Subway, America’s biggest restaurant chain, is doing damage control with its own franchisees after a 26-minute segment on HBO’s “Last Week Tonight with John Oliver” sharply criticized its treatment of them.
Oliver criticized Subway for exploiting its franchisees and being perhaps the country’s worst franchisor during the episode on May 22.
“For decades, franchisees have complained about Subway allowing locations to open near each other and cannibalizing their business,” he said. “Subway could open right next to yours and cut your sales in half. And none of this really affects Subway corporate. They still get their royalty fees on any sale, plus a $15,000 franchise fee for every new store that’s opened. That is why these stores are f***ing everywhere.”
Subway fired back after the segment went viral, having been viewed more than 4 million times on YouTube. The company said Oliver based his segment on old facts and that since John Chidsey took over as CEO in 2019 it looks out more for the owners of its roughly 21,000 US restaurants.
“We are disappointed that a recent episode of Last Week Tonight with John Oliver inaccurately characterized Subway and the support we provide to our franchisees,” said in a message to its franchisees and shared with the media this week.
The chain saw 1,043 more Subway restaurants shuttered in 2021 than it opened, making this a touchy subject for Subway during a time when the company is having difficulty retaining restaurants and finding new franchisees. Subway owns none of its own restaurants.
The British funnyman also poked fun at allegations Subway does not use real tuna and maybe not even real meat in its meatballs.
He put a tray of Subway sandwiches on his desk and noted the smell.
“This entire studio is about to smell like a Subway, which, as we all know is the exact smell of “What if bread could fart?’”
Turning serious, Oliver cited a 2019 New York Post story that detailed how area managers (“development agents”) often find franchisees out of compliance for minor infractions and close their stores so they can buy them for artificially low prices or resell them and collect more fees.
“There’s an incentive for development agents to be overly harsh, because if the store gets multiple violations, that franchisee’s agreement can be terminated and the store can be re-sold, sometimes to the business development agent themselves at a discounted price. One former inspector even described a development agent telling her the exact store owners that he wanted to fail, adding, “I was kind of his hit man.” You know, normal sandwich stuff. “
Public filings show Subway in 2018 took 718 actions against its franchisees and 955 the prior year. That compares to less than 10 per year during that time filed by McDonald’s, Burger King and Wendy’s.
Subway took only 13 actions in 2021 against franchisees as more of the shops struggle to make a profit, a long-time franchisee said.
New York City Subway area manager Restaurex sent its own May 25 memo to local franchisees it oversees, which was reviewed by The Post.
“The segment included misinformation and damaging comment about our food,” it said.
Restaurex also gave suggestions on how to respond to customers who say they watched the segment, especially the part about how Subway exploits its franchisees.
“Most of the information on the show was from more than a decade ago,” it said. “That is not how Subway works today.”
Oliver also mocked Subway for implementing a new franchise agreement last year that forces franchisees to be open every day except one barring “an act of God” — a strict legal term that tends to include only the most severe of natural disasters — or risk being taken over by the parent company.
Franchises can extend their current franchise agreements and pay much higher royalties if they do not want to comply with the new rules that are unusually harsh for the fast food industry, The Post reported at the time when breaking the news about the agreements.
“They recently updated their contract for new and renewing franchisees, which, among other things, expands the non-disparagement clause to include subjecting the Subway brand to ridicule, which, come on, Subway. You’re the one who made your new logo two arrows 69-ing each other. The call is coming from inside the house here,” Oliver quipped.
The HBO host asked rhetorically why anyone would open a Subway.
“And look, lots of the problems you’ve seen tonight exist in some form with almost all franchises,” Oliver said. “But Subway in particular seems like the absolute worst.”
Subway told its franchisees it is worried how Oliver’s segment could hurt them.
“We are concerned that the misleading characterizations made on Last Week Tonight with John Oliver may have a negative impact on our franchisees — thousands of small business owners whose livelihood is serving guests, every day in their communities,” Subway said in its franchisee memo.
“Franchisees are key to our success — when they succeed, we succeed. It is our top priority at Subway to ensure our franchisees have the tools they need to thrive.”