12 Oct 2017 | 12.55 pm
Subway’s Irish Surge As Consumers Chow Down
Sandwich chain doesn't want zero-hour contracts binned
12 Oct 2017 | 12.55 pm
Irish people love their Subway sandwiches. The US fast food business opened its first Irish franchise in Ireland in 1994, two years before it expanded to the UK. Now there are 171 Subway stores in the Republic, with a further 100 in Northern Ireland.
That puts Subway ahead of Supermac’s and McDonald’s in terms of number of outlets. “Ireland is one of the biggest markets for our foot-long sub,” says Peter Dowding (pictured), Subway’s country director for the UK and Ireland. “Our success is being driven by the consumer – it’s what they want to eat.”
Dowding, appointed in 2016, is based in the UK, where there are 2,400 Subway outlets. In Ireland, Subway anticipates that it will have more than 320 stores operating on the island of Ireland by 2020. They will create 400 jobs, bringing to 24,000 the company’s total headcount in the UK and Ireland.
Subway operates as a franchise and franchisees pay a fee of €9,700 to enter the system and then 12.5% of the shop’s weekly income — 8% in royalties and 4.5% for the advertising pool. Depending on location and other variables, Subway calculates that total setup costs for a franchisee store are between €100,000 and €250,000.
“We have about 930 franchisees in the UK and Ireland and 70% of our new franchises sold are to existing franchisees,” says Dowding. “We’re very particular about franchisee expansions; their back-of-house elements need to be spot on before we’ll allow them to open a second store.”
Stores must open for 98 hours per week (14 hours a day), though waivers are negotiated. “For example, some of our city centre outlets might enjoy a very busy lunch trade but see nothing in the evening,” Dowding explains.
On the B2B side, Dowding says that Subway works with a number of Irish suppliers, the two biggest being Evron in Northern Ireland and Dawn Farms. Evron supplies Subway UK and Ireland with one quarter of its bread requirements while Dawn Farms has a seven-year deal to supply Subway with cooked meets for its operations in Europe.
Dowding notes that healthy food and local provenance are key factors now in the food-to-go sector, which has become more competitive with new arrivals such as Freshii and Chopped. “Globally, that’s also the way it is going to continue to go. We recently reduced salt content across our range by 48% and we’re looking at a conversion to non-sugar drinks in our UK and Ireland stores.”
How It Started
Subway’s origins date back to Connecticut in 1965. The venture was dreamed up by Peter Buck and Fred DeLuca as a means of financing DeLuca’s studies to be a doctor. Buck loaned his friend $1,000, partnering with him in the nascent business, which they established as Doctor’s Associates Inc, in a nod to DeLuca’s medical career aspirations.
It quickly became apparent that there was traction in their sandwich shop idea, with its foot-long subs and quick service. Keeping overheads low, they expanded Subway to 16 outlets around Connecticut by 1974. After that, they began franchising and expanding the Subway brand around America.
Subway had grown to 300 US locations by 1982 and opened its first international outlet in Bahrain two years later. Rapid international expansion then took place, with 5,000 outlets up and running by 1990. Subway opened its first Irish store in 1994, while its maiden UK franchise launched in 1996.
The Subway operations now extend to 44,000 locations in 112 countries. In 2016, more Subway outlets were closed than were opened, although the brand still tops the table for total stores operating. US sales fell slightly to $11.3bn in 2016, offset by a 4% gain in international revenue to $5.8bn.
Subway setbacks have included the fate of US spokesman, Jared Fogle, ‘the Subway guy’ who appeared in hundreds of TV commercials. He was ditched from Subway prime time in 2015 after receiving a 15-year jail sentence for sex offences.
More recently, Subway had to publish statements denying that its chicken products are only 50% actual chicken. Subway belatedly caught up with the healthy fast food trend, lowering salt and fat content in its sandwiches, as well as refreshing the menu. The company is still privately owned. Peter Buck owns 50% and after Fred DeLuca died in 2015 his heirs own the balance.
While Subway eyes further growth, Dowding has been tackling bugbears such as taxes and zero-hour contracts. In the UK and Ireland, different VAT rates can apply to quick service restaurants if they serve their food hot or cold. He also points to rising rents and rates as obstacles to growth.
“Governments don’t always see a franchise model as a small business. But it’s a local entrepreneur employing local people, reinvesting in the local community. That’s something we want to highlight more.”
In the UK, a study commissioned by Subway in 2016 found that two-thirds of franchisees employ staff on zero-hour contracts. “Anyone working a fixed amount of hours per week should be on a proper contract – there’s no debate over that,” says Dowding “But what we need to consider in the service industry is that if it’s right for the employee and employer, then there are examples where zero-hour contracts work.”
The government has promised a new Bill to regulate zero-hour contracts later this year. Minister Pat Breen says the purpose of the legislation is “to avoid the contagion of an increase in these practices in this jurisdiction”.
It is envisaged that an employer will no longer be able to engage someone on an employment contract where the stated contracted hours are zero, unless it is genuinely casual, emergency cover or short-term relief work.
Other employees, including people with uncertain hours and those on if-and-when contracts, will also benefit. There will be new rules relating to minimum payments to workers who may be called into work for a period but not provided with that work.
In addition, workers on low-hour contracts who consistently work more hours each week than provided for in their contracts of employment will be entitled to be placed in a band of hours that reflects the reality of the hours they have worked over a reference period. Breen also signalled that the proposed legislation will reinforce anti-victimisation provisions for workers who try to invoke a right under the new law.
Dowding contends that without zero-hour contracts, businesses like Subway cannot function properly. “Take the NEC in Birmingham for example. It opens up when there’s a function and the Subway there is a satellite store that’s supplied by three other stores. The owner has a list of potential workers but he can’t afford to offer permanent contracts to them because that shop does not open every week.”