How to invest in Subway Stock? Subway is one of the fastest-growing franchises with over 41,000 locations in more than 100 countries.

Subway has over 23,000 locations in the United States and is headquartered in Milford, Connecticut, the United States.

Subway is the largest single-brand restaurant chain and the largest restaurant operator in the world. Let’s look at whether investing in Subway Stock is a good option. 

How was Subway started?

In 1965, 17-year old Fred DeLuca borrowed a thousand dollars from his friend Peter Bucks to start “Pete’s Super Submarines” in Connecticut.

They later formed Doctor’s Associates, Inc. to oversee operations of the restaurants as the franchise expanded.

Doctor’s Associates is not affiliated with any medical organization but was named so because Buck had a doctorate in physics and because DeLuca’s goal was to earn enough from the business to pay tuition for medical school. In 1968, they renamed their restaurant Subway

Subway’s growth

Subway’s growth has been explosive because Subways were easy to open. The company opened 200 locations by 1981 and soon went international. The number of stores skyrocketed to 13,200 with gross sales of $2.1 billion by 1998.

By the end of 2010, Subway became the largest fast-food chain worldwide. Subway franchises are one of the cheapest chains to franchise, costing between $116,000 to $263,000, which is low compared to opening a McDonald’s, which is about $2.2 million. The look and feel of Subway franchises are the same, although they are owned independently. 

Subway’s Marketing and USP

Subway pioneered the ability to customize your sandwich, and the exciting thing about it is its open-kitchen format.

It redefined fast food with fresh ingredients that customers could also see. Subway marketed itself as a healthy alternative to fast food.

Jared Fogle who claimed to have lost over 200 pounds eating Subway sandwiches became the face of the company. Subway made him a spokesperson for its advertising campaigns from 2000 to 2015, and he was closely associated with the brand. However, the company cut ties with him after his conviction in 2015.

How much does a Subway franchise make?

A subway franchise can generate over $400K in annual sales compared to over $2.5million in average revenue for McDonald’s restaurants.

Although Doctor’s Associates doesn’t own a single Subway location, it charges its franchisees a weekly fee of 12.5% of gross sales minus the sales tax. 8% towards franchise royalties and 4.5% towards advertising. 

Subway’s Future

Virtually all Subway restaurants are franchised and are present everywhere, ranging from airports to convenience stores.

However, the company has seen cannibalization from the opening of too many Subway locations, sometimes close to each other. This creates issues for franchisees.

The Covid-19 pandemic has caused a decline in foot traffic in restaurants. As a result, several franchisees have closed.

Furthermore, competitors are copying Subway’s strategy and moving into healthier alternatives as consumers are focused on eating healthy.

Subway intends to revamp its stores and menu items, and it remains to be seen whether it can stop its stores from closing through its change in strategy. 

How to invest in Subway stock?

You might have to wait until Subway issues an IPO to buy Subway Stock because Subway is still a privately owned company owned by Doctor’s Associates.

Private vs. Public Companies: People usually think if a company is private, the company would be small and unknown. However, big-name companies such as Subway and IKEA are privately held. Let’s look at what it means to be privately and publicly owned.

Privately held companies: When a company is privately held, it means that the company is owned by its founders, management, or a group of private investors. The main advantage of private companies is that the company management is not obligated to answer to shareholders and doesn’t have to disclose financial information to anyone. The main disadvantage of private companies is that private companies cannot rely on funding from the public capital markets and must rely on private financing. Privately held companies can borrow money from banks or venture capitalists or rely on profits to fund growth, but they cannot tap into the public capital markets.

Publicly held companies: On the other hand, a public company means that the company has sold all or a portion of itself to the public through an initial public offering (IPO), which means shareholders can have a part of its assets and profits. The main advantage public companies have is their ability to raise funding by selling stock (equity) or bonds (debt) for expansion or other projects.

Subway stock price

Since Subway is not a public company, it is not listed on the stock exchange, and it’s not possible to estimate Subway’s stock price.

Subway stock symbol

We don’t have a Subway stock ticker because Subway is a private company and is not listed on the stock exchange.

As you need to wait until Subway issues an IPO to invest in Subway stock, let’s look at alternatives to investing in Subway Stock.

Alternatives to investing in Subway stock

The top competitors for Subway include McDonald’s, Yum! Brands, Restaurant Brands International, Wendy’s, Starbucks, Domino’s Pizza, Dunkin Donuts, and Chipotle.

1. McDonald’s

McDonald’s (NYSE: MCD), the king of fast food with its golden arches, is one of the most recognizable and loved brands. The fast-food chain has more than 39,000 restaurants in over 100 countries. 93% of the restaurants are franchised.

Subway Stock

It has had universal appeal, although it has evolved over the years. It had a terrible menu and reputation in the ’90s, and it has reinvented itself and has run a successful business globally. 

McDonald’s reported $19.2 billion in revenue for 2020 and employed roughly 200,000 people at the end of 2020. Revenue declined in 2020 partially because of the pandemic and the company’s refranchising effort.

The goal of the refranchising effort is to unload most of its company-owned stores. Due to its McDonald’s global presence, it competes against other national chains and regional and local restaurants.

We should see McDonald’s recover from its sales decline of nearly 8% in 2020 as the situation and restrictions caused due to the pandemic get rectified. In 2021, McDonald’s is expected to see normalized earnings.

2. Yum! Brands

Yum! Brands, Inc. (NYSE: YUM) is an American fast-food corporation that operates KFC, Pizza Hut, Taco Bell, The Habit Burger Grill, and WingStreet worldwide. In China, these brands are operated by a separate company, Yum! China. YUM has over 50,000 restaurants in more than 150 countries, and independent franchisees operate 98% of their restaurants.

Subway Stock

The company has relied on drive-thru service for its stores and has managed to weather the storms during the pandemic.

According to its 2020 annual report, the KFC franchise was the most significant contributor to sales with $26,289 million in 2020, followed by Pizza Hut with $11,955 million and Taco Bell with $11,745 million in annual sales. The Habit Burger Grill Division had annual sales of $370 million.

However, Pizza Hut is seeing significant declines in sales and stores, signaling that Yum! Brands is under pressure.

Looking at shareholder returns for the past five years, Yum Brands outperforms Restaurant Brands International but lags behind McDonald’s. Yum! Brands is a good company with a strong balance sheet. As the pandemic restrictions ease, we can expect sales to increase. 

3. Restaurant Brands International

Restaurant Brands International (NYSE:QSR) is an attractive alternative to buying Subway stock. It is a holding company formed in 2014 by the merger between the American fast-food chain Burger King and the Canadian coffee shop and restaurant chain Tim Hortons.

Subway Stock

In 2017, the purchase of American fast-food chain Popeyes Louisiana Kitchen made it the fifth-largest operator of fast-food restaurants in the world.

Restaurant Brands International is based in Toronto, Canada, and both Burger King and Popeyes are headquartered in Miami for tax purposes. These companies have stood the test of time and are hugely popular. 

Burger King has just under 18,700 restaurants, while Tim Hortons has 4900 coffeehouses and 3400 chicken chains, and this brings Restaurant Brands International’s total to 27000 worldwide.

This has narrowed the lead between McDonald’s and Restaurant Brands International.  

The United States is an important market for Burger King. The pandemic restrictions have severely hit the fast-food industry, and Burger King has lost some of its retail sales in the past year.

Additionally, Burger King has a poor value proposition when it comes to its restaurant and menus, which it is looking to address.

Plans to remodel restaurants and install digital outdoor menu boards at its drive-through locations are underway.

The decline in customer demand is also partly because of the poor value proposition of the company, which it is looking to turn around rapidly. As a global relaxation of restrictions on restaurants happens, the company will recoup its lost sales.

The challenges of Tim Horton are primarily because of the lockdowns in Canada, which accounts for nearly 80% of its restaurant footprint.

The coffee chain had faced some sluggishness in sales before the pandemic and had taken some initiatives to strengthen its business and modernize its restaurants.

However, the branded coffee industry underwent a 22% contraction during 2020, and Tim Hortons’ retail sales in Canada declined by 17.5%. As vaccinations increase, Tim Horton’s business will rebound. 

Popeyes Louisiana Kitchen had a solid performance in FY2020. The shortfall in sales in the fourth quarter of 2020 was because of the brand’s substantial growth since the launch of its iconic chicken sandwich.

New store launches, menu innovation, delivery orders, and the loyalty program will contribute to the development of the business in the coming years. 

Shareholder returns of Subway’s competitors

McDonald’s has the highest shareholder return at 53.78%. Yum! Brands has a shareholder return of 43.18%, and Restaurant Brands has a return of 31.83%.

Any of these competitor stocks of Subway stock will be a good investment, and you can buy these stocks online.

Categories: Investing

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