Bedros Keuilian Podcast Show - What You Can Learn From Subway and Other Fallen Titans - 040

Episode Date: March 29, 2018

Once the most popular, innovative, and profitable sandwich franchise in the world, Subway is now rapidly shrinking. In this episode, Bedros Keuilian and Craig Ballantyne dig deep into Subway and other crumbling business empires to tease out the warnings and lessons that you need to keep your empire prosperous for the long haul. “We evolve or perish.” - Bedros Keuilian Here’s what you’ll discover: 1:55 - Why Subway has lost over 900 stores in the last 12 months—the largest loss in company history! 3:19 - Why you should pay attention to your local Taco Bell and McDonald’s. 5:30 - Why a public scandal won’t destroy your business, but poor leadership will. 8:33 - How American Airlines is “screwing over” their best customers by removing a single olive from each on-flight salad. 16:12 - How to rapidly scale without creating infighting between your many locations. “Good can go to great, and great can go to very bad when you don’t continue with the right decisions.” - Craig Ballantyne

We evolve or perish. All businesses must evolve with the times, with the technology. But at the end of the day, you can only hang your hat on the $5 footlong sub for so long. Now, imagine that you built a massive, successful business, and then all of a sudden it starts to implode and crumble upon itself. Well, on this episode of the Empire Podcast show, we're going to talk about subway franchises, the sandwich franchises, and how they have lost over 900 stores in the last 12 months. I'm Baderos Kewan, and this is Craig Ballantyne. Welcome to the Empire podcast. So Craig, boy, Subway has over 23,000 stores just in the United States, and in the last 12 months, they've experienced the most loss in stores ever, and over 900 stores. And let's deconstruct why

this happened so that anyone building an empire or running an empire will make sure never to experience this. Yeah, you know, I don't really feel that bad because I would hate going into Subway and you'd walk out and you'd smell like that bread for like nine days in a row, even though it was totally worth it for the Meatball Sub that I used to live on back in my 20s. But they have had problems because they are not keeping up. And that's one of the main reasons. They have store traffic is down 25%. A third of the stores are unprofitable.

And I actually have a friend from high school who owns two subways. And I mean, he was telling me how much he was making per month, even when it was successful. And it wasn't that much money. So I read an article recently, it talked about five big mistakes that they were making. And what I want to do is ask you your opinion on them because you have built a massively successful franchise. And it's continuing to grow and keep up. So the very first thing is that Subway did not keep up with changing trends. And they basically let Chipotle and Sweet Green, even McDonald's, eat their lunch, you know, to use a phrase there.

Well, by the way, on top of that, now there's Jersey mics. there's another popular one. Jimmy Johns. Jimmy Johns, exactly. Which is coming up really quickly as well. And so that's exactly what they're doing, is they're letting others eat their lunch. And the reason for this is the lack of evolution.

And one thing we always talk about upstairs where our bullpen is of team members is we evolve or perish. All businesses must evolve with the times, with the technology, with the way that people want to be marketed and advertised to, or you will perish. And Subway has been around for a long time,

And they got a little too comfortable. And when you get comfortable, you begin to get complacent. When you get complacent, complacency kills. And this is what we're seeing happen right now with Chipotle and McDonald's and even Arby's. Arby's has Giro's right now. That's their new thing. They're just bringing people back in. You always have to have something new.

And at the end of the day, you can only hang your hat on the $5 foot long sub for so long. Right. Yeah. Yeah. So that's the big issue. And you know, you go into Chipotle and it just seems like such a greater experience. even, and then you kind of feel depressed when you go into a subway in a little way. And by the way, where evolution is concerned, it's not even just the product that's on the inside.

I want people watching and listening to this to really pay attention to the local McDonald's and Taco Bell right now as we're doing this, so whatever, February of 2018, as we're filming and recording this, McDonald's and Taco Bell are going through a visual transformation. The golden arches are actually going from yellow to almost a... lighter orange color. You'll notice that. They're putting stone facade on the outside of their building instead of stucco with uplighting and trees and bushes. And jack in a box is starting that now as well. They are really making their restaurants. What about McDowell's, the Golden Arts? The McDowell's, remember that? If you can tell us what movie that is from, you will win a free copy

of Craig's book, Perfect Day Formula. So if you just DM us and tell us what that's from, you'll get a free copy. McDowellows, yeah, with the Golden Arcs. But even the outside facade, And so one thing we do with Fit Body Boot Camp is we are always evolving. We will never get complacent. And we've changed our logo three times in the last six years. Oh, wow. It's still Fit Body Boot Camp, but it used to be slanted and kind of pixelated, and then we straightened it out, and then we took the box away,

and now it's just clean and white. But we're always evolving, not only from the outside, but from the inside design, putting wood pallet walls up instead of just a red, white, and blue. Because people want to see change. And when visually things still look the same, you just begin to discount it, and your mental reticular activation center goes, oh, it's still the same old thing,

same old McDonald's, same old subway. You tune it out. You tune it out. Totally. Yeah. Our job as entrepreneurs is to always be tuned in. Yeah. Yeah.

Now, unfortunately, people have been tuned in the subway for the wrong reasons. So, you know, years ago, I remember reading the book Made to Stick by Chip and Dan Heath, and one of their big chapters in it was about how this Jared guy, who was the subway story,

helped them, you know, just build a massive, massive franchise. Now he has come back to haunt them in many, many ways in the last couple years with his fall from grace and his disgraceful behavior. But even with that, there must be some bad leadership within the business. You can't just lay all the blame on your version of Ronald McDonald here. Right, right. Truth of the matter is Subway did a really good job with kind of pivoting away from Jared. They really did.

I mean, it was on everybody's radar, but then Subway did a really great job saying, oh, my gosh, we've parted ways with them. We denounced what he did, bad, bad, bad, shame, shame, and he no longer represents Subway. Yeah. And as the public, we go, you know what, who knows what Jared's doing behind closed doors? We can't hold Subway accountable. Where we can hold Subway accountable, where I can be held accountable, is leadership, right? And what happens in this building determines how our franchises grow or shrink. And so poor leadership or bad communication amongst leadership or argument amongst leadership.

Now, I don't know what the leadership in Subway is, but I can tell you this, that we could walk into there. If you and I were fly on the wall at Subway HQ, we can probably point out 10 to 20 different things in poor communication, poor vision. Maybe they were clear on their vision 10, 20 years ago, but their clarity of vision has gotten fuzzy. And maybe their expectations, Disneyland went through this. When I work at Disneyland, you can have facial hair. My sideburns could even be below my earlobes. It had to be clean-shaven. Can it show tattoos.

Today you go into Disneyland and some people have tattoos. You can have a mustache, et cetera. Piercings, if they weren't on your ears, piercing had to be removed on your nose or lip. Today, employees can have that. Now, when I walk into Disneyland, it's a little different experience for my kids than it is for me. Like for me, it was magical. The magic's gone.

The experience is still amazing, but it's not magical, right? And so what happened? Has the leadership in Subway reduced their standards, set lower standards, not by choice, but just by letting it slide. Right. Letting it slide is a dangerous thing. Letting it slide is a dangerous thing. So leadership is really what affects whether a business is going to grow or contract. And that's the first place that I would check if I were Subway. You know, can I tell you an interesting letting it slide story? Sure. So you've ever had a Mars bar? I have. I love them. Okay, so the Mars Candy Company for many years was slightly decreasing the amount of chocolate or the sweetness of the candy bar. And they thought, okay, if we just decrease it by like half a percent, no one will notice. And over time, they kept on doing that until people started realizing, I don't like this chocolate bar anymore. I don't know why, but it's different than how it used to be.

And it was just like cutting corners and letting things slide, and that was how a lot of businesses get into trouble. Yeah. So that could go... Can I share something with you on that point, too? Yes. My son brought this to my attention. American Airlines last year reduced a number of olives on their salad from two to one. Right.

And ended up saving something like $10,000. Now, that one thing, that one olive, goes unseen. Right. But it's the slippery slope of when the greed glands begin to secrete and we go, okay, well, how about finding a way to deliver better service and value and just charge me more for that freaking olive, right? Right. Exactly. And this is what happened. when we begin to contract this way instead of that way.

Yeah, and you know what, the bean counters that American Airlines probably thought no one's gonna notice, but you know that I really love this whole frequent flyer thing, and I read about it all the time. And a lot of, like, I would read these blogs, and people were arguing, like upset about it. Sure. The people who were their best customers said,

here we go again, another way that American Airlines is screwing us over. You know, first of all, they took away this extra drink, and then they took away lounge access. And now they're doing this to us. And they think we don't know, but we know. And now I'm not going to be a platinum anymore. I'm jumping over to Delta or something like that.

It's the olive that broke the camel's back, the... Oh, it is the olive that broke the camel's back. That was a good one. And you know what's really crazy about this, too? Is look at this. This one talk about an olive is now on our podcast. Right. It's on all these different blogs that you're on, the frequent flyer blogs.

And how much money is it costing them in lost business? One fucking olive. How much money is it costing them and lost business when in reality they could have just left that olive on there and charged me a quarter more for my flight But then you know 10 X the service right you know don't give me an attitude when I get on your plane Yeah hello sir how are you wonderful beard you look handsome How about one of those? That would be a hundred xing the service I believe that's okay So that leads us into our next one which is internal conflict which is fighting between the franchisees and the franchise or and that's if that's happening that's where there's got to be

breakdown. And what happened with Subway was very similar. They were letting it slide. They were not letting the franchisees reorder lettuce until three days later. And so you're doing, I mean, that stuff was already crappy. It was already terrible, even if it was ordered daily. And now it's three days later. People are going to notice that in their sandwiches when they can go to Chipotle and get something so much fresher. So, you know, how does somebody who's running a business, whether it's a franchise or not, avoid that internal conflict. You know, to me it's a very simple thing. And I've got a good friend from years ago.

His name is Craig Drossi. And Craig said, he put his arm around me. He was actually the district manager for the personal training company that I worked for. Got it. He had another mentor for me back in the day. And he put his arm around me, and I was just showing my frustration. I was a manager of one of the locations. And I was like, I go, Craig, I can't believe that this trainer just walked out on that client

when he got a call from his girlfriend. Like, it's common sense. You don't walk out on your client. And he put his arm around and he goes, buddy, common sense is not so common. And I go, holy hell, you're absolutely right. And here, here's a great example of common sense is not so common. As the franchisor, as the Fit Body Boot Camp franchisor, I like to think that I've got my finger on the pulse.

Yep. But you know what I do instead just to make sure I've got my finger on the pulse? I don't assume that I know what's going on out there at our franchise locations. One, I open up my own locations, our corporate own locations, right? So I have my own Fit Body Boot Camp locations. And I don't know, does Subway have any corporate-owned stores? Because if they did, maybe the president or the vice president or the C-O could have their finger on the pulse and go, hey, this is what's happening in our own actual stores. So our franchisees are not off base.

That's thing number one. Thing number two is stay plugged in to your franchisees. Don't be adversarial. Don't be problematic with them. Now, having said that, there's some requests that our franchisees make that are just way absurd. Way absurd. And that happens in every business on every platform. And you have to be able to discern whether, wait, is this on the border of, is bordering on absurd?

Or is this something that I actually need to address? And so I have about 20, 25 franchisees that when I hear something, I go to them and I go, hey, do you think there's any validation to this? Is there any truth to this? Is there anything that I could do to make this better? One of those things, and I'll be fully transparent, last year, we had a deal with Costco. So on Costco.com, and in every Costco, you could buy gift cards, three months of workouts at Fit Body Boot Camp for $150. Now, that's a smoking deal, especially considering we charge about $150 a month at a Fit Body Boot Camp. Right.

And so our Fit Body Boot Camp owners started to contact us as they were getting these in, and they said, hey, look, we got this gift card in. Someone's got three months for $150. But when it was time to sell them on more training, they really wanted that level of deal, and we weren't able to give them $60 a month in boot camp membership. So our closing percentage is down. Yeah. Well, so I immediately started asking around, hey, is this true?

Is this true? Is this true? If it's only from one or two people, maybe you just have a closing problem, right? But I started asking around to all the different locations that were getting the Costco deals. And they said, you know what? In fact, it is true. We're just having a really hard time closing them on additional programs on ongoing six months or a year. So we contacted Costco and we said, hey, you know what? December 31st is our last month. You asked for a 30-day notice? Here's our 30-day notice. And as of this past December 31st, we stopped the Costco deal. Now, I love the idea of being aligned with Costco, a big global brand. But the fact is it's a they wanted us to keep our price so low and what we give so high, created a discrepancy and conversions for us. So I'm either going to tell my franchisees, hey, you know what, you don't

know what you're talking about, we're going to keep selling that, and now I'm going to build enemies, right? We're going to have a rebellion. Or I'm going to listen, be humble, and then solve the problem if I can solve it. Yeah. And you know what? As we do this, I'm starting to think, I'm pretty sure that Fred DeLuca, the man who started Subway, did pass away a couple years ago. And so I imagine that once he did, once he was out of the game, that things started to slide, right? Yeah, same with Sam Walton with Walmart, right? Absolutely. All right.

So now the fourth thing that is apparently behind the fall of subway is something you mentioned before, the $5 foot long, and the reliance on intense discounts. So you can't charge what you're worth, and then that can really hurt you. And that actually goes back to the exact Costco story that you told right there, right? Exactly. Like we know that we want to keep our prices at a premium. Fit Body Boot Camp is not a class that you would take in a big box gym like an aerobics class. Fit Body Boot Camp is personal training where a personal trainer actually runs the workouts, modifies the workouts for you for your fitness levels or injuries. We do monthly fitness evals. We follow up. If you don't show up to a

workout, we follow up just like a personal trainer. So we're not a class. We call our workouts sessions, just like a personal training session. But instead of one-on-one, it's a group workout sessions, so we've made it more convenient and affordable. But we're not going to reduce our price down to $60 a month or whatever, like these other classes offer because they have a TV that's running a workout and you just watch the TV and do that in the thing. We have a personal trainer who's leading their workouts. So if we were to discount to compete with them, we would put ourselves in the grave.

Instead, we increased our value. We position ourselves as a category of one, right, which is what Subway should have done. Hey, we are the original. We use better ingredients. I mean, holy hell, Quiznos came in white. right because they had their own issues but they should have taken the lead from Quiznos and said look quiz knows is gone but the reason they even did well was because they had better ingredients higher quality yeah so now that they're

dead let me change our model to better ingredients higher quality and oh by the way we're the original subway sandwich thatah here we are sell on value and service and delicious taste of product versus drop our prices so that we can compete and pull people away from Taco Bell and McDonald's etc and now what are they doing? They're trying to scrape the bottom of the barrel and make some money. Yeah, absolutely. So another thing that they did, the final thing is they had so many locations. I mean, that would just lead to, you know, the same as was Starbucks, when they're almost like across the street from one another. But Starbucks can do it because they have that higher quality.

And subway, they were letting other people just, you know, come in and have that competition. And then it starts more infighting between franchisees, right? Yeah, yeah. And that's the last thing that you want, obviously. Now, we know in my world, in the fitness world, curves at its peak had over 13,000 locations worldwide. Currently, CrossFit has over 5,000 locations. They had 7,000. I think they're contracting, but they're contracting for a different reason. I believe that they're contracting because of lack of marketing support they're giving and business support they're giving to their owners.

Why be a CrossFit when you just go and have the same stuff in there and you're going to do all the marketing anyways? Yeah, exactly. And then Jazzercise in my space, 19,000. locations worldwide. Right? So when you really look at those three, are they oversaturated, overpopulated? Probably, probably, you know, curves with over 13,000 locations. And now they're right around four or five thousand locations.

People think curves went away. They still have four or five thousand locations. Wow. And people tell me, man, how big do you want to make Fit Body Boot Camp? 10,000, 12,000 locations? Nope, 2,500 locations. It says so on our website. I want 2,500 locations worldwide, not even countrywide, worldwide.

And we do our best. Now, some of our locations are like 2.7, 2.9 miles away, but we make sure that the population that they're in can support it. So you might be here and I might be there like three miles away from each other, but you have 60,000 people of audience. I've got 70,000 people of audience. We're good. It's when you start stacking them on top of each other and then going back to your franchisees and many of these franchises and many of these franchises are guilty of this and saying, hey, now that your franchise agreement is up, here's your new franchise agreement. and if you notice, your territory has gotten a mile and a half smaller. Well, if I take a mile and a half from you and him and him, what am I really doing?

I'm creating a fourth territory that I'm going to drop in there. Can the population support it? Has the population grown to support four? Probably not. My greed glands, however, are secreting, and I want to support four because there's another person willing to give me money. So the franchisor has that obligation to protect its franchisees. and there's intricate software that's made to say, all right, here's where you can open up a franchise. Sadly, you can tweak the software to go reduce the demographics, the territory, and the software will do whatever you want, and so you can justify it with that.

But at the end of the day, if you have enemies of your franchisees, you're screwed. Or if you're a chain, like Starbucks is a chain. It's owned by one organization, one guy, right? There's no franchisees. But if all of a sudden, the employees, their partners, become adversarial with corporate, it's over. So you have to keep the people running your locations or running your brand happy, otherwise you're screwed. Absolutely, absolutely. Well, thank you so much for sharing the inside baseball there behind FitBody Boot Camp.

Very, very helpful. And it just shows you why you're able to do what you're able to do to continue to grow, to keep people happy, to continue to change and evolve. and that is the key. But let's give a little love to Subway here. So tell me your favorite subway meal, and then I'll tell you mine, and we'll wrap it up. All right, my favorite Subway meal, actually when I was in high school, was the footlong tuna sub on white bread, because wheat bread is for losers at the time, right? I was just a fat kid.

Extra mayo. Yep. Sun chips? Do they have Sun chips in Canada? Yeah. Yeah, they allow that on the border? I think they might actually be from Canada. Yeah.

Even though we don't a whole lot of sun chips, and then, of course, a fully loaded soda pop, like, Coca-Cola or something. Okay. That was my main deal. So what was yours? Mine was the footlong meatball sub with extra sauce. I love that sauce. Raw sauce.

Yeah. I can't help it. And then I would probably have it on like one of those fancy highfalutin honey oat breads or something. Yeah, yeah. And then I would go with a chocolate milk because I was really big into chocolate milk, so a big thing of chocolate milk. And then I would go with two cookies.

The cookies, I mean the cookies are so good there. Yeah, yeah, yeah. So that was back in my. my big, big muscle days. And great post workout meal already. Yeah. Now, how much, I know you told me earlier, but I want you to tell everyone, how much did you weigh then?

I weighed 194 pounds of like 9% body fat. And I remember seeing pictures of you back then, like, just like a brick shit house. And I thought I was still skinny back then. No kidding. I don't know why. Anyways, that's good times. So, but you can see how good can go to great and great can go to very bad, very quickly when you don't continue with the culture and the right decisions in the business, right?

Amen. Absolutely right. So if you got any value from this episode, please do us a big favor and rate us. Give us a five-star rating and review on Stitcher and iTunes. And of course, share this video if you're watching it on YouTube. And we really appreciate you watching this and listening to this podcast. Have a wonderful day.