Why Subway Might Be In Worse Shape Than It Seems

There are some mistakes Subway can never erase, but you don't have to look back very far to recognize the common thread throughout many of the restaurant's public relations nightmares. While maintaining its footing as the "largest quick service restaurant chain in the world," the sandwich shop often finds itself playing defense with regard to claims about its ingredients — including a lawsuit that claimed the premium tuna was falsely advertised when some people weren't convinced Subway's tuna is real (via Washington Post).

Other examples include reports from late 2021 on the quality of Subway's jalapeños and an appetite-killing discussion on Reddit in which self-identified Subway employees identified the menu items no one should ever order from their store — such as anything made with Subway's turkey, which one purported Subway employee described as smelling like farts. But apparently, even if people think Subway is gross, they're still eating a lot of Subway sandwiches and salads. In fact, not only are they keeping Subway in business, but Subway actually reported record-setting sales for 2021, via press release.

But do these numbers really mean that Subway's business is on the upswing? The chain might be in worse shape than its 2021 sales would tend to suggest.

On Tuesday, February 22, the CEO of Subway, John Chidsey, announced via press release, "Subway's 2021 sales results indicate we have the right team and strategy to bring our multi-year transformation journey to life." Chidsey was referring to Subway's 2021 financial results, which showed Subway's U.S. sales as having exceeded projections by nearly $1.4 billion." In addition, throughout 2021, 75% of Subway locations experienced a 7.5% increase in same-store sales, compared with 2019. And in December, alone, sales were up 8.7% for that same comparative period.

But some industry insiders are looking askance at Chidsey's interpreting Subway's increased sales throughout 2021 to mean the company's transformation is on track. In fact, Chidsey didn't draw much of a through-line between the sales numbers and the suggestion that Subway may be experiencing a reputational renaissance. More significantly, however, it does not appear that Chidsey's interpretation takes into account the rising inflationary rates throughout 2021, per MarketWatch. As one restaurant industry analyst, John Gordon, pointed out to the NY Post, the uptick in Subway's 2021 sales is pretty much right in step with the rate of restaurant menu price inflation. 

That means that not only is Subway potentially in worse shape than its 2021 sales might make it seem, but also that Subway's numbers may actually be nothing more than a harbinger of the current inflation-driven economic crisis.

An uptick in your sales revenue would seem to suggest good things for a business, but that's not necessarily the case. To understand why some restaurant industry analysts do not share Subway's optimistic view of its 2021 sales results, start by imagining you're the one with the business. Let's say, you sell widgets for $1 apiece. Presumably, you chose that price because it left room for a profit after you took into account the expenses you incur in the making, advertising, and selling widgets. But thanks to ballooning inflation that may cause restaurant prices to increase, you can't make that same profit unless you raise your prices to $1.07. Since inflation is endemic, your widget customers have enough extra cash to pay the higher price. Accordingly, you sell the same number of widgets, but now your sales figures are up by 7%.

In other words, instead of an actual uptick in business, you're just treading water, trying to stay afloat as economic factors conspire to raise prices overall. This may or may not be the case with Subway because it has not known at this juncture how much of Subway's 2021 sales growth was actually attributable to inflation. However, at least one Subway franchisee who wished to remain anonymous suggested the number may be significant enough to warrant concern that Subway isn't doing as well as its sales number might seem to suggest (via NY Post).