Open a Sandwich Shop in Orange County
Everyone is wondering how much profit is made on the five dollar sub that they just ordered? While the argument could me made that it would cost more to make it at home, a lot of you think that they must be making a lot. And some of you are thinking how can i sign up? Well, the first question is hard to answer. Since these sandwich shops are franchises, they profit margins are a closely guarded secret. We have searched and searched the internet, and discovered these margin estimates.
Federal Law prohibits franchisers from making “income claims, ” but we did find these general estimates on the web. Take these with a big grain of salt.
According to Wiki answers,http://wiki.answers.com/Q/How_much_does_a_subway_franchise_owner_earn Royalties and food cost about 40% of sales. So you make a 60% gross margin. According to Franchise Hound (http://thefranchisehound.com/?p=266 ) royalties and advertising charges are about 12.5% of sales and food costs between 26-30% of sales. So your gross margins are about 58-61% of sales.
Sandwich Franchises in Orange County
Since a sandwich is the easiest meal to make, requires very little skill, or equipment, you would think this would be an easy business to get into. And, apparently there is a radio personality who has advised people who are employment challenged to start a sandwich Shop because it only costs $10,000. But simplicity of the business is highly misleading. A lot of independent sandwich shops don’t seem to last long. It’s not that the independents can’t put a better sandwich on the table, they just have problems getting customers through the door. So we decided to look at big the OC’s big shots.
There are three major sandwich shops in the OC. Subway, Quiznos, and Togos and relative new comer Lee’s Sandwiches is expanding fast in Orange County. And then there is and old favorite, Arby’s. Firehouse Sandwiches is a very popular operation that started in Florida and we can expect to expand into Orange County Soon.
Franchises are successful in this type of business because they have the benefit of reputation. When you go to any franchise, you know what you are going to get and they know it will be clean. It might not be the best possible product, but people don’t like to venture out much when it comes to fast food. Also, there are some economics of scale in terms of advertising programs.
There are two ways to acquire a franchise: open a new franchise location or buy and existing franchise. In general, these companies try to control the news flow about stores for sale. The reason for this is obvious. If prospective buyers notice that there are a lot of stores for sale, they will think twice as to whether the franchise concept is a good idea. Also, if employees find out their store is for sale, they may start looking for another job. So listings are hard to come by. An additional issue is that people think they can get into the business for a couple thousand dollars, so most of the franchise websites amount to screening platforms that discourage non-qualified people from wasting their time. Generally you have to fill out an application before they will even give you the time of day. We have done some research about what it takes to get in the business.
Subway seems to be the most popular of the four chains in Orange County. They have a Proven Concept for franchisee success, and an intensive training course. Over 35,000 investor owned Subways shows that they know something about getting people into a successful business. The cost of starting a franchise, (capital requirements) according to their national website is around $114,800 to $285,000. But according to their Orange County Development Representative, Lauren Hardy, high real estate costs in Southern California tend to push costs above the national average. There are limited areas available for a new Subway; and as a general rule, Subway likes to have existing franchisees start new Subways. So the best way to get into a Subway is to buy an existing location.
If you are interested in buying a Subway, you must be pre-qualified by their development agent. Mrs. Hardy explained, “We believe in setting the new franchisees up for success. The reasons we recommend new franchisees to purchase an existing store is because of the benefits of walking into a built out store, and acquiring the sellers employees who already know their business. The construction process of a brand new store is a very challenging task in itself. To manage construction, hire and train new employees, while learning how to run the business is a difficult task for a new franchisee. ” After your training, Subway will do some “hand holding” until you are comfortable operating the store all on your own.
Click here for Subway’s Orange County development agent’s website. It list Subways for sale which seem to be duplicated on Subway’s business listings. In other words don’t go to the store and ask if you can see it because it’s for sale. Prices are determined by the existing owners and not the Subway corporation.
The royalties are 8% of gross sales and there is a 4.5% marketing charge. To qualify for a franchise in Orange County, you need:
- To have a net worth of at least $300,000 and at least $175,000 in liquid assets. Unlike some other franchisee opportunities, the value of retirement plans and access to home equity credit does not count toward liquid assets, but does count toward your total net worth. (Note, these are numbers we pulled from their old webpage, their rewritten webpage does not give financial requirements.)
- You must live locally
- You are required to work full time in your Subway business, it’s not a part time job.
- Legal residency in the US or US citizenship.
Subway makes it clear that you need to do your research regarding the area. This is the most important factor in your success. They had a problem a while ago when some franchisees felt that their stores were too close to each other. So if your are looking at Subway or another franchise, you need to do your research independently. Copy of Subway’s Franchise flyer.
- A reader brought this Bloomberg Business article to our attention. Basically it says that Subway, and by implication the other older sandwich concepts, are being squeezed out of business. They are considered by many to just be cheap eats, and not perceived as super healthy by today’s consumers. They quoted an unnamed franchisee who said“We’re not cool with the millennials. We seem tired and old, and it’s hard to break out of that…” The article also stated that this chain has deeper problems as the franchisor is a family owned company which has made it’s money from selling franchises and not innovating food concepts. But there is not a stable transition in leadership. Additionally, their spokesman has been in the news for associating with some folks whom were allegedly doing very bad things. (seen the note on Quiznos below about how their singing rodent campaign caused lasting problems.) The article also touched on the lower average revenue per store and the companies zeel to increase the number of franchisees even in small non-traditional location.
This chain is not yet in Orange County, but they are getting big in Arizona and Nevada. They have about 500 shops so far. If you are thinking about opening a sandwich shop, it might be worth a Oceanside (2619 Vista Way Oceanside, CA 92054) to check out this up-and-coming chain. They are popular because people love the food. And they have a great theme. They have innovative sandwiches which they back up with advertising. For instance they are advertising the sweet and spicy meatball sub in Vegas, and they also have a King’s Hawaiian pulled pork and slaw sandwich.
The Sandwiches are steamed, and they have a good variety. They have the same stuff as other chains, seem hip and more exciting. One way to think of it is that on the restaurant quality spectrum, they are more toward casual dining and subway is more toward fast food. They get a bit more for their food (eg they get an extra $2.79 for their foot long meatball sub), and some restaurants even serve beer. The staff was super energetic. They say that it costs between $200,000 and $400,000 to start one, and they allow partnerships. They allow partners to split the burden co one partner can do mostly financing, and the operating partner can work in the restaurant. They require that the restaurant is your main gig. Firehouse Franchising Website They have just opened up San Diego, Orange, and LA counties for franchise development.
This is a big chain in the OC. https://www.togosfranchise.com/about-us/ To get a franchise, you need to have a new worth of at least $300,000 and have at least half of that in liquid assets—i.e. in the bank. They have a realistic estimate of start up costs for our area–$260,000-$420,000. You can finance this with a home equity loan, SBA loan, and/or equipment financing. As with Subway, they control every aspect of your store including leasing space.
This chain is currently going through some tough times. As indicated in the NPR story below, franchisees state that the franchisor has made it difficult for them to succeed in business. The franchisor has been toying with bankruptcy for a couple of years now. Subway has been credited with doing a great job of advertising, while this chain’s marketing has had some difficulties including using rodents in their TV commercials a while back. This Wall Street Journal Article sums up their franchisee relations problem by stating that “Quiznos franchisees say they’re struggling to stay in business. In addition to the fees the company charges them to use its name, store operators must also buy most of their supplies and ingredients from Quiznos’s distribution business. Franchisees long have complained that the subsidiary charges more than what they would pay to purchase those goods elsewhere.”
Around June of 2011, this chain’s website indicated it was currently expanding in our area and they indicated on one of their videos (Currently their franchising videos have been made private on Youtube. Possibly because there seems to be a group of dissatisfied former owners who keep posting negative comments about the franchise. They suggest that you search for quiznos + lawsuit and state that this franchise has had problems in other countries. But all franchise organizations have these issues and we have not done the research to say that this is a good or bad franchise opportunity. We are still waiting for them to reply to the e-mail we sent a while back regarding franchise information.) that now is a good time to open a Quiznos because the prices of their restaurants have gone down. Apparently you can get a good deal on one that has been closed. The royalty fee is 7-8% of sales and there is an advertising charge of 4% of sales. According to their website the existing franchise fee is $12,500. Click here for info about owning a Quiznos.
Say what you will, this is the best franchise opportunity video of all the sandwich places:
What makes Lee’s sandwiches special is the bread. While the other companies also have fresh baked bread, Lee’s serve it theirs on propitiatory baguettes rather than regular bread. Think of french bread, crispy on the outside and soft on the inside. It’s kind-of hard to explain just like people from New York will explain why their bagels are better, you don’t know unless you have had a real New York bagel.
Lee’s website makes it clear that it is not cheep to get started. For a small store or “mall” operation they estimate it will cost around 235000-420,000 which includes the $35,000 franchise fee. There is an additional royalty fee of 6.9% + a 2% advertising fee on gross sales. They are involved with the start-up process from helping you find a sight, negotiate the lease, furnish the store with all the necessary equipment … and they send experts to co-operate the store during your first few weeks. Additionally, there is an eight week training course. The video report below explains why they have become so popular–customers get a lot of good food for their money.
America’s Roast Beef Yes Sir. That was their tagline a while back, and Arby’s marketed themselves as the alternative to the burger chains. Yes they have great roast beef, but they have been re-branding themselves to appeal to today’s consumers, and seem to be trying to position themselves as a step up on the fast food quality latter.
According to their franchising website, you need at least $500,000 in liquid assets to open a standard Arby’s. But don’t let that number scare you off. Their definition of liquid assets you can include retirement plans and a portion of your home equity. They also have a DIP incentive program that lowers the initial franchise fee of $37,500 by $10,000. We are not exactly sure what DIP stands for, we assume D is for diversity i.e. non-Anglo people in California. The royalty fee is 4% of gross sales and there is a 4.2% marketing fee. And they have a lot of smaller stores now, as the road side stand alone restaurant does not seem to work as well in an urban environment. Arbys are going into strip malls, airports …
According to their national website, they have “plenty of room for expansion.” And one thing that they were clear about on their website (listen to the audio) is that they help you select a location; and their real estate people do an analysis to make sure you will be successful. Some of the other chains have put this most important decision in the prospective business owners hands–even if demographic and traffic flow analysis is not your expertise. We are waiting for them to get back to us regarding opportunities in our area. It seems like there are a lot less Arby’s then there used to be in Orange County, so there might be an opportunity to get involved.
Future Sandwich Concepts
Potbelly This is the “in” concept in franchising. The guys on wall street really seem to love this company. When we checked out their site, they offered franchises in the south and Midwest, but not yet in California.
Waffle Factory is a successful franchiser in Belgium. As the name implies, they put your sandwich on a Belgium waffle. They will be expanding to the US market soon and are now looking for a master franchiser. Check out their best asset–the Waffle Factory menu They also have deserts that will allow them to compete in the dessert shop –ice cream & frozen yogurt–space.
A reader let us know that Belgium Waffle sandwiches are not new to Orange County. One chain very popular Bruxie has three outlets. It appears to be an independent chain, and we don’t think they have franchise available.
Food for thought
- If you haven’t done so, consider working as a sandwich maker in an existing restaurant. Although all three chains have a training course, it’s less than a month, the nuts-and-bolts of running a business and practical experience seems like a lot to learn in a short period of time of their training program. Also, you may decide after a week that you hate making sandwiches. It would be better to make this self discovery before you invested your money.
- The other issue is territory. It seems like more and more sandwich franchises are popping up, and they are going into non-traditional locations such as gas stations and grocery stores. Make sure the franchisor guarantees you that you will have the exclusive rights to an area. They make their money from franchise fees and selling you food. Hence it could be argued they would be better off with three business people going out of business in a one square mile area then one business person doing well. Franchisees have litigated against Subway over this issue in the past, and now it appears that Quiznos has a similar problem as http://www.bluemaumau.org/9034/franchises_collapse_quiznos_launch_600_company_stores it is expanding into non-stand alone stores and opening company owned stores. This is a must read article.
- Unless you can work 24/7 the key to success will be finding a manager you can depend on and trust. After all, it’s mostly a cash business. This type of business is suited for those with large families who can work in the business. Ice has a special program to expedite the immigration process for family members if an investment is made in a business. That is, however, outside the scope of this website.
We came across this podcast which discusses how parent companies are making it hard for franchisees to make it.
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