 14 franchises sprung up. Meanwhile DeLuca and Buck continued to tinker with the business until they found a winning formula.

Dedication to customer satisfaction and high quality, fresh food were Subway’s core policies and the backbone of the Subway franchise network. DeLuca also followed the KISS (Keep It Simple Stupid) theory, whereby simplicity is expounded as one of the cornerstones of good business.

DeLuca’s marketing-driven, hands-on approach helped Subway continue its rapid expansions and in 1978 the chain opened its 100th store. DeLuca was relentless in finding new customers to foster further growth. “I passed by lots of doors that were not my customers,” he recalled. “I have to sell to these people because it doesn't take any more time to drop the papers in front of these doors – I'm walking by anyway.”

Subway boasted a key advantage over the rest of the fast-food sector, insofar as its product was perceived as comparatively healthy. Capitalising on this image as a healthy burger alternative, the chain began baking bread in-store, a process that became compulsory and was cited as a key reason for Subway’s accelerated growth throughout the 80s and 90s.

In 1984 the company went international. But it wasn’t South American, Europe or mainland Asia that was identified as the next market; the island of Bahrain, off the coast of Saudi Arabia, hosted the first Subway outlet outside of North America.

In 1987 Subway reached a milestone, opening its 1,000th store and by 1998, the company had over 10,000 stores in the US alone. In the same year Subway opened its first restaurants in Hong Kong, Italy, Northern Ireland, Norway, Pakistan and the United Arab Emirates and soon enough few countries were not familiar with the dilemmas of choosing a foot long or a six inch, honey oat or hearty Italian bread.

Subway regularly wins awards for being the most effective, supportive franchise system and it’s hard to think of a brand more guaranteed to generate a substantial income for aspiring entrepreneurs. Small wonder that DeLuca, who remains CEO and still takes a keen interest in the company right down to outlet-level, is widely admired by Subway franchisees.

One store owner told Nation’s Restaurant News: “Fred understands franchisees better than most presidents because he started out very poor. He knows the value of a dollar and the hard work it takes to make sandwiches, wash floors and clean bathrooms. He came from there.”

Subway also signed a license agreement with the American Navy to provide Subway outlets aboard US military vessels. The first store on a military base opened in 1989 at Pearl Harbour Station in Hawaii and by 1997 there were restaurants operating on 17 US army bases.

In 2000, Subway launched a media campaign starring Jared Fogle, also known-as ‘The Subway Guy’, who claimed to have shed 17 and a half stone within 11 months eating only Subway sandwiches. A credulous American public bought the story and sales at the chain soared following the advertising campaign.

Being seen as a purveyor of healthy, fresh food was core to the brand’s image, so it was no surprise that among the many slogans trialled by the company, that ‘Eat Fresh’ was the one that stuck. Truly an exemplar of marketing, in 2008 the ‘$5 Foot long’ promotion became the company’s most successful campaign.

Despite the emphasise on the brand’s supposed dietary advantages, it was McDonald’s, copping much of the blame for America’s obesity crisis, that was always seen as its biggest rival.

Dick Pilchen, Subway’s first ever employee and now vice president of marketing at the company, recalls: “Even when we were small, Fred always thought we should compete with McDonalds. He probably won’t be happy until we surpass McDonalds in size” – which they duly did in 2002 when Subway officially overtook McDonald’s in terms of the total number of outlets in America.

About The Author

Krystena Petrakas 
Krystena Petrakas read English and American Literature at Manchester Metropolitan University and graduated in July 2009. She provided content for the university magazine throughout her student years, and now edits BusinessWings for Dynamis.
 
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