Subway Built 27,000 Stores by Selling Franchises. The Stores Were the Product.

In 2015, you could stand on a city corner and see two Subways from one spot. That wasn't a glitch — it was the strategy. The chain had crossed 27,000 U.S. stores, more locations than McDonald's, and every one of them was sold to someone who paid for the privilege of opening it.²¹⁰ Then the line bent. In 2016 the U.S. count started falling, and it has fallen every single year since. By the end of 2025 Subway was down to 18,773 stores — a net loss of 8,345 since the peak, a tenth straight year of decline.² That's not a slump. That's a chain that built more restaurants than its own customers could feed.

The popular story is that Subway fell apart after the Jared Fogle scandal in 2015. That's the wrong cause and the wrong year. The decline began in 2016 — the year after founder Fred DeLuca died — and its real engine was structural, not reputational.⁹ The stores were doomed before the spokesman was.

The model was built to sell franchises, not to feed them

Subway started in 1965 as a single sub shop in Bridgeport, Connecticut: a 17-year-old Fred DeLuca, a nuclear physicist named Peter Buck, and $1,000.⁷ When the chain began franchising in 1974, it discovered something intoxicating. A new Subway needs no fryer, no grill, no drive-thru — just a counter, a bread oven, and a few feet of retail. That made each store cheap to open, which made each store easy to sell. And selling stores, not running them, was where the money was. Every franchise sold meant a new royalty stream for headquarters with almost none of the operating risk landing on headquarters' books.

So the incentive ran one way and one way only: open more. The cost of a store sitting too close to another store was paid by the franchisee whose sales got split — not by the corporate parent collecting royalties on both. That is the trap at the center of an asset-light franchise model. The parent grows by adding units; the franchisee survives only if each unit has enough territory to feed it. Subway optimized hard for the first and ignored the second, and the result is a chain whose Circana-estimated average unit volume sits around $500,000 — roughly half the $1 million-plus median of the 100 largest restaurant franchises.⁶

Onto that thin AUV, the new owners stacked a heavier toll. For decades Subway's royalty was 4.5%. Under the Roark-era fee structure it is 8%, plus a 4.5% advertising contribution — 12.5% of a store's gross sales handed over before rent, labor, food, or the franchisee's own paycheck.⁵ Restaurant Business found that's the second-highest combined burden among the country's 100 largest restaurant franchises, against a typical royalty of 5%.⁶ Run the arithmetic on a $500,000 store and the parent's cut is the difference between a hard living and no living at all.

How corporate profit can soar while the stores die

Here is the part that confuses people. In August 2023, private-equity firm Roark Capital agreed to buy Subway; the deal closed on April 30, 2024 after an FTC review delayed it.⁸³ The Wall Street Journal reported a price around $9.6 billion — though neither Subway nor Roark ever officially disclosed it, so it should be read as reported, not confirmed.³ And since the close, Subway's corporate profit has exploded: net income climbed from $15 million in 2023 to $397 million in 2024 to roughly $688 million in 2025.⁴ A casual reader sees that and assumes the patient is recovering.

The patient is not recovering. Over the same stretch, total franchise revenue fell more than 6% to $767 million, and royalty revenue — the truest gauge of franchisee health — dropped 10% over two years.⁴ The profit surge came from somewhere else entirely: cost cuts and vendor rebates. Those rebates, the fees suppliers pay for the right to sell into Subway's system, ballooned from $44.7 million in 2021 to $136.5 million in 2025.⁴ In plain terms, the parent learned to make more money off the supply chain even as it collected less from the stores. The royalty stream is shrinking; the profit on it is rising. Same chain. Opposite math.

And there's a clock running underneath all of it. Roark funded the acquisition partly through whole-business securitization, loading $5.7 billion of new debt onto Subway's books as of end-2025.⁴ That debt is serviced, ultimately, by the royalty stream the franchisees generate — the same stream that has been falling for two years. Vendor rebates and expense cuts can flatter a single year's income statement. They cannot manufacture more $500,000 stores. The reckoning isn't cancelled; it's financed.

Isn't this just smart rightsizing?

The fair objection is that Subway is doing exactly what a wounded chain should do: shedding weak stores so the survivors get stronger. Close the cannibals, thin the herd, and the remaining locations capture the demand the closures release. There's truth in it — QSR itself frames the cuts as a 'rightsizing effort,' and a system that over-built genuinely needs to shrink.² If the net number stabilized and AUVs climbed, that would be the model self-correcting.

But the honest counter is that ten straight years of decline is not a tidy prune; it's an entrenched bleed, and the headline net numbers hide how deep it runs. In 2025 the chain opened 499 stores while posting a net loss of 729¹¹ — meaning gross closures topped 1,200, by implication.¹¹ More than a thousand franchisees walked away or went under in a single year, and the shorthand of '729 closed' undercounts the failures by more than half. Real rightsizing would relieve the surviving stores' economics. Instead Subway raised the royalty on them. You don't strengthen the herd by feeding it less and charging it more — you cull it faster.

Subway spent fifty years discovering that the easiest thing to sell — a store with no fryer and a low entry price — is also the easiest thing to oversell. The genius of the franchise model was that headquarters could grow without operating; the curse was that headquarters grew by selling its franchisees a slice of a pie that kept getting cut thinner. Now Roark has found a way to keep the parent fat while the system contracts: more rebates, fewer costs, more debt. It works on the income statement. It does not put a customer in a store that has too few of them. The toll road only pays as long as cars keep driving it — and Subway built so many lanes that the traffic finally ran out.