Dive Brief:

• Subway has hired advisers to consider a sale that could value the sandwich chain at over $10 billion, The Wall Street Journal first reported Wednesday. Subway wrote in an email to Restaurant Dive that it doesn’t “comment on ownership structure and business plans.”
• The process is expected to draw interest from both private equity and corporations, per the Journal. 
• If the privately held company does sell, the transaction would follow several recent attempts to drive growth, including a shift toward multi-unit operators, expansion via automated vending fridges and a significant menu revamp.  

Dive Insight:

A $10 billion Subway sale would dwarf last year’s largest restaurant deal, which came in in at $835 million when Butterfly Equity bought Qdoba and folded the restaurant into Modern Restaurant Concepts. The rumored ticket price also would come close to Inspire Brands’ 2020 purchase of Dunkin’ for $11.4 billion. 

But industry concerns over a probable recession, combined with rising interest rates and scarce capital, could make it difficult to find either a restaurant or private equity buyer willing to shell out. Subway’s track record is also spotty. Despite some recent financial improvement, the chain has struggled to grow sales since 2014, shuttering at least 6,000 restaurants to rightsize its bloated footprint. The company has drawn ire from its franchisees, who have accused it of rigging inspections in order to close units and support its efforts to restructure. 

“We continue to be focused on moving the brand forward with our transformational journey to help our franchisees be successful and profitable,” Subway said in its emailed statement.

Despite aggressive contraction of its store network, Subway was still the largest U.S. restaurant chain as of 2021, with roughly 21,100 domestic locations. This scope could prove attractive to a restaurant buyer with pockets deep enough to take on the chain and its problems. A multi-branded operator could pursue a co-branding strategy with the chain, or a single restaurant chain could gobble up the sandwich chain to form a new multi-brand platform.

In 2021, Subway’s U.S. restaurants raked in about $9.4 billion in sales, a 13% increase from 2020, according to Technomic data published by Restaurant Business.

This improvement also could prove attractive to potential buyers. 

“It still has a lot of runway to boost future growth, which makes Subway a chain with good prospects – even in a slowing economy,” Neil Saunders, managing director of GlobalData, said in an emailed statement. “The international nature of Subway, which is in more than 100 countries, potentially widens the field of suitors. 

The chain has made strides with its digital business thanks in part to the launch of Subway Delivery, which lets delivery customers order directly from the chain’s app or website, and other online ordering improvements. In 2021, Subway’s digital sales topped $1.3 billion, triple its 2019 digital sales.

The sandwich chain also has reported incremental improvements to franchisee finances. In 2021, roughly 75% of Subway’s U.S. footprint (or 16,000 restaurants) reported a same-store sales increase of at least 7.5% compared to 2019. 

“A buyer would inherit a solid business but would certainly be able to make changes that improve both sales and profitability,” Saunders said. “This includes enhancing efficiency by trying to consolidate the number of franchisees and pursuing international growth more aggressively.”

Saunders predicts Subway will wait for a buyer that can pay full price.