The Controversial History Behind the Rise and Decline of Subway

The young founder of Subway had zero experience making sub sandwiches when he started the company. After initial failure, how did Subway surpass McDonald’s to become the largest fast food chain in the world? This is the story of struggles, lawsuits, and controversy behind Subway’s journey to success and recent decline.

Humble Beginnings With Just $1,000

In 1965, 17-year-old Fred DeLuca was determined to become a doctor but lacked the money for medical school. Working at a hardware store for just $1.25 per hour, Fred had no idea how he could pay for college. Growing up poor in the Bronx, his family barely scraped by in public housing.

At a barbecue, Fred asked family friend Peter Buck, a wealthy nuclear physicist, for a loan to pay for school. Unexpectedly, Peter suggested Fred open a submarine sandwich shop instead. Fred had never made a sub before and didn’t have money to start a business. However, Peter proposed a partnership where he would provide a $1,000 loan and Fred would manage daily operations.

In 1965, Fred used Peter’s $1,000 loan along with help from his mother to open “Pete’s Super Submarines” in Bridgeport, Connecticut. On opening day, they sold 312 sandwiches under $1 each. But after initial hype, sales plunged. Fred’s lack of experience caused the shop to fail. At summer’s end, Fred was left with just $6 in the bank.

Bold Expansion Despite Early Struggles

Most would have closed up shop after initial failure. But Fred and Peter made a daring move – they opened another restaurant to portray success. Hoping multiple locations would boost perceived credibility, the partners rebranded to “Subway” in 1968.

Aggressively targeting visibility, Subway’s next locations were in prominent, high-traffic areas. This led to first profitable year, earning $7,000. Reinvesting profits to expand, the duo grew Subway to 16 Connecticut locations by 1974.

Franchising Fuels Rapid National Growth

Rapid expansion caused inconsistencies between locations. With only two years to reach their 10-year goal of 32 units, franchising provided the answer. Rather than self-operating all units, Fred could license the brand to entrepreneurs.

In 1974, Subway began franchising – signing 15 franchisees that year. By 1981, Subway went national with 200 U.S. locations. The next year, 100 more opened. Franchising enabled exponentially faster growth compared to company-owned units.

Peter became a silent partner, though he earned substantial returns on his original $1,000 investment. Fred built an empire through franchising, collecting $7 million in royalties each Monday at Subway’s peak.

Controversial Relations With Franchise Owners

Fred intensely micromanaged franchisees, contributing to their struggles. He had no qualms pursuing franchisees’ wives at company events. Many franchisees felt tricked into unfavorable contracts or claimed corporate fraud.

In 1998, 40% of franchisees said they barely got by. Fred saturated markets with excessive locations, pitting Subways against each other. He callously stated, “It bothers me that people lose money, but I don’t lose sleep over it.”

The sales team targeted immigrants, who often didn’t fully grasp binding contracts in their non-native language. Requests for comprehension tests were rejected – salespeople just wanted to sign more deals regardless of risk to franchisees.

Stunning Growth Through Non-Traditional Locations

Subway went international in 1984, unusually starting in the small Arab country of Bahrain. Speculation suggests it was an ideal testing ground before larger markets.

Obsessed with expansion, Fred constantly set seemingly impossible store opening goals. Yet Subway somehow achieved them, spreading to non-traditional sites like gas stations, hospitals, military bases and even a fake FBI town. Subway would open anywhere, fueling rapid global growth.

The Rise and Fall of Subway’s Celebrity Spokesperson

In the 1990s, Subway marketed their sandwiches as a healthier fast food choice with fresh ingredients. Capitalizing on this image, Subway hired Jared Fogle as spokesperson in 2000 after he claimed to lose 245 pounds eating Subway.

Fogle’s incredible weight loss story made him a celebrity. His ads increased sales by 20%, responsible for up to half of Subway’s growth. But in 2015, Fogle’s home was raided and he was charged with child sex offenses.

Subway immediately cut ties, though his ex-wife sued the company for allegedly knowing about his criminal behavior but ignoring it for profits. The Fogle fiasco dealt lasting damage to Subway’s family-friendly image.

Health Claims and Lawsuits Tarnish Brand Reputation

Without Fogle, Subway’s health claims crumbled under scrutiny. Lawsuits alleged dangerous chemicals in bread, fake tuna, too much soy in chicken, and short footlong sandwiches. Subway challenged the accusations, but settled some cases after enormous PR damage.

In Ireland, claiming bread was a “staple food” to avoid taxes backfired when the government found it contained too much sugar to legally qualify as bread. Subway’s healthy branding was destroyed.

Founder’s Death Precedes Years of Decline

Fred dreamed of surpassing McDonald’s since Subway’s early days. By 2011, Subway had the most global locations. But Fred wouldn’t see Subway’s peak, dying in 2015 before planning leadership succession.

Since his death, Subway has declined with location counts dropping each year. One-third of U.S. stores are reportedly unprofitable from overexpansion. And without innovation, Subway has stagnated.

While still massive, Subway seems to be in gradual decline. But with its size and history of overcoming adversity, Subway may just have another comeback story in the works. Only time will tell what the next chapter holds.