The cost of purchasing a metro franchise
In the small business sector, many entrepreneurs favor franchise ownership on single business start-ups. With franchise ownership, franchisee entrepreneurs benefit from the licensing of a company’s procedures and processes established with the franchisor. These licensing benefits give the business owner many benefits, including association with an established business and the benefits of an already established branding strategy.
In the fast food industry, Subway is an extremely well established licensor of its sandwich shops. In fact, Subway is the world’s largest fast food company in terms of number of stores. It is one of the most popular businesses to franchise and is also known for having some of the lowest franchise costs. For 2020, it is ranked # 107 on Entrepreneur magazine “Franchise 500 ranking. ”
Metro: an overview
Subway has a long history in the fast food industry. It is a private company that opened its first restaurant in Connecticut by founder Fred DeLuca in 1965 under the name “Peter’s Super Submarines”. Its deep roots have allowed the company to build a strong strategic brand around its sandwiches and the overall fast food experience. Between 2013 and 2017, the company experienced dynamic growth. This growth has helped the total number of stores increase globally to 41,600 in 2019.
The cost of a Subway restaurant franchise
One of the main selling points of a Subway sandwich shop is the low cost of opening a franchise. As a first step in opening a franchise operation, the franchise is usually required to identify a store location and pay the upfront costs. The initial costs of a store site include its real estate and construction expenses. For a Subway company, the total cost of the initial restaurant site is estimated to range from $ 150,050 to $ 342,400, far lower than other competing fast food franchises.
Other costs are involved in franchising the business. An initial startup license fee of $ 15,000 is required to start the business, compared to a license fee of $ 40,000- $ 90,000 for Dunkin ‘(DNKN) or the $ 45,000 fee that Mcdonalds (MCD) charges. Each year, royalties are also required. Subway’s royalties represent 8% of annual gross sales, which is higher than the 5% and 4% that Dunkin ‘and McDonald’s charge, respectively. In addition, the franchisee is required to pay advertising fund charges equal to 4.5% of total gross sales.
The franchise process for a Subway restaurant
One in depth due diligence is necessary for a franchise, and the franchisee must meet a number of specific requirements before entering into a full licensing agreement with a Subway franchisor. The first step to a Subway franchise contractor usually gets approval from the business site. This requires detailed market research and this is also where a large portion of the franchisee’s capital is invested. In addition to obtaining approval for a Subway business site, the franchisee entrepreneur must also have a specified net worth between $ 80,000 and $ 310,000. A need for cash is also usually involved in opening a franchise, and the requirement for a Subway franchisee ranges from $ 30,000 to $ 90,000.
After obtaining site approval and passing capital requirements, the franchisee then enters a license agreement with the franchisor. One of the biggest advantages of a franchise business is the ability to use the company’s operating procedures, trademark rights and branding. Through these licensed business benefits, franchisees can primarily rely on the established marketing of the franchise business for its sales.
Sales of a metro franchise
Both Subway Sandwiches and the Subway business are well known, which helps Subway to be a major revenue producer in the fast food sandwich industry. According to the latest figures available for 2018, Subway achieved sales of $ 10.4 billion.
The bottom line
With the benefits of an established business, low start-up costs, and support from the parent company, a Subway franchise is a good option for entrepreneurs interested in open a franchise business.