Subway's Five-Dollar Footlong Fail? : Planet Money Subway has more restaurants in the U.S. than any other fast food company. It did spectacularly well during the recession thanks, in part, to it's famous $5 footlong deal. But that deal has come back to haunt it.
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Subway's Five-Dollar Footlong Fail?

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Subway's Five-Dollar Footlong Fail?

Subway's Five-Dollar Footlong Fail?

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CARDIFF GARCIA, HOST:

This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.

STACEY VANEK SMITH, HOST:

And I'm Stacey Vanek Smith. And today's indicator is five.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON: (Singing) Five.

GARCIA: As in five-dollar.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON: (Singing) Five-dollar.

VANEK SMITH: As in five-dollar footlong sandwich.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON: (Singing) Five-dollar footlong. It's ca-ca-catching on.

GARCIA: Five-dollar footlong, the signature deal of Subway, the fast-food chain.

VANEK SMITH: And this deal was powerful, iconic. It helped propel Subway to become the biggest fast-food chain in the country in terms of number of locations.

GARCIA: It also helped Subway grow even during the Great Recession of 2008 and 2009, which was a time when many businesses were struggling to stay afloat.

VANEK SMITH: But then this deal - this great marketing engine that had helped propel Subway to the very highest heights of the U.S. fast-food economy started to burn up the very empire that it had helped create.

GARCIA: Yeah. Well, you know what they say. You live by the jingle, you die by the jingle. Nobody says that.

VANEK SMITH: Is that what they say (laughter)?

GARCIA: Nobody says that.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

VANEK SMITH: Just how many locations does Subway have in the U.S.? I think the best way to illustrate this is to compare it to some of its top competitors.

GARCIA: Take McDonald's. There are 14,000 McDonald's in the United States. That's, like, 280 McDonald's per state. But that actually just puts McDonald's in third place for the fast-food chain with the most locations in America. In second place, Starbucks, with around 14,500 locations across the U.S.

VANEK SMITH: Five thousand of them in midtown New York.

(LAUGHTER)

VANEK SMITH: But, you know, in first place, Cardiff, by a country mile, coming in at 25,000 locations across the country, is Subway.

GARCIA: Twenty-five thousand, by the way, is just a breathtaking number of restaurants.

VANEK SMITH: Yeah.

GARCIA: But it's not actually as breathtaking as 27,000, which is how many Subways there were a few years ago in the U.S. So in other words, that number is coming down. Thousands of Subway restaurants have closed in the last few years.

Now, Subway is a private company, so it's hard to get information on it. But those closures were revealed in a regulatory filing and started getting reported last week.

VANEK SMITH: And what this information reveals is that the mighty Subway is struggling.

GARCIA: Subway got started back in Connecticut in the 1960s. It was the scrappy newcomer on the fast-food scene, and it offered something kind of new. Darren Tristano is a restaurant consultant. He runs a company called Foodservice Results.

DARREN TRISTANO: Up until that point, a lot of restaurants were like, hey, you want a burger? This is what comes on it. Oh, you want something different? You're going to be waiting for a while. So this new service that embraced consumer control, customization and really gave the customer a chance to say, I want this and this and this, with a full-view preparation, it made customers feel more engaged and more connected to the brand.

VANEK SMITH: Also, says Darren, Subway was this healthy option.

GARCIA: Is it healthy, though?

VANEK SMITH: OK.

GARCIA: Like, I mean, it's pretty healthy.

VANEK SMITH: Healthy-ish.

GARCIA: Yeah.

VANEK SMITH: Healthy-ish.

GARCIA: Fair.

TRISTANO: But ultimately, it felt fresh because you could see all these fresh ingredients, and that's how customers perceived it.

VANEK SMITH: Perception. You know, it was perceived as healthy-ish. And, you know - and Subway kind of chugged along. It was growing and growing, getting more and more popular. But then, in 2008, Subway struck marketing gold.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON: (Singing) Five-dollar footlong. It's ca-ca-catching on.

GARCIA: Now, a lot of fast-food chains try to push big, splashy deals. But the five-dollar footlong, says Darren, was epic.

TRISTANO: I think they fell in love with the price point.

VANEK SMITH: Well, it's a lot of sandwich for not that much money. It really is. It's a good deal.

TRISTANO: No, it is. Well, I think they pushed the marketing so hard.

VANEK SMITH: Well, I remember. It's like (singing) five-dollar footlong. Like, they have a song and everything.

TRISTANO: Yeah, stuck in their heads. The music...

VANEK SMITH: Yeah.

TRISTANO: ...Stuck it into our heads.

VANEK SMITH: People loved this deal. The economic recession hit, and the five-dollar footlong became huge. It was kind of like the sandwich of the recession.

GARCIA: Subway passed McDonald's in terms of locations in the United States and started approaching McDonald's in terms of store revenue.

Now, Subway itself does not own any restaurants. Those locations are all franchises. In other words, independent business owners pay a fee to Subway to open and operate a Subway restaurant. And they comply with certain rules and certain deals that are established by Subway. For example, the locations agree to use certain ingredients. And they agreed, for example, to roll out the five-dollar footlong. But it is their own business. It is an independent business.

VANEK SMITH: A lot of fast-food restaurants, like McDonald's and Wendy's and pretty much all of them that you can think of, have franchises. But Subway made opening a franchise location really easy and really cheap. A ton of people signed on.

GARCIA: By 2016, there were 27,000 Subways across the country. But then, a few things happened.

VANEK SMITH: First problem - locations, locations, locations. Darren said Subway had gotten a little too loose with the franchises.

TRISTANO: They had expanded and just sold so many franchises that they were opening up very close to each other and cannibalizing each other's sales.

GARCIA: Problem No. 2 - the market changed.

TRISTANO: The customers, especially millennials, were falling in love with Panera for a sandwich, or all of these fast casuals, to go and have a great meal and were willing to spend a few more bucks just to get that quality and feel good about it.

VANEK SMITH: Problem No. 3...

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON: (Singing) Five-dollar footlong.

VANEK SMITH: ...The very thing that had propelled Subway to its heady success.

GARCIA: Speaking of which, that song, by now, is in my head.

VANEK SMITH: I know. It's never leaving.

GARCIA: It's going to be there for a while.

VANEK SMITH: Five-dollar footlong is going to haunt us.

GARCIA: Last year, Subway's CEO announced the death of the five-dollar footlong.

VANEK SMITH: Why did they do it?

TRISTANO: They had to.

VANEK SMITH: Darren points out that it had been 10 years since Subway had launched this deal. I mean, labor costs had gone up. So did food prices and just, you know, prices of everything.

GARCIA: Yeah, of everything. By the way, you want that to happen in a healthy, growing economy. You want there to be just a little bit of inflation - that prices are going up just a little bit. And going up by a dollar over a decade is really not that much.

VANEK SMITH: And probably, nobody would've even noticed, said Darren, except for one thing. (Singing) Five-dollar footlong.

GARCIA: (Singing) Five-dollar footlong.

VANEK SMITH: Subway's Midas touch - that epic deal - it was stuck in people's heads.

TRISTANO: You know, they couldn't meet through a higher price when they were doing the five-dollar footlong and everyone was walking around singing it.

VANEK SMITH: (Laughter).

GARCIA: Subway tried to cling to the five-dollar footlong, but the franchise owner started complaining that they were losing money. And a bunch of them even got together and signed a petition protesting the five-dollar footlong deal, saying to Subway, you can't make us do this anymore. We're dying here. We're going out of business.

VANEK SMITH: And some Subway franchises did go out of business. They started shutting their doors because they weren't making any money.

GARCIA: So Subway caved. It raised the price of the foot-long sandwich to $6. And people - customers - freaked out. They were angry. They wanted their five-dollar footlong.

VANEK SMITH: And now, Darren says, Subway is in this really tough situation. If it raises its prices, it could get within striking distance of those higher-quality options, like Panera or Potbelly.

GARCIA: But if Subway keeps its prices too low, then the franchises can't make money.

VANEK SMITH: Do you think the five-dollar footlong will ever come back?

TRISTANO: I don't think it should come back.

VANEK SMITH: No? Why not?

TRISTANO: I think if they want to stick with a five-dollar sandwich, they should come up with a smaller version. Go to an 8-inch sandwich, charge five dollars and increase the quality because, quite frankly, Americans are overweight. Enough 12-inch footlong. Unless it's two meals, right?

VANEK SMITH: You don't think we need the extra 4 inches of sandwich (laughter)?

TRISTANO: No. So stick with five dollars, drop the footlong and just give Americans the quality that they're asking for and they deserve.

GARCIA: Last year, Subway closed more than a thousand locations. Darren says he thinks that in the next few years, more locations will close.

VANEK SMITH: I don't know. What do you think, Cardiff? Like, (singing) five-dollar 8-inch?

GARCIA: Nah. You lose the alliteration.

VANEK SMITH: Yeah (laughter).

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: This episode of THE INDICATOR was produced by Darius Rafieyan and edited by Paddy Hirsch. Our intern is Willa Rubin. And THE INDICATOR is a production of NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

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