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Subway Franchisee in Germany not Happy

Article link in Business Week

Birkel and Mauk [former district managers for McDonald’s) thought they could use their know-how to start their own business — as franchisees for Subway, the US sandwich chain. Full of hope, they scraped together their savings, took out a loan for €184,000 ($243,000) and opened a new fast food outlet in the town of Michelfeld in the German state of Baden-Württemberg.

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In the beginning, everything went better than they could possibly have hoped. The Subway system, which allows customers to select their own bread and fillings for their sandwich, was a big hit with customers. The two new entrepreneurs made as much as €16,000 a week.

But after three months, turnover began to decline, eventually averaging out at about €6,000 a week. What with the costs of rent, electricity, personnel, interest and advertising, combined with high prices for tuna, chicken and bread and the fees charged by Subway, in the end nothing was left over for Birkel and Mauk.

“We didn’t earn a single cent even though we ourselves often stood behind the counter for as long as 12 hours a day,” Birkel complains.

After 15 months, bankruptcy was unavoidable — and the restaurant in Michelfeld was sold for just €20,000. “We lost everything we had spent years working for,” Birkel concludes bleakly.

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The franchisees’ objections begin with the English-language franchise contract, which makes a New York City court responsible for arbitration in cases of litigation. On a day-to-day level, the lack of territorial protection for franchisees is more annoying. The DAs are not paid a salary. Instead, they profit from the sale of licenses and receive a percentage of the monthly franchise fees — regardless of whether the franchisee makes a profit or a loss. The system puts the DAs under strong pressure to constantly open new outlets — and they apparently do so without any strategic rhyme or reason. “It’s pure cannibalism,” one franchisee complains.

New franchisees have to pay an initial fee of $10,000 for the right to use the Subway franchise. Subway then pockets 8 percent of their gross turnover, with an additional 4.5 percent going to the company for advertising costs. The fees paid to the sandwich chain are higher than those paid in other systems, raising questions among store owners. “Many Subway franchisees are asking themselves what they get in return for the fees,” says Fassbender.

Dropping about $10,000 a week in sales is a shocker. The required capital outlay by Subway for the opening must have worked, but repeat business and word of mouth just didn’t come through. The franchise groups plan to spend most of their pooled advertising budget on television ads, which may help quite a bit given the huge sales during the grand openings. The articles infers that the problems stem from Deluca’s direction that no capital outlay be made to sell franchises – it is all financed by franchise fees.

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8 comments
anonymous
anonymous

I agree with you. The truth is all Mr Deluca cares about is his money. He is worth billions of dollars but who made him worth that much. The franchisees made him rich (sorry! wealthy)and the franchisee will bring him down too.

Anonymous
Anonymous

That is the main problem with Subway. It isn't as popular in Europe as it is in North America. The reason being are many. For the consumer in Europe they want taste where in the US they want quantities. They export the same business model from the USA and expect it to work in the exact same way in another foreign country. And it doesn't. This is typical of the example we see here in Germany...it just doesn't work the same way...period... Just look out for the next country to go. Another good example is what is happening in Norway...expect Subway to exit the market very quickly...the franchisees have had enough of Subways corporate ignorance and their inability to fix problems and the fact that not one franchisee in Norway is making money, instead they are all going bankrupt...just like all the stores in Denmark did ten years ago...

mrfranchiseman
mrfranchiseman

Frank, careful now. You signed a contract with an arbitration clause. I am not a Lawyer, but have 22 years with Subway and have seen some poor results with lawsuits. Rather than being on "blog" I suggest a private chat before things start to get really whacky for you and you spend your family fortune on a lawsuit that has little hope of going anywhere.... fayaz@mrfranchiseman.com

Frank
Frank

I am a subway franchisee fro Europe. Any idea which lawyer / law firm in the USA is best to open a case against Subway DAI? Do you know who has experiance against DAI? Please help me to find one - than I will open a case that will make banner headlines!! Any idea? Please send me an email or post it here (sir_frank@gmx.net)

rev
rev

my observation is that the subway opened up at 16k, but fell to 6k after a matter of weeks. how is this the fault of subway? the store opened to its potential and then fell off. i would think this is the fault of the operators. just because they had experience in mcdonalds does not mean they know how to run a subway. a drop off in sales is to be expected, but if you offer a poor product and poor service (i would imagine that not being prepared for 16k per week would create long lines and running out of product) you will lose business.

Greg
Greg

That sounds kinda whiney guys I own a subway in VA. I made 100k last year, and I work 5 days a week. When the owner actually works in the store your sales are typically 15% higher thats where the profit is.

Anonymous
Anonymous

I am a Subway franchisee in the states and the same problems exist here. After spending my 401K and my other investments its not worth it. My take home pay is less than $30K per year (and I have two locations). With inflated prices for food costs, the lack of profitibility, and many owners having problems with paying the basics (rent, etc.) Subway has taking advantage of its franchisees for the gain of its corporate name.

Nick
Nick

Problem is that Subway is NOT as famous in Europe as it is here is the US. The first few weeks of operation went fine because they were offering a new product but the obvious lack of brand recognition and advertising killed it!