Subway Restuarant Chain — predatory franchiser!
I've been involved with the subway chain for a long time. They used to be legitimate, but over the years I have seen drastic changes. Today subway headquarters (aka doctors associates, inc.) is the worst bunch of crooks and con artists in the industry, and they are ruining store owners lives. Much of this can be verified on line by following the links to published documents, articles, congressional reports, forums and court hearings.
Read fortune magazine archives on how this chain led by president fred deluca has caused a record number of unhappy franchisees, defrauded landlords and violated laws. Discover why after a six year study, u.S. House of representatives' dean sagar concluded: "subway is the biggest problem in franchising and emerges as one of the key examples of every abuse you can think of." says cliff marshall, a franchise consultant for more than 30 years: 'if anyone in my family ever asked whether they should buy a subway, I would say absolutely not, no way. A subway franchisee who asked to remain anonymous for fear of retaliation said the system "is a total mess." go here learn more: http://nextraterrestrial.com/pdf/FDeluca-Fortune%20March%2016%201998.htm
Learn how deluca violated connecticut's unfair trade practices act by pressuring independent sfaf board members to block owners he didn't like from running for office. Apparently he has no respect for legal statutes or fair play. Go here to learn more: http://franchisepundit.com/index.php/2005/05/28/what-to-learn-from-this-subway-lawsuit/
Read how deluca's franchise agreement forces owners with a legitimate grievance to submit to arbitration where there is no jury, few rules, and the outcome is binding. Arbitration companies compete ferociously for subway's business and deluca knows how to stack the deck in his favor. Florida attorney keith kanouse says, "i've seen over 300 franchise agreements, and subway's is the worst." go here to learn more: http://franchisepundit.com/index.php/2005/07/05/subways-deluca-loses-battle-with-franchisees/
In a perfect example of poetic justice, the wall street journal recently announced that deluca lost a nasd arbitration claim, in which he alleged the ubs caused him $193 million in damages. Not only did the deluca trusts fail to recover any of their losses, they also were ordered to pay $50, 000 to reimburse ubs for document-production costs. Store owners were delighted to hear deluca got a taste of his own medicine, but some worry that it will only fire his drive to abuse them more. Go here to learn more: http://markjakubik.com/2007/07/10/subway-founder-loses-nasd-arbitration-not-a-big-surprise/
If you think subway owners make good money, think again. A store owner in the us nets less than $26, 600 in profit, barely above the poverty level for a family of five. To earn a decent income, they must often work 60 to 70 hours a week and invest in multiple stores. The main problem is encroachment of stores. Even with more than 28, 000 subway's already open, they keep building more. The result? Average revenues per store are down some 8% from when they peaked way back in 1994! Go here to learn more: http://books.google.com/books?id=yNFN1OpnkBkC&pg=PA100&lpg=PA100&dq=subway+franchisees+lowest+paid&source=web&ots=l-dgtBas1-&sig=Of1ObbDdfXuZsckQcO2Vp54RAV4&hl=en
Consultant marshall estimates that 25% of franchisees are unhappy and suffering, while about 40% are "just getting by and making a few dollars. Barely a third are happy and doing fine, though many of those owners are also development agents who control the number of competing subways in their vicinity." steve sager, a departed subway agent estimates that half the franchisees in the northeast are suffering. What does deluca have to say about this? "it bothers me that people lose money, but I don't lose sleep over it. This is america." I imagine deluca and co-owner peter buck sleep pretty soundly indeed, both being ranked by forbes as the 207th richest men in america. Go here to learn more: http://www.forbes.com/lists/2005/54/BNPG.html
For most people, reaching billionaire status would be enough, apparently not for deluca. He recently rewrote the franchise agreement, stripping owners rights and doubling already inflated royalty fees for stores out of compliance of written guidelines. It also eliminates protection against encroachment, encouraging development agents to stack stores. He even added a loophole to take back the lucrative subway advertising trust which he vested to owners decades ago. Owners can't renew their agreement or open a new store unless they agree to the new terms. Almost immediately field inspectors began bloating corporate profits through increased compliance fines. Ignoring past policy, inspectors now mark owners out of compliance in several areas for each deficiency! Go here to learn more: http://findarticles.com/p/articles/mi_m3190/is_23_40/ai_n16463127
Even more unconscionable, deluca devised a scheme to rip off owners by claiming high internal loss is royalty theft. Using proprietary software, he sniffs out owners suffering from excessive shrinkage and forces them to undergo intense internal audits. Owners who can't account for every portion of lost, wasted or stolen meat are labeled thieves and fined up to $50, 000! Those who fight deluca's illicit attacks are threatened with criminal prosecution or store seizure. Coincidentally, "shrinkage", a term prevalent in the restaurant industry has been stricken from the subway training curriculum since deluca's royalty theft crusade began. Go here to learn more: http://subwayfranchisee.blogspot.com/2005/04/compliance-issues-at-subway-real-or.html
What help can store owners who suffer from chronic shrinkage or compliance problems expect? Does deluca offer additional training and support to help them get their losses under control and their stores back into compliance? Just the opposite. He dangles eviction notices over their heads and charges them huge fines! The u.S. Small business administration even stopped lending to subway owners until deluca removed a contract clause that gave him the power to seize any store without cause. Go here to learn more: http://nextraterrestrial.com/pdf/FDeluca-Fortune%20March%2016%201998.htm
Franchisees fear that deluca may have bolder plans to cannibalize the chain. For years he pressured owners to abandon cash registers in favor of computer pos systems, despite dependability issues and a higher cost to own. When he encountered resistance, he simply ordered pos systems mandatory. Then he required all owners to connect their pos systems to headquarters, giving deluca access to every store's transactions. Using his custom software to monitor stores chain wide, now deluca can efficiently target owners ripe for royalty theft audits and spot inspections, boosting corporate revenues. Go here to learn more: http://storefrontbacktalk.com/story/081006Subway.php
Deluca appears intent to use more new technologies against franchisees. Some owners suspect that the subway technology department's pet video surveillance vendor dtt usa has conspired to help deluca spy on owners through live camera feeds being installed in stores. If deluca can tap into ring ups and video evidence then use it against them, they might as well kiss any hope of a profitable future good by. Is this the reason deluca's new contract gives him full rights to transmitted data? If you're a subway owner, here's a hot tip; if it seems every time you have a minor compliance violation, a field inspector mysteriously shows up on your doorstep for a spot inspection, big brother is probably watching! If this happens to you, obtain a copy of your dsl provider's server logs and have them scrutinized by an ip expert. If you are being spied on, take your findings immediately to the fcc or your state attorney.
Want more proof that subway corporate is corrupt? Investigate subway's legal beagle leonard axelrod (nicknamed lenny the ax), the architect of subway's contracts. You'll have to dig deep, the evidence is buried. If you're diligent, you'll uncover how axelrod was disbarred for brainstorming a scheme to defraud landlords. An illinois appeals court concluded that there was 'overwhelming' proof that subway had committed "far reaching fraud". An illinois jury awarded a landlord $10 million in punitive damages after concluding that subway had defrauded him. Deluca spent $1.3 million to resolve 72 similar claims. Go here to learn more: http://findarticles.com/p/articles/mi_m3190/is_n49_v29/ai_17847096
Once landlords wised up to subway's shell game, axelrod brainstormed his dirtiest trick; a way to skip arbitration by signing leases with landlords and then subletting stores to unwitting franchisees, unaware they were being used as de facto landlords. This way subway can quickly evict a store owner in a lease dispute and deluca is off the hook for the balance of the 20 year lease. An illinois court has called the eviction/ arbitration provision "unconscionable". Go here to learn more: http://nextraterrestrial.com/pdf/FDeluca-Fortune%20March%2016%201998.htm
What effect has deluca's predatory actions had on the subway chain? At a recent franchise convention & trade show, it was all too obvious. Attendance and morale were at an all time low. Store owners sulked by, all emotion drained from their faces, not unlike holocaust survivors. Some wore shirts printed with "I survived a dai audit". They huddled in small groups, searching for some relief from this nightmare. Sadly, subway was once the greatest opportunity in the industry. Today it's just the greatest con job in the industry.
If you're a subway franchisee and believe you've been victimized, your franchise contract prevents you from litigating, but you can take your complaint to your state attorney. Many states are moving towards franchise reform laws, some have already passed legislation. At the very least I urge you to post a report on complaintsboard.com. Their posts are monitored by numerous law firms around the country. Your identity will remain confidential but will allow them to contact you in the event a class action suit or criminal complaint is imminent. Any criminal act that subway staff may be guilty of negates the arbitration clause you are currently bound to. If you're considering joining any franchise, do your homework first! Predatory franchisers are popping up everywhere, forcing states to enact anti-predatory franchise reform laws.