When everything is going well, owning a franchise location of a restaurant can be a small business owner’s dream come true. For a relatively small startup investment, you can be part of a billion-dollar brand. You don’t have to spend all that time and money on market research about products or advertising campaigns; everyone in your town already recognizes the golden arches or the stylized bell or cowboy hat logos of popular restaurant chains, and chances are, they already know what they want to order the first time they set foot in your location. When you are a franchise owner, building a rapport with your customers is the easy part; it’s dealing with corporate that is more challenging. If you are considering opening a franchise location of a restaurant chain, a Birmingham business & corporate litigation attorney can help you brainstorm solutions to disputes that may arise with the company’s corporate offices and can help you resolve disputes if they happen.
Subway’s Troubled History With Franchise Owners
If owning a franchise location of a fast-food restaurant chain is a small business owner’s dream, Subway was one of the most popular choices until recently. At its peak in 2015, it was the third largest restaurant chain in America. Subway has not done as well during the pandemic as other fast-food restaurants have; it relied heavily on the business lunch crowd in search of a quick, healthy, affordable meal, and many of its locations are in airports, mall food courts, and other venues that went eerily quiet during the pandemic. With any franchise business, the franchise owners’ fortunes rise and fall with those of the brand, and franchise owners knowingly take that risk.
With Subway franchisees, though, the biggest disputes with Subway corporate hinge on decisions that enrich Subway corporate at the expense of the franchise owners themselves. First, Subway charges franchisees higher royalties than most restaurant chains do; Subway owners pay corporate eight percent in royalties, whereas for most other chains the royalties are closer to six percent. Even worse, the five-dollar footlong sandwich promotion is a financial drain on franchisees. Loss leader promotions are an effective marketing strategy in the retail sector; under ordinary circumstances, if a Subway franchise sells one fountain drink for every two five-dollar footlongs it sells, it will make up for the loss. Meanwhile, the price of meat has skyrocketed during the pandemic, making the promotion even more expensive for franchisees. Worst of all, when franchisees complain to corporate, the solutions Subway offers them include punitive provisions like promising not to say anything negative about Subway or its business practices. (Young people will recognize this as the kind of dirty dealings that got multilevel marketing companies banned from TikTok.)
Let Us Help You Today
A business law attorney can represent your company in disputes with the franchisor if it is making it difficult for you to operate your franchise location of a restaurant or retail store successfully. Contact Cloud Willis & Ellis for help with your case.