Subway's new weapons in the fast-food wars are winning over customers - but there's a catch

Subway

Subway has added wraps to its menu.

• Subway is trying new tactics to turn around sales, including adding wraps to the menu and debuting a new loyalty program.
• While customers are responding positively to the changes overall, Subway loyalists are less convinced.
• Franchisees are also skeptical that this will fix some of the chain's more ingrained problems.

Subway is trying new tactics to reverse its downward spiral.

The sandwich chain kicked off 2018 with a controversial $4.99 footlong sub deal, despite some franchisees' concerns over its profitability. In February, Subway debuted a long-awaited loyalty program. And, in early March, the chain launched a new line of wraps.

The announcement of the loyalty program gave Subway's reputation a much-needed boost, according to YouGov BrandIndex. On February 22, the day the program was announced, 37% of surveyed adults said they'd consider buying Subway the next time they ordered fast food. That figure climbed steadily to 40% in mid-March.

Interestingly, Subway's current customers had the opposite reaction, with consideration rate dropping from a peak of 75% in late February to 70% in mid-March.

Fixing Subway's ongoing crisis

Courtesy of Subway

Subway's new "Fresh Forward" design, which it introduced last year.

Three franchisees who spoke with Business Insider had similarly mixed feelings. The franchisees - each of whom is from a different part of the US - spoke on the condition of anonymity because of the company's reported history of retaliation against franchisees who speak with the media.

While the $4.99 footlong deal successfully boosted traffic, bringing in more customers, franchisees said their locations were losing money on the promotion.

Subway's corporate executives "need to analyze promotions to ensure they are effective," a franchisee who owns two locations and has been a franchisee for decades told Business Insider.

The franchisee added: "It seems no one in HQ is doing that or they would have realized that continuing this $4.99 promotion is actually negatively affecting both sales and profits."

Wraps seem to have been a more profitable addition, though many locations across the US had already offered the menu category.

"Wraps are terrific," another franchisee said. "We are seeing volume gains from this (modest but real) ... It is a good-looking product and customers really seem to like."

The franchisee said that it was too soon to see sales results from the loyalty program.

"A working loyalty program would be helpful," he said. "Not the big fix, but helpful."

Subway did not immediately return Business Insider's request for comment on how the new initiatives are playing out for franchisees.

However, it may be too late to help franchise owners in more dire financial positions. Subway's traffic has significantly declined in recent years. In 2017, the chain's US store count fell by 909, and executives say that the chain will probably close more locations this year.

A different franchisee who was recently forced to close his last Subway location after 17 years with the company said that the recent initiatives would do little to provide long-term improvement for most franchisees.

"I have not met one happy Subway franchisee yet," the franchisee said. Corporate management is filled with "clowns," and Subway is "like a circus," this franchisee added.

Earlier this year, franchisees told Business Insider that they were concerned about issues such as subpar produce and an inability to keep up with the trends. Many expressed concerns regarding CEO Suzanne Greco - the sister of Subway's cofounder Steve DeLuca - and her abilities to lead the company.

"With so many stores proving to be unprofitable, they need to reexamine their approach," the two-location franchisee said. "I guess time will tell. I still expect store closings."

Subway is attempting to address concerns with changes such as the loyalty program and redesigned locations. The chain is also working to relocate up to 1,000 struggling locations this year - one of the few Subway initiatives that franchisees with knowledge of the situation told Business Insider successfully boosts sales.