FRED DELUCA, the CEO of subway, opened his first Subway restaurant in Connecticut in 1965 with just US $1000 borrowed from a friend of the family.
Subway now has more outlets in the USA and Canada than MacDonald’s. And the company is growing rapidly with eight new outlets opening worldwide every day.
One of the reasons of Subway’s phenomenal growth is that the franchise fee is relatively cheap. A subway franchise fee costs less then €10,000 and unlike a franchise with Hilton Hotel Crop, for example, you do not have to invest a small fortune in furniture and fittings. A subway shop can cost less than €100,000 to equip.
What exactly is a franchise and how does it work?
Once a company like Subway has established itself and can show that its business model works, it can offer its trademark or name to other companies or individuals. They pay an initial franchise fee to use the name and a certain percentage of the gross profit or turnover. The franchisee also has to fulfil the franchisor’s Corporate Identity standards, for example, the stores and outlets have to be equipped and fitted in a certain way or the staff may have to wear a special uniform. But the risk for the franchisee is minimized-they are buying a well-know and established brand with tried and tested products or services which consumers can identify with. They know what to expect whether they are in Beijing, Bombay or Boston.
Franchising is a simple, but effective way of expanding rapidly, however, as Fred DeLuca discovered it takes time and a great deal of hard work to establish your company’s name and reputation. It took Free DeLuca nine years before he felt the time was right to open the first franchised Subway sandwich shop ... and it wasn’t on the other side of the globe, but just a 40 minute drive from Fred’s first shop. It wasn’t unit 1984, almost 20 years after going into business, that the first Subway franchise opened abroad – and not in Canada, Mexico or Europe as you might expect, but Bahrain.
As Subway soon discovered, franchising is an excellent business model if you are thinking of going global. A franchisor does does not need to worry about the laws or taxes of the foreign countries it operates in; it doesn’t need to relocate staff to set up and run subsidiaries abroad; nor does it need to offer language training or cross-cultural courses to staff. The franchisee is responsible for running the business on a day-to-day basis and making sure it complies with the legislation of the country it operates in.
Subway currently operates in more than 86 countries ... so if you have a good idea, such as how to make and sell a submarine sandwich, perhaps you should consider franchising if you want to go global.