Buying a Subway?

Consider these key things first before diving in too deep.

We’re seeing a fair amount of interest from people looking to buy a Subway restaurant at the moment. And there are a number of factors to take into consideration.

1. Asking price

There are a wide range of asking prices with some starting from the low $200k’s, ranging up to $650k - $780k!

While the asking price is important, the return on investment is the key. This is where profitability and the ‘multiple’ used needs to be looked at carefully.

NOTE: Subway is top of the list in the 10 Biggest Fast Food Franchises in the Australian market - see it here.

2. Profitability

Profits vary widely across the board. 

The three major cost items are; 

1. Cost of goods sold (COGS), 
2. Rent, and 
3. Wages. 

Not much can be done about the first two, so wages is the one to watch. 

Some owners are putting in long hours to make it work. These hours may or may not be included in the Profit & Loss. 

These need to be ‘normalised’ in your due diligence. Ask yourself, “what would you need to pay someone to do the work (and hours) the owner is doing?”

3. Multiple

Some asking prices are based on multiples of 3 times. No one is getting 3 times anymore. Not since COVID.

However, the argument for Subway is that many of their stores have done BETTER since COVID, as more people are working from home (WFH), their delivery sales have increased. In some cases, massively. 

But this leads to the question of sustainability.

Read: The REAL reason Subway has closed 200+ stores in Australia

4. Sustainability of Profits

If there has been a spike in sales revenue and profitability due to working from home, what happens when people start going back to the office? 

While WFH might be here to stay, many corporates are keen to get their staff back into the office. 

So, the question becomes, how sustainable is the profitability of the business if it has been based on this blip? 

What does this do to the asking price?

5. Store Fitout

Subway has been upgrading their fitouts for the last few years. 

Many have been done, but there are plenty still to go. Consider the impact this will have on the store you are looking at.

There is the physical cost, approximately $100k for the fitout. 

But there is also the shutdown and disruption cost while the works are being carried out. Be sure to factor this into your projections when you are doing your analysis.

Once these key areas have been considered, there are also the other issues of due diligence to look at, such as location, lease terms, finance etc. 

But consider well these first items, before you dive in too deep with your investigations.

Let me know if you need a hand.

Contact Peter HERE