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Subway says sales are up, but critics say it’s mostly because of inflation

Subway Restaurants said Tuesday its sales across the US steadily improved throughout 2021, although industry experts said the gains were mainly because of price inflation and that the chain continues to lag the competition. America’s No. 2 fast-food chain said sales were up 8.7 percent in December compared to the same period two years ago. Subway also said 75 percent of its US restaurants had a 7.5 percent same-store sales increase in 2021 compared to 2019. Subway has been promoting new sandwiches including Turkey Cali Fresh, Steak Cali Fresh, and All-American Club in a big advertising campaign featuring sports stars Tom Brady and Steph Curry. “Sales results indicate we have the right team and strategy to bring our multi-year transformation journey to life,” Subway CEO John Chidsey said in a statement. Still, industry experts noted that the sales numbers are only marginally better than recent inflation trends and that traffic growth has been relatively small versus that of competitors. McDonald’s reported US same-store sales in the fourth quarter rose 13.4 percent compared to two years ago — more than 50 percent higher than Subway’s growth, according to the company’s earnings. That’s partly because McDonald’s sales have been fueled by its drive-ins — an advantage that most Subway locations lack. Firehouse Subs, meanwhile, reported 23.4 percent US same-store growth in the fourth quarter compared to two years ago. “Restaurant price inflation is running 6 to 7 percent on a year to year basis right now,” restaurant expert John Gordon of Pacific Management Consulting Group told The Post, citing data from the US Bureau of Labor Statistics and Black Box, a private industry tracker. “We don’t know exactly the Subway number but it no doubt is close. That means they are getting very little real traffic growth, even in their best 75 percent of units.” A Subway franchisee advisor agreed. “Most fast-food and quick-service restaurants are up at least 10 percent. Most of the revenue increase comes from price increases due to inflation and not an increase in foot traffic or selling more food,” said the franchisee, who asked not to be named. “A sandwich chain coming out of the pandemic should have done much better.” Subway CEO Chidsey conducted interviews over the weekend in the Wall Street Journal and Nation’s Restaurant News, touting the chain’s turnaround efforts. He said Subway now had about 20,000 US restaurants and was focusing on quality and not quantity. Privately held Subway has not released its annual financials to the Federal Trade Commission yet but that would mean more than 2,000 US restaurants closed in 2021, an increase from the 1,612 the prior year. To compare, McDonald’s lost a much smaller 165 net US restaurants in 2020, and Burger King lost 265 restaurants, according to public records. Neither have released 2021 numbers. Subway owns none of its US restaurants, so that means franchisees shut down about 10 percent of the locations last year, and the parent company is making less in royalties. Subway charges franchisees eight percent of gross sales. A look at the chain’s US royalties, based on filings with the FTC, shows it fell from $834 million in 2019 to $634 million in 2020 and through August 2021 was $517 million. At that pace, US royalties might surpass $700 million or so in 2021 but still be well off the 2019 numbers. “They didn’t state today that they beat their 2019 gross sales number,” the franchisee advisor said. “I’m 99.9 percent sure that their gross sales are down from 2019.” Meanwhile, Subway franchisees are closing restaurants at an accelerated pace, sources said, as Subway recently has squeezed them for cash, raising fees and tightening lease restrictions. Chidsey noted on Tuesday that Subway is growing internationally. “Over the past six months, Subway has signed agreements in India, Indonesia, Kuwait, the Kingdom of Saudi Arabia, the United Arab Emirates and Thailand, resulting in a total of more than 3,000 future restaurant commitments,” he said in the Tuesday press release. What Chidsey is emphasizing in this publicity push could be themes for when the chain seeks a buyer, Gordon said. “It’s probably too early yet to start a sale until [co-founder] Peter Buck’s will is settled.” Buck — a former nuclear physicist who famously gave Fred DeLuca the cash to open the first Subway restaurant in Bridgeport, Conn, in 1965 — died in November.

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