Artist sandwiches: how much brings the franchise Subway

Alexander Antropov (pictured) from Moscow, opened its first Subway restaurant in 2001

Subway is one of the biggest fast food chains in the world: at the beginning of 2016 worked almost 44,7 thousand schools. In Russia in 1994, when the master franchise for the country acquired the American company Subway Russia Franchising Company. Before the crisis of 2008-2009 Subway in Russia developed very slowly. At the beginning of 2010 in Russia there were only about 60 outlets of Subway. Over the next three years the network has grown to 420 establishments. “Before the crisis, wealthy people invested in mutual funds, investment real estate, deposits, but this did not work, — explains the President of “subway rush development company” (to develop the franchise in Russia) Gennady Kochetkov. They began to look for where to invest to make it work, and come to us.” According to Kochetkova, the majority of the franchisees of Subway in Russia — successful entrepreneurs, for whom business in fast food is not the first.

However, the next crisis that began in 2014, Subway didn’t go good. From September 2014 its network in Russia decreased by 50 points, up to 640 institutions. “We lost about 50 spots because of a policy of the Moscow authorities for the demolition of kiosks and pavilions, says Kochetkov. Franchisee usually after closing do not return to the franchise and hold on to it until better times, then something to open”. About 80 restaurants over the past two years “gone” from the network because of the conflict of a number of franchisees and the franchisor from imposing disadvantageous procurement prices.

His concept of the Subway is very different from other market leaders like McDonalds and Burger King: “At the point of supply two functions — to feed the visitor and to create a place for socialization, says Kochetkov. — Subway second function does not always and everywhere, its main function is to feed, so to us through the city do not drive and go for a quick bite or to take a sandwich with you.”

Subway in Russia

640 restaurants in the network

$7.5 thousand., or 450 thousand rubles lump — sum fee (rate fixed)

250-275 rubles — the average check

8% — royalties

15 sandwiches on the standard menu

Source: company data

Says franchisee

Become a partner of the Subway in Russia is quite simple. You can apply on the website or come to one of the meetings with potential franchisees that Subway Russia held twice a month in different cities of the country. According to Kochetkova, special requirements to the applicants: “But we are looking whether a person has entrepreneurial experience: you need to understand what constitutes a business. In addition, the young people not everyone can manage their peers”. In the US, the Subway franchise is for sale only to those who will manage the business, but for Russia, according to Kochetkova, made an exception.

Subway franchise in Russia used to cost $12 thousand (without VAT in the US $15 thousand), but due to the sharp devaluation of the ruble in December 2014 a lump sum payment it was agreed to reduce to $7.5 thousand, and the course record: 60 rubles per dollar, so the franchise is now 450 thousand rbl. the Second franchise is cheaper — 336 thousand rubles, the third — in 228 thousand rubles.

All calculations made for the franchise lead in dollars. For my money the franchisee has access to IT-system network, the franchisor helps him with the design project the point and teaches the entrepreneur, the Manager and the staff (they called a sandwich artist). The franchise owner must pass three exams after the training, without that he can’t have permission to access the point.

Subway Russia does not help the franchisee with the search space, but says the selected object. The network helps in finding funding and is not a business plan. “This is prohibited by us law”, says Kochetkov. According to him, to open the restaurant you want space ranging from 40 sq m (at the Mall where you need to place only the kitchen and the area of the hand) up to 100 sq m (in street retail where the desired landing zone in a few dozen places), with 30 kW of electrical power. The investments point now range from 4 million to 7 million rubles, their size largely depends on the willingness of franchisees to invest in repairs and buy furniture.

Since the franchisee is a contract of commercial concession for a period up to 20 years. According to it, the affiliate receives exclusivity in any territory, and are free to access points across the country (which sometimes leads to a disadvantage for the franchisee competition; see extract). The correct location is one of the most important factors of success. Best place in St. Petersburg located on Nevsky Prospekt, in Moscow on Nikolskaya. Kochetkov, recommends the Subway is also at petrol stations and near large universities. “But an experiment in the construction market, “Mill” has shown that it is not our place: sellers prepare there themselves, and visitors are not delayed,” he said. Not Kochetkov advises potential franchisees to choose in Moscow in the premises of non-stationary objects on the first floors of residential houses — there may unexpectedly interfere with the government of Moscow. Usually the opening of the restaurant takes two to three months from the date of signing the contract.

According to Kochetkova, the conditional mean of 5 mln upfront investment of 1.5 million rubles will be spent on the renovation of the building, 2 million rubles — for the purchase of equipment and furniture. The decor inside and outside (sign, menu, etc.) have to spend up to 250 thousand. Subway Russia recommend to look for the room rental fee which will not exceed 2 thousand rbl. for 1 sq. m per month. “If you find room on rent which leaves more than 20% of your income, then you work for the landlord, if less” — describes the principle of selection Kochetkov. According to him, the average check of the network — about 250 rubles., the number of checks per day ranges from 100 (bad) to 300 (best). Production cost of the sandwiches (including products and labor, but without a lease) should not exceed 37% of revenue. The prices franchisee may install any.

Each franchisee pays royalties to 8% of revenue and 1.5% of revenue in marketing the Fund. All offices restaurants transmit sales information to the server Subway Russia, the franchisor has seen revenue franchisee. According to Kochetkova, a good restaurant with a 20% net profit margin, which allows the owner to recoup their investments within 24 months.


They say franchisees

Alexander Antropov from Moscow, opened its first Subway restaurant in 2001 at the Belarusian railway station, paying a lump sum payment of $12 thousand To that, he owned a cafe, but a great entrepreneurial experience had no. Now in its network by 17 points. “Investment in each restaurant are very different, says RBC Antropov. — If this court, then the investment is 3-4 million rubles, if the cafe — 6-9 million rubles”. According to him, Russia Subway encourages franchisees to build their own network. “When in the course of a year undertake to open a few points, the franchise fee may be $2 thousand for each”, — said the businessman. The last point Antropov opened a year ago, laid in 4 million rubles through the purchase of domestic equipment and furniture.

Area institutions Antropov — 40-70 sq. m.: “Large size is disadvantageous due to the high lease rates”, — said the businessman. The maximum rent that he pays per month is 300 thousand rubles. Average check of the network Antropov — 300 rubles, attendance is 80-300 per day. Revenue points varies in the range of 1-3 million rubles a month. The net profit margin of 8-10%. “Labor accounts for up to 35% cost on products — up to 30% on rent — 20 percent,” Antropov describes the main items of expenditure. At each point he has employed five to seven people. Staff member gets 120 rubles per hour. One Manager oversees several points.

“The most important thing is the flow of customers: Butyrskaya shaft in Subway go office staff, at the station — passengers, says Antropov. — Works well in the center of Moscow, railway stations, airports, business centers and exhibition centers. In residential areas I don’t work”. For 15 years, Antropov has closed only three restaurants: “they did Not agree with the owner on rent”.

<p>Alexander Antropov (pictured) has 17 eateries Subway. Best of all, according to him, the franchise works &quot;in the center of Moscow, railway stations, airports, business centers and exhibition centers&quot;</p>


Photo: Oleg Yakovlev/RBC


Alexander Antropov (pictured) has 17 eateries Subway. Best of all, according to him, the franchise is working “in the center of Moscow, railway stations, airports, business centers and exhibition centers”

Olga Lopaeva launched its first restaurant in Astrakhan in 2007. Entrepreneurial experience she had. The first Astrakhan Subway is in the small telcentre on the third floor. For two years Lipaev earned on the opening of the second restaurant. Now in its network of 13 points.

“We have all the restaurants in the lease, we carefully study the economy of each point and exited at breakeven in the first quarter,” says Lipaev. The size of establishments varies from 40 to 150 sq m (70 seats). Average ticket in the network — 260 rubles the Number of checks varies from 80 to 250 per day. “There is a restaurant in the Mall — there is higher average check, and there is a restaurant near the University — there is the check below, but more visitors,” says Lipaev. According to her, the profitability of the points does not exceed 15%.

The investments it is estimated at 3-4. 5 million rubles, About 70% are for the purchase of equipment and furniture, 20% on repairs. If the franchise fee for the first restaurant was for Lipatova $12 thousand, while in the last — opened in January 2014 — $6.6 thousand It plans to open new restaurants.

Berestovskaya novel from Tyumen the first two Subway restaurant opened in 2012 in the format of street-retail. “I already had a successful business distribution of alcoholic beverages, but it was necessary to diversify capital,” — he said RBC. He purposefully chose a franchise in the food services because of the low threshold of market entry and rapid payback periods. Now Berestovskaya 12 restaurants in Tyumen, Tobolsk, Barnaul and Novosibirsk. Investments into opening of one point Berestovskaya estimated at $1 thousand for 1 sq. m area. Point out the current return on the second to the sixth month of work. If not, Berestovskaya changes location. The return on investment is two to three years.

Valery Krasov opened its first Subway in 2011 in the city of Volzhsky — Volgograd. Because of the high cost of equipment renovation of premises Krasov himself. “Spent on the run 5 million roubles: approximately 70% on equipment, 10% off repairs, 15% for advertising and 5% on your initial order of products, — he recalls. — This was my first experience, I didn’t know how to reduce costs: put the most expensive tile, thinking it is a real restaurant.” After three months point Krasova became profitable.

Krasov recoup their initial investments during the year: “Worked with his wife day and night.” Six months later the couple decided to open a restaurant in Volgograd. “We have promoted a brand, so it was necessary either to go themselves, or someone else will open, explains Krasov. Now every six month we are opening a new point”. In September 2015 Krasov opened the ninth restaurant.

Lump sum payment when you open the latest restaurant in Krasova amounted to only 200 thousand rbl., and investments — twice less than in the first. “Now I know all, buy himself, he explains. — For the three restaurants I built pavilions 100 sq m”. On average in restaurants Krasova comes from 100 to 250 people per day and the average bill is 230 to 270 roubles Profit before tax is 80-300 thousand rubles per month with turnover from 0.5–1.2 million rubles In the same restaurant at the Krasova employs from four to eight employees. He was pleased with the Subway franchise and plans to open in Volgograd the new restaurants: “the city has other franchisees, but I think soon they will disappear, and I’ll take them.”

Main problems: staff and rent

The main problem franchisees Olga Lifeway from Astrakhan — a shortage. “There are few students who want to work for us,” she says. Average salary in its points — 15-20 thousand rubles a month. Antropov from Moscow also complains of the careless students. “Many people want to work two hours a day,” he said. “Students are unpredictable people, someone will work for two days and out,” says Krasov colleagues from Volgograd. Another problem franchisee Subway is “battened down rental rates,” says Antropov from Moscow. Due to the expensive rental Moscow Andrey Dikarev for two years and could not get his point the break-even point, so closed it, failing franchise. But the Roman Berestovskaya from Tyumen was more insistent: he had already several times changed the location of their establishments, however, not only because of the lease, but due to small traffic. “Another problem is low name recognition, we had to tell them about the benefits, give a try,” says Lipaev from Astrakhan.