What Germany may Teach Subway

I have had what can best be described as an up-and-down relationship with the Subway chain of sandwich shops. I was certainly very impressed with their efforts to promote a greater variety of healthy offerings than could be found at McDonald's; and, if the numbers that now have Subway replacing McDonald's as the number one fast food chain in the United States are correct, then I would like to believe that this emphasis on healthy food had something to do with it. On the other hand I am always trying to track "customer experience," even where fast food is concerned; and, while Subway may have the infrastructure for accommodating a greater variety of customer needs, I have not been particularly happy with how those demands are being met at the most local level (meaning the shop closest to where I live). I have tended to spot-check this particular site before the lunch demand hits its peak, which gives me a somewhat more leisurely setting in which to observe. What I have seen is a shop with two people behind the counter. One is a manager who engages only with the other person. That person is the only one making sandwiches; but, even after several weeks on the job, she is still not familiar with the basic model of options. This means she has to think about every order of an case-by-case basis. She has not been doing this very well, and her manager has not been doing anything to provide assistance. As a result, I can no longer call this a "fast food" outlet; and what gets delivered is nothing like it used to be.

I was willing to view this as a local problem, best solved by not going to the Subway shop any more, until I read Klaus-Peter Kerbusk's account at SPIEGEL ONLINE about the hard time that Subway has been having expanding into the German market. The bottom line is that, while the initial venture into Germany got off to a good start, the current numbers indicate that the franchises are now having a very hard time at being profitable; and some of them are just plain failing. More specifically, Bernd Fassbender, president of the Franchisee Association Germany, told Kerbusk, "A conservative estimate would be that 30 percent of the Subway franchisees in Germany are just scraping by at the subsistence level."

So what's the problem? Kerbusk decided that the best way to address the question would be to look at the franchisees, since they were the ones losing money and therefore hurting the most from the problem. Here is what he observed:

The franchisees' objections begin with the English-language franchise contract, which makes a New York City court responsible for arbitration in cases of litigation. On a day-to-day level, the lack of territorial protection for franchisees is more annoying. The DAs [development agents, responsible for opening new outlets] are not paid a salary. Instead, they profit from the sale of licenses and receive a percentage of the monthly franchise fees -- regardless of whether the franchisee makes a profit or a loss. The system puts the DAs under strong pressure to constantly open new outlets -- and they apparently do so without any strategic rhyme or reason. "It's pure cannibalism," one franchisee complains.

The selection procedure for new franchisees is also controversial. Unlike McDonalds, where new franchisees go through a one-and-a-half-year training program, the DAs hand out licenses after a two-week course. They are happy to give them "to anyone who can read and write," complains Romberg, who is also the chairman of the National Franchisee Board Germany (NFBG), an association founded by German Subway franchisees to represent their interests.

In other words the problem is a systemic one concerned with how, at the top level, Subway has decided to run its business; and that problem may trace back to the fact that the business is still run by the founder, who started with a single sandwich stand in Bridgeport, Connecticut in 1965. Furthermore, if the problem is systemic, then one is as likely to encounter it in the United States as in Germany. I am certainly willing to believe that my own local dissatisfaction can be accounted for by the Subway approach to training; and, since, according to Kerbusk, Subway's founder continues to expect operations to be financed by the franchises, rather than through a higher-level budget for "strategic advances," that approach is unlikely to change. (As an aside, however, I need to emphasize that this should not be taken as an endorsement of McDonald's. If they still have a one-and-a-half-year training program, the staff I recently encountered at an outlet in Santa Cruz did not appear to have benefited at all from it!)

As I said at the beginning, I have a lot of admiration for a fast food operation that appreciates the value of healthy offerings. Such a position is actually rather impressive for a business that got its start in 1965. Unfortunately, the founder still appears to be locked into the mindset of that single stand in 1965 business conditions. He is now beginning to feel the pinch of the ways in which the world has changed, and it remains to be seen how he will respond.