- Subway has been involved in various controversies, including lawsuits, bread not being legally considered bread, and allegations of fraudulent tuna.
- The franchise has faced declining sales and closures of many of its restaurants, causing unrest among franchisees.
- Subway's founder, Fred DeLuca, had a strong desire for expansion and implemented the franchise model to achieve it.
- Subway's simple setup and lower startup costs attract individual and family owners, many of whom are immigrants.
- However, Subway brings in less revenue compared to other chains, and franchisees have to pay higher fees to the company.
- Subway heavily invests in advertising, including celebrity endorsements and product placements in TV shows and movies.
- The franchise also engages in extensive product placement in Korean dramas.
- Subway released its own mini drama on YouTube called "Someway."

- Subway franchisees are expected to work hard and not complain, as shown in a video created by a regional office.
- Franchise owners have limited control over their earnings and are at the mercy of decisions made by the parent company.
- Subway's expansion and lack of exclusive territories have led to cannibalization of business for franchisees.
- Development agents, who control certain areas, can be overly harsh with inspections and have incentives to fail stores.
- Potential Subway franchisees often do not fully understand the challenges they will face.
- Subway does not provide financial performance information to potential franchisees, making it difficult to assess potential earnings.
- Subway franchisees have faced non-disparagement clauses and have been silenced when speaking out about issues.
- Subway recently updated their contract to further restrict franchisees' ability to criticize the brand.

- Subway has updated their contract for franchisees, including a non-disparagement clause
- Some industry experts believe no one in their right mind would sign the new agreement
- Suggestions are made to better regulate franchises, including tighter rules and mandatory financial disclosure by the FTC
- Until that happens, Subway's story can be told through Korean sandwich drawers
- The video segment shows a humorous skit about Subway sandwich artists and their love for meatballs
- The show concludes with thanks for watching and a mention of the next episode airing on June 5th

- Subway has faced various controversies, including lawsuits and allegations of fraudulent tuna.
- The franchise has experienced declining sales and closures of many restaurants, causing unrest among franchisees.
- Subway's founder implemented the franchise model for expansion.
- Subway attracts individual and family owners with its simple setup and lower startup costs.
- However, franchisees have to pay higher fees and have limited control over earnings.
- Subway heavily invests in advertising, including celebrity endorsements and product placements.
- The franchise engages in extensive product placement in Korean dramas.
- Subway released a mini drama on YouTube called "Someway."
- Franchisees are expected to work hard and not complain.
- Subway's expansion and lack of exclusive territories lead to cannibalization of business for franchisees.
- Development agents can be overly harsh with inspections and have incentives to fail stores.
- Potential franchisees often do not fully understand the challenges they will face.
- Subway does not provide financial performance information to potential franchisees.
- Subway franchisees have faced non-disparagement clauses and restrictions on criticizing the brand.
- Subway recently updated their contract to further restrict franchisees' ability to criticize.
- Some experts believe signing the new agreement is not advisable.
- Suggestions are made to better regulate franchises, including tighter rules and mandatory financial disclosure.
- The video segment shows a humorous skit about Subway sandwich artists and their love for meatballs.
- The show concludes with thanks for watching and a mention of the next episode airing on June 5th.

John Oliver discusses one of the largest franchises in the U.S., how their business model doesn’t always serve franchisees, and what it all has to do with Korean dramas.

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Our main story tonight concerns sandwiches, specifically Subway sandwiches.

Now, it can seem like Subway is in the news pretty often, and it is rarely for anything good.

Fast food chain Subway being sued for fraud, accused of selling tuna that isn't actually tuna.

Ireland's Supreme Court says Subway's bread can't legally be called bread because it contains too much sugar.

Subway customers are filing lawsuits against the global sandwich chain, saying it's foot-long sandwiches aren't really a foot long.

These are the shocking pictures that started everything.

They were posted on a social media site, and 1 shows a man putting his genitals on what appears to be Subway bread dough, with the caption, I will be your sandwich artist today.

blurred or not, that penis isn't even the most offensive part of that photo.

It looks like a child's drawing of Ed Sheeran.

And the sad thing is, you know, just by touching the bread with that penis, the penis is ruined forever.

He's got no choice but to just throw it in the trash.

But of course, when you hear PR nightmare for Subway, your head immediately goes to this man, Jared.

He was the face of Subway for 15 years after claiming that he lost 200 pounds thanks in part to eating Subway every day.

He even featured in news puff pieces like this 1 that play a lot differently in hindsight.

Jared takes his pants on the road 200 days

a year, speaking to kids about nutrition.

Everybody needs to make sure they make really, really good, healthy decisions every day, so they never, ever put themselves in a position to have to wear Jared's old pair of pants.

Subway has clearly been on the receiving end of a lot of terrible stories.

And to deal with each 1 just quickly, Jared is a monster and Subway should have always been suspicious of a man willing to eat their terrible product every day.

Not quite a foot long, that is a bullshit lawsuit, it didn't go anywhere.

Dodong, that did happen and it's objectively funny.

Ireland's court ruling that Subway's bread can't be called bread, the company insists Subway's bread is of course bread.

And if you're curious about the tuna, you can just visit subwaytunafacts.com, a real website the company felt it had to launch to debunk tuna myths.

Although, the moment that you've done that, it does feel like you're already losing the argument.

--AUDIENCE LAUGHS- But even putting All of those stories aside, Subway is still worth talking about tonight for a number of reasons, starting with the fact it's a lot bigger than you might think.

Subway's actually the biggest restaurant chain in the U.S.

By number of locations, and for a while, they had the most locations of any restaurant worldwide, beating both Starbucks and McDonald's.

But in recent years, things have taken a turn.

Thousands of its restaurants have closed, and some franchisees, that's the people who own and operate their restaurants, are getting restless.

Here in the U.S., a hundred of them got together and wrote an open letter last year stating that, for many of us, this dream has turned into a nightmare.

And overseas, franchisees have given interviews like this.

Franchisees claim many want to get out, but say they can't because head office won't approve it, unless expensive refurbishments are done.

We want to escape, but they make it impossible for us to sell.

You know it's serious when they use a voice modulator that can only be described as auto-tuned Andre the Giant.

And remember, this is about a restaurant that sells ham sandwiches.

What's the worst Subway could do to that man?

And if your franchisees are giving interviews like they're in witness protection, and the public is constantly debating if your bread is bread, your tuna is tuna, and whether or not your sandwiches are filled with dicks, something has clearly gone very wrong.

So tonight, let's talk about Subway, Where it came from, what its business model is, and why there are so fucking many of them.

Subway was founded as a single sub shop called Pete's Super Submarines, back in 1965 by Fred DeLuca, who ran the company until his death in 2015.

And to give you just a sense of what kind of manager he was, the company once distributed a literally not safe for work calendar to its employees, featuring photos of shirtless subway executives, including Fred as Mr.

And I have a lot to say about this, the least important of which is, why is this guy in a bathroom?

The theme is clearly business but make it nipples, not Polaroids of Uncle Dale before a scrub down.

Anyway, from the very beginning, DeLuca was absolutely obsessed with expansion.

Even though the business didn't make a profit for 15 years, he kept opening Subways anyway in order to, as he later said, create the image of success.

So, it really seems that Subways' business strategy was basically fake it till you make it, Which apparently, our lawyers say, I cannot suggest, also applies to their tuna.

The point is, DeLuca had an insatiable desire for growth, which may be why, in the mid-70s, Subway moved to the franchise model.

The benefit for the company, being that they could have more locations that way, and the benefit for franchisees, theoretically, being that they could sell an established product with brand recognition, with the promise of being their own boss.

And there's actually 1 other key draw about Subway specifically, and that is just how simple it is to open 1.

Subway's extreme ubiquity all comes down to their streamlined setup.

That's practically all it takes to open a subway.

It's true, you really don't need that much to open a subway.

Although, I'm not sure quite how reassuring it is that all you need is a plug.

After all, it is a restaurant serving human food, not an air mattress.

But subway startup costs have indeed been significantly lower than many of its competitors.

It usually costs between around $200,000 and $500,000 to open a subway, compared with a McDonald's, which can cost between $1.3 and nearly $2.5 million.

And that might help explain why subway owners tend to be individuals and families, many of them immigrants, unlike chains such as McDonald's, where many restaurants are operated by investment firms.

But that low entry fee comes with some significant catches.

First, Subway's bringing in a lot less money than other chains.

An average 1 generates around $400,000 a year compared to the average Jimmy John's, which brings in more than double that.

Or an average McDonald's, which generates over 3000000.

But on top of that, Subway franchisees also have to pay a lot more of what they make back to their company.

Because while McDonald's asks its restaurants to pay them 8 percent of gross sales, Subway demands 12 and a half percent.

Specifically, an 8 percent royalty fee and another 4 and a half percent that goes toward advertising.

Those are some of the highest fees of any chain.

Although, I will say, Subway puts those ad fees to heavy use.

Because they are the reason that you can't turn on your TV without being bombarded by commercials featuring Steph Curry, Tom Brady, and Megan Rapinoe, pretending they're all standing in the same place and willing to put sloppy bread cannons into their God-Bods.

Subway has done a significant amount of product placement in shows and movies like The Biggest Loser, To All the Boys I've Loved Before, and Chuck.

I was even part of 1 of them years ago in an episode of Community, which I have 0 memory of filming.

But unlike my forgettable days as a corporate sandwich vessel, some of that placement is pretty hard to miss, like in this incredible scene from Hawaii Five-0.

Okay, so You're eating these to lose weight.

It worked for Jared, and that boy was large.

But the best thing about it, they make it any way you want it.

Sweet onion chicken teriyaki with jalapenos with banana peppers.

Now, You put that with this, turkey BLT, bam!

that scene reminds me of an old Hollywood saying.

Every ad exec wants to be a television writer, and every television writer is dead inside.

But incredibly, even that is subtle, next to the product placement that Subway engages in overseas, particularly in Korean dramas, where every plot point seems to occur at a Subway.

Here is 2 characters having a meeting at 1.

Here is a group of men celebrating the fact, real plot point by the way, their friends just woke up from a coma.

Then there is this scene, which is, I swear I'm not making this up, about a ghost magically eating a Subway sandwich.

Subway even released its own mini drama on YouTube called Someway, and I'm gonna show you a scene from it now.

And not that you need it, but here is some context.

That character was dating this guy, who works at Subway.

And every day, she ordered the plant-based sandwich because he recommended it to her.

Until 1 day, this guy, who, wait for it, also works at Subway, recommended the steak and cheese sandwich for her to mix it up.

Stay with her usual or go with a new flavor.

Obviously, she chose the steak, which is why we got that kiss in front of a Subway franchise.

It's art, and it's cinema, and it's sandwiches.

-♪ Yeah, yeah, yeah, yeah, yeah, yeah, yeah ♪ -The point is, Subway advertises a ridiculous amount, and its franchisees benefit from that brand building.

But in return, Subway expects them to work very hard.

Something made painfully clear in this video created by a regional office, which takes a bit of a turn halfway through.

When you buy a franchise, you enter into a family.

Whether you sell sandwiches, develop stores, or evaluate operations, we must do our part to the best of our ability.

So we don't let people down by being lazy.

We don't complain about each other's work.

We don't feel sorry for ourselves, and we certainly don't give up.

And it's 1 that you'd probably think twice about threatening their so-called family members for being lazy, when they couldn't even put in the effort to proofread their own copy, because this is not how you spell buy, as in, to buy a franchise.

And they've left out the word, too, in this sentence, but to whoever made that video, don't worry.

There's no need to fell sorry for yourself.

And the thing is, there is only so much a franchise owner can do to increase their earnings as they are largely at the mercy of decisions their parent company makes.

So, if Subway decides to change the menu or redesign the stores, franchisees may be on the hook for those costs.

Also, if the company announces a promotion or a discount, stores may have to go along with it, even if it is a money loser for them.

And it gets even worse because those already ridiculously tight margins have been exacerbated by Subway's long-time obsession with expansion.

For decades, franchisees have complained about Subway allowing locations to open near each other and cannibalizing their business.

In fact, here is the head of a franchisee association discussing the problem back in the 90s.

What they tell you when you buy that franchise is, don't worry, we wouldn't put another franchise too close to you.

Reality is, they're gonna do whatever they can do that's not written in black and white, and they do it.

Okay, first, that is some very dramatic camera work, but also, power bangs is completely right there.

In fact, To this day, Subway franchisees are told that you will not receive an exclusive territory, and their contract states, we and our affiliates have unlimited rights to compete with you.

Meaning, a Subway could open right next to yours and cut your sales in half.

And none of this really affects subway corporates.

They still get their royalty fees on any sale, plus a $15,000 franchise fee for every new store that's opened.

That is why these stores are fucking everywhere.

There are literally 10 subways in a one-mile radius of where I'm sitting right now.

You could go to all 10 stores, order a foot longer each, and be back here in less than an hour.

And the reason I know that is, I did that.

And frankly, I'm instantly regretting my decision.

Because now this entire studio is about to smell like a subway, which as we all know, is the exact smell of what if bread could fart?

And all of this, all of this was by design.

Fred DeLuca even once attempted to convince a journalist that more subway locations raises everyone's revenues by referencing a graph his 24-year-old son made, which an economist later reviewed, saying, -"In my view, this tells us absolutely nothing." -$$LAUGHTER If this is true, then why not have 15 Subways on the same block?

And that is a lot of sass coming from an economist.

The answer is obviously not is much like Subway's spicy Italian sub.

Not actually spicy in the least, but given the sauce, about as spicy as you're gonna get.

And encroaching on their own territory isn't the only way Subway has angered franchisees, because their corporate structure has long involved something called business development agents.

These are individuals, often franchise owners themselves, who control a certain area, and are tasked with finding and approving new people to open stores, getting a cut of royalties for doing that.

They're also in charge of overseeing inspections of stores in their area.

And for many years, franchisees have complained about development agents being exceptionally harsh with those inspections.

With 1 saying he was once marked up for slicing his vegetables in a choppy manner.

And there is an incentive for development agents to be overly harsh, because if a store gets multiple violations, that franchisee's agreement can be terminated, and the store can be resold, sometimes to the business development agent themselves, at a discounted price.

1 former inspector even described a development agent telling her the exact store owners that he wanted to fail, adding, -"I was kind of his hit man." You know, normal sandwich stuff.

Now, I have to tell you, Subway insists it's transitioning away from using development agents in the U.S.

And from having them be the ones overseeing inspections.

But even so, you might well be wondering, given everything you've seen so far, why on earth would anyone want to open a Subway when it has some of the highest royalties, some of the lowest sales, and a new store could conceivably open right next door to you?

Well, crucially, potential owners often don't fully know what they're signing up for.

Here is 1 Subway franchisee inadvertently making this point.

I bought my original store from a guy who was involved with Subway, had been involved for about 5 years before me.

And that store, little did I know, was the lowest volume store in the market.

When I went to my first owner's meeting, him and his buddy said, -"Hey, Lollipop." And I said, -"Why are they calling me Lollipop?" And they said, -"Well, we needed a sucker to buy Columbus," which was the Subway, right?

Out of 91 stores in the market, it was 91st.

Ideally, you would have that kind of information before you invested.

It's hard to tell how successful a subway is just from looking at it, especially because from the outside, they all look like the worst 1.

--CROWD LAUGHS-- Currently, there is no easy way to find out what you might earn before you open a new Subway for 2 reasons.

Generally, when it comes to franchises, the FTC requires that you are provided with what's called a franchise disclosure document, giving you important information before you invest.

But it doesn't require companies to include any details about how stores do financially.

Now, some companies do provide this, but it's voluntary.

Firehouse Subs, for instance, has 17 pages dedicated to financial performance.

But Subway has just 2 paragraphs in which they say, we do not make any representations about a franchisee's future financial performance or the past financial performance of franchised outlets.

Instead, Fred DeLuca encouraged potential owners to simply do this.

You know what we really want people to do is go find out from other franchisees, rather than relying on what we might tell you.

It's a much better experience to talk to 10:20 franchisees.

Some will be doing very well, some won't do very well.

Yeah, or you could just tell them, instead of making them go to 20 different Subway stores.

I guess, luckily for them, you can find 20 of them on any 1 block in America.

But it's really the principle of the matter here.

But getting accurate info can be very hard to do.

For starters, some franchisees may be reluctant to speak because a few years ago, Subway added an aggressive non-disparagement clause in their contracts.

And while it's true that there is now a carve-out saying you're not prohibited from sharing information in good faith with any prospective franchisees, as 1 of them told Congress a few years ago, many are reluctant to trust someone calling and asking questions, and for obvious reasons.

So, people always talk about doing due diligence in the industry, before they buy a franchise.

Well, 1 of those parts of the due diligence is calling existing owners.

Most franchise agreements have that non-disparagement clause in it.

I can tell you if I'm in 1 of my stores and somebody calls me and starts asking questions, and let's say I have a negative experience, am I gonna really say so?

I don't know who's on the other end of the line.

It's frankly all the more reason why you should just never answer your phone.

Calling people is for divorcees and serial killers.

I haven't answered my phone in 10 years now.

And look, lots of the problems you've seen tonight exist in some form with almost all franchises.

But Subway in particular seems like the absolute worst.

And for years, their store owners have begged them to be less restrictive, with some even releasing that open letter last year, complaining about many of the things that we've mentioned tonight, and alleging whenever they've spoken out about any of these issues to the media, they've been silenced by cease and desist letters, biased arbitrations, and forced non-disclosure agreements.

But rather than listening to that, Subway's made things even worse for them.

They recently updated their contract for new and renewing franchisees, which among other things, expands the non-disparagement clause to include subjecting the Subway brand to ridicule.

You are the 1 who made your new logo 2 arrows 69-ing each other.

The call is coming from inside the house here.

It is frankly no wonder 1 restaurant industry expert said no 1 in their right mind would sign the new agreement.

Well, I know that your instinct might be to now never go to your local Subway.

It may have been your instinct before this segment began, and honestly, it remains a good 1.

But it's worth remembering, some have spent their life savings on these stores, believing the promise they could be their own boss, and are now stuck in a business model that was stacked against them from the start.

And to prevent that happening to anyone else, there are things that we absolutely should be doing to better regulate all franchises.

The FTC should tighten up their rules on them and make disclosing financial performance mandatory.

That would force companies to give a much fuller picture to any potential investors of what they are getting into.

But until that happens, or Subway specifically decides to present a more accurate picture of how they operate, maybe we can tell their story for them through their favorite medium.

I'm talking of course about Korean sandwich drawers.

Everything started with the addition of meatball.

Every time we made sandwiches together, it was an opportunity to

I shouldn't have done that, but it was so attractive.

realized that the answer was right in front of me.

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Subway: Last Week Tonight with John Oliver (HBO)