Subway’s new loyalty program isn’t going over well with a key constituent: The franchisees.
The “Sub Club” program, a modernized version of the chain’s old Sub Club stamp-collecting loyalty program last seen 20 years ago, gives customers a free footlong sub with the purchase of three footlong or six 6-inch sandwiches. To operators, the program is too generous and could exacerbate a problem many of them have with profitability.
“F that,” one operator said, via text, when asked about the program. “The basic concept is fine. The execution is 100% bullshit.”
Franchisees complain that there are no restrictions on whether customers buy those three initial sandwiches via discount, potentially enabling customers to reap more generous rewards than intended.
For instance, a customer could buy three footlong Steak Philly sandwiches on the company’s app using one of the chain’s $6.99 footlong offers. That would earn them a free footlong. If they get another Steak Philly, which in suburban Minneapolis is priced at $13.39 for a footlong, that customer would get $53.56 worth of Steak Philly sandwiches for $20.97, a 61% discount.
The Sub Club is also stacked on top of a more traditional points-based loyalty system, so customers not only get “stamps” when they buy those footlongs they get points to redeem for other items.
Nearly 100% of comments on the program on the company’s internal website, seen by Restaurant Business, expressed frustration with the benefits of the program, arguing that as designed the program is financially unstable.
“Buy 3 get 1 free is financial suicide,” one franchisee wrote.
Subway argued that it is working to shift discounts away from broad-based coupons and other offers into its loyalty program. The company noted that it is reimbursing franchisees for the first 200 free subs given away during the rollout.
And traffic is crucial for a chain with more than 19,000 locations. The company has also struggled with a value perception issue among consumers, many of whom recall the chain’s long-defunct $5 Footlong promotion it ran for years until 2012.
“In today’s competitive environment, delivering value is essential to attract guests, drive repeat visits and increase profitability,” the company said in an emailed statement. “Subway’s updated value strategy, including Sub Club, was developed in partnership with franchisees and grounded in consumer research. It provides immediate value to guests through a simple, rewarding experience designed to encourage repeat visits while reducing overall discounts and coupons in the market.”
“When you look at competitors, this is the richest, most rewarding loyalty program,” Damien Harmon, president of Subway North America, said in an interview with Restaurant Business.
There’s little question that the new Sub Club is the most generous loyalty program among fast-food sandwich chains. Each of Subway’s three biggest competitors—Jersey Mike’s, Jimmy John’s and Firehouse Subs—do not allow customers to get a free sandwich until they’ve purchased 12 subs, depending on the program. That’s a return of about 8%.
At Subway, the return on its Sub Club can range from 25% to 40% based on whether customers stack discounts.
That could make it the most generous program in the restaurant industry, period. Restaurants’ loyalty programs typically return about 10% of what customers spend in various rewards, but the value ranges from one chain to the next.
“You can’t outrun this discount,” one franchisee said, on condition of anonymity.
It’s also more generous than the last version of the Sub Club Subway before it was canceled in 2005. At that time, customers got a free 6-inch sub with the purchase of four footlong or eight 6-inch sandwiches.
Not everybody we spoke with is against the program. One operator on the west coast recalled the $5 Footlong, which helped Subway gain market share during the Great Recession. “I’m hoping for lightning striking twice,” the operator said. But they also estimated that it could require a 13% to 15% increase in traffic for franchisees to break even on the program.
Few operators in comments or in interviews are strictly against the loyalty program. They argue instead that customers shouldn’t be able count discounted subs toward the get-one-free promotion. They also believe that there should be a higher threshold before customers can earn a free sandwich.
Some argue that franchisees will raise their prices as a result. “Buy three get one free will not work,” one operator said in a comment. “That will just make everyone keep upping their prices for survival.”
The new loyalty program is the first major initiative, domestically at least, under the company’s overhauled management team. Jonathan Fitzpatrick took over as CEO in late July, and several other executives have been brought in as well, including Harmon, a veteran of the electronics retailer Best Buy.
They come during a particularly difficult year. Multiple operators say that the brand’s sales have been down all year, and that they’ve worsened since the government shutdown in October.
That’s difficult for a system already struggling with weak sales, weak unit volumes and closing locations. About 8,000 of the chain’s stores have closed domestically over the past decade.
Operators have long said that the company’s over-reliance on discounts has hurt their profitability and made it difficult to sell their subs at full price. “Once you discount, there’s no road back to full price,” one franchisee wrote on the company’s internal website.
“This is a brand-destroying decision,” another said.
Still, Subway argues that the program will win the day if it generates more customer counts. Over time, executives say, those customers will translate into profits. And Subway needs more customers right now.
“Our brand thrives on traffic,” Harmon said. He noted that, if the Sub Club can generate a 10% traffic lift, “the impact on franchisees’ profitability is huge. When they win, we win. Traffic is extremely valuable, and we’ve lost sight of that over the last several years.”
UPDATE: This story has been updated to add comment from Subway.
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