Subway Could Shrink to Smallest Size in Years as California's $20 Minimum Wage Does Major Damage
The Subway chain is shrinking in a trend that could grow now that California’s sky-high minimum wage for fast food workers is in effect.
Subway closed 733 American stores in 2023, according to the New York Post.
Although it added 396 stores and acquired some others, overall the chain’s store count dropped by 443.
Overall, Subway began 2024 with 20,133 American stores. It started 2023 with 20,576 stores.
In November, CEO John Chidsey estimated a net loss of about 100 stores.
“We’ll be treading water in the U.S. at worst,” Chidsey said.
Subway peaked with about 27,000 locations in 2015 and has declined every year since then.
Also, in 2023, unit volumes were 25 percent where they should have been to keep pace with inflation, according to the website Restaurant Business.
John Gordon, a restaurant analyst at Pacific Management Consultant Group, told the Post that the April 1 hike in the minimum wage for fast food workers from $16 per hour to $20 per hour was only going to hurt the restaurant chain.
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“They are still hemorrhaging stores,” Gordon said. “Subway is still a troubled brand in the U.S.”
The Post cited sources it did not name as saying labor costs represent 28 percent of a Subway outlet’s costs, which means an increase in wages could cut profits.
“Subway is no longer the most popular chain in the world this year after closing hundreds of stores. McDonald’s has taken the lead with 40,000 stores. Subway and Starbucks follow with 38K and 33K stores each. At a distant fourth is KFC. Pizza Hut beats out Burger King for…” pic.twitter.com/qZnWNxsH07
— Dr. Elden Wayne Whalen III, ShD (@wayne_effect) April 8, 2024
“You’ll see a lot more people deciding to close when their leases expire,” a California franchisee the Post did not name said. “Why would I choose to stay open if I was only scraping by?”
The Post said price hikes of between 7 and 10 percent have been many franchise’s responses to the higher wage.
Some outlets want to reduce the hours they are open, which would cut labor costs.
Private equity firm Roark Capital, which owns Dunkin’ Brands, Arby’s and Jimmy John’s, is trying to buy Subway for $9.6 billion.
The Federal Trade Commission is reviewing the deal.
This article appeared originally on The Western Journal.
