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Staying Power

Why is Subway still on top? Because of its passionate and involved franchisees, says Subway founder Fred DeLuca.

Making a sandwich is the easy part. The hard part is being named the number-one franchise in Entrepreneur's Franchise 500� for the 14th time--yet Subway has done it. Is it the sandwiches? The healthy brand image? The company leadership? All those certainly have an impact, but what Subway founder Fred DeLuca really credits for his company's success is the franchisees. "This franchisee energy is really amazing in what it brings to the organization," he says. And since they are so vital to the continued success of Subway, we at Entrepreneur wanted to get a picture of these remarkable franchisees--and see how they have changed since Subway started franchising in 1974.

The type of franchisee Subway attracts today remains very similar to the first franchisees ever to hang their Subway shingles. "I'm not sure that [the franchisee] has changed enormously," says DeLuca. "We sell a single franchise to somebody who wants to get into business, so essentially we're working with first-time business [owners]." If DeLuca had to sketch the typical Subway franchisee today, he'd skew male, he'd be in his 30s and he'd already have been out in the work force for a while. There is also a large percentage of new Americans from countries like India, Korea and Vietnam among Subway franchisees. And interest is as strong as ever--the company receives more than 2,000 inquiries from potential franchisees each week.

Unlike 20 years ago, however, just over half of every new franchisee training class is composed of entrepreneurs buying existing franchises from retiring Subway entrepreneurs. Therefore, it is incumbent upon the Subway organization to incorporate both these old and new voices. "The franchisees are uniquely in touch at the local level. They see what's going on in their communities in a way we couldn't ever imagine," says DeLuca. "The organization is helped greatly by their energy and enthusiasm."

It was, in fact, the brainchild of a local franchisee advertising board to highlight Jared Fogle, the famous Subway spokesperson who lost 245 pounds by eating Subway sandwiches, in an ad campaign--which of course eventually went national and helped cement Subway's status as a healthy brand. DeLuca had received a letter from Fogle's mother, thanking him for the healthy Subway food choices that helped her son lose weight, but the national advertising board didn't decide to use his story in its marketing campaign until it proved successful in the Chicago area. "If the franchisees weren't there and we didn't delegate this authority to them, [the Chicago franchisee group] would never have been able to execute this," says De-Luca. "And of course, you can imagine how that changed the course of Subway's history."

Changing the course of history seems to be the business of new franchisees--but, notes DeLuca, it does take time to create the dynamic balance between Subway and its franchisees that inspires this high level of creativity. It starts with choosing the right entrepreneurs, who share Subway's vision. Subway looks for franchisees with the basic skills and understanding of the mathematics to make a franchise location work--along with a conscientious attitude toward making changes as needed. Finally, Subway is looking for new franchisees who value people. "We're very much in the people business in that there are two important groups you have to work with: customers and employees," says DeLuca. "So you really have to understand this isn't a business where you sit in the back room and do calculations--you have to be very concerned about employees and customers, because that's really what's going to bring you success."

Once entrepreneurs open their Subway franchises, they usually take a good four to six months to learn the business and get everything up to speed. And then, after about a year, notes DeLuca, new franchisees tend to get more involved in their local franchisee groups. "Once they feel comfortable--like they know the business--they start participating in the advertising boards and the group business-building initiatives that are done on the local level."

The franchisee voices that make up the local and national advertising boards, the purchasing co-op and the North American Association of Subway Franchisees are steering the franchise into the next phase of growth. With 23,669 restaurants worldwide, Subway is still steaming ahead domestically, with a goal to increase sandwich sales by 50 percent at each of the 20,740 North American locations. And with 2,929 international locations, Subway is well on its way to reaching its goal of 7,500 international stores by 2010.

"The interesting thing is that 7,500 stores sounds like a lot, but that really doesn't scratch the surface [globally]," says DeLuca. "And then, on the North American side, we've actually set what I consider to be our most challenging goal. We believe [50 percent sales growth] is going to be extremely hard to do. Of course, if we succeed at that, our franchisees will do even better than they do today."

Did we say making sandwiches was easy? It sounds more like making history.

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This article was originally published in the January 2006 print edition of Entrepreneur with the headline: Staying Power.

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