American sandwich chain giant Subway has made a momentous decision regarding its operations in the Chinese market. On June 6, the company’s global headquarters announced the signing of a new master franchise agreement with Shanghai Fu-Rui-Shi Corporate Development Co., Ltd. Funded by a consortium of private investors including Asia Investment Capital, the agreement now stands as the largest in Subway’s history since its China debut and one of the biggest in the entire fast-food chain industry.
The latest franchise agreement highlights Subway’s desire to find a more suitable trader for the mainland Chinese market, as it aims to further expand its presence and market size in the region. Under the terms of the agreement, FRS will gain exclusive rights to manage and develop all Subway stores in mainland China. Over the next 20 years, the company plans to open 4,000 Subway stores, effectively increasing its market size in mainland China by seven times.
“This agreement is a significant milestone in Subway’s international growth strategy as we continue to focus on strategically expanding our footprint and maintaining our position as one of the world’s largest restaurant brands,” said John Chidsey, Subway’s Global Chief Executive Officer. “China is a key market with significant long-term growth opportunity, and we look forward to bringing the Subway experience to even more guests in the region.”
As of 2021, Subway boasts approximately 37,000 stores worldwide with only 673 stores operating in China, according to third-party platform data. Meanwhile, McDonald’s has 5,950 stores and KFC has 9,620 stores in China, indicating the disparity between Subway and its competitors.
While Subway has positioned itself as a “healthier” alternative to conventional fast food in the US market, the sandwich category it represents has not achieved the same level of popularity in China as burgers and fried chicken from McDonald’s and KFC. As such, the sandwich brand has faced challenges in creating localized products and marketing strategies compared to other catering establishments with higher investment scales.
However, it is important to note that Subway first entered the Chinese market in 1995, five years after McDonald’s and eight years after KFC. While it initially lagged behind these fast-food giants, the new master franchise agreement demonstrates Subway’s determination to catch up.
In light of these factors, Subway’s decision to find a new general franchisee in the Chinese market may signify a strategic move to revitalize its presence with more localized partners. According to information released by Fu-Rui-Shi, Subway plans to enter a new stage of development in China in 2023, involving reshaping the brand’s positioning and store image, menu optimization and innovation, and upgrading the digital experience.