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2007 Franchise of the Year

They've come out on top of our rankings 15 times. Now Subway has its sights set on taking over the world.

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Some might think celebrating a 15th anniversary is a time for leisure and reflection--a time to sit back, rest on your laurels and cozy up with old habits. Not for this franchisor. With an astonishing 26,197 locations worldwide, it's the 15th time that Subway has claimed the top spot in Entrepreneur's Franchise 500® --and the franchise is as ambitious as ever. Subway's success begs the question: How much can one franchise system grow? Where corporate types might see limits, entrepreneurs like Subway co-founder Fred DeLuca see only opportunity.

And Subway is seeking like-minded franchisees who share its entrepreneurial vision. "For a franchise system to work well, you really need people with an entrepreneurial mind-set," says DeLuca, "because while you have a large, overarching system that everybody has to work with, a lot of local issues have to be handled."

Those traditional entrepreneurial traits, such as the abilities to think on your feet and solve problems creatively, are just the sort that have helped keep the Subway brand fresh and relevant in an ever-changing fast-food market, says DeLuca. "There is always redevelopment of the market going on," he says. "Parts of cities are changing, new shopping centers are being built, new housing is being built, and we always have to be scouting those new markets."

A ground force of entrepreneurially minded franchisees with an eye toward innovation has helped develop those new markets--and has been instrumental in the growth of Subway's more than 6,000 nontraditional locations in places like convenience stores, hospitals, schools and even inside retail stores such as Wal-Mart. An all-kosher Subway, located within a Jewish community center in Cleveland, recently made headlines as a successful example of this strategy to expand into innovative locales. "The key is to try to accommodate the needs of the customers and bring the food to where the customers congregate," says DeLuca. "And that requires a lot of local initiative. Some of these entries into nontraditional markets would never have occurred if we had to do it from the corporate level."

However, there have recently been some rumblings of discontent in the franchisee run organizations. The Subway Franchisee Advertising Fund Trust and the North American Association of Subway Franchisees have brought lawsuits against Subway corporate, Doctor's Associates Inc., alleging that DAI's recent changes to its franchise agreement take control of franchisee advertising funds away from independent franchisee boards and give it to Subway corporate. DeLuca contends that DAI's decision to change the franchise agreement was to compel the advertising fund to adhere to Subway's transparency policy--to disclose information about SFAFT's expenses and decision making, for example. "That's a point of contention," says DeLuca, "and we're working through it right now."

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This article was originally published in the January 2007 print edition of Entrepreneur with the headline: Full Speed Ahead.

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