The dark side of your $5 Footlong: Business owners say it could bite them

As fast-food chains across the country have slashed menu prices to revive flagging sales, a growing rift has emerged between some name-brand corporations and the local operators who run their outlets.

A Subway sandwich is far more than the sum of its fillings, franchisee Keith Miller says.

Those ingredients cost roughly $2. Then he pays labor. Electricity. Gas. Royalties. Credit card transaction fees. Rent.

All told, Miller, who owns three Subway franchises in Northern California, says it costs him well over $4 to produce one of Subway’s foot-long subs. And that is why, when the chain announced plans to drop the price of the sandwich to $4.99 starting in January, he and hundreds of Subway’s other 10,000 U.S. franchisees sent a strongly worded letter warning that the promotion could force some stores to close.

“The numbers don’t work for us,” said Miller, who also chairs an industry group, the Coalition of Franchisee Associations. “Ten years ago, they might have worked. But now they don’t, in my opinion.”

As fast-food chains across the country have slashed menu prices to revive flagging sales, a growing rift has emerged between some name-brand corporations and the local operators who run their outlets.

For years now, the retail industry has been shaken by giant companies that have been able to keep prices low, wooing consumers but squeezing suppliers and smaller competitors. But in the restaurant business, the push to keep prices low has pitted corporate headquarters against individual outlet owners — all operating under the same brand.

Corporations need to grow systemwide revenue to please board members and shareholders. But small-scale franchisees, who face rising costs and increased local competition, are far more concerned with store-level profits.

In addition to Subway’s plans to relaunch the $5 Footlong, McDonald’s will revive a version of its Dollar Menu next month. Taco Bell has promised to expand its selection of discount items, as have Wendy’s and Jack in the Box.

“This is an inherent financial conflict between franchisees and franchisers,” said J. Michael Dady, a lawyer at the Minneapolis firm Dady & Gardner who represents franchisees in conflicts with their corporate parents. “And some have handled it much better than others have.”

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