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Why Subway never went public

Why Subway never went public

This post is part of the On the Margin blog.

Fred DeLuca, who died at 67 this week after a two-year battle with Leukemia, was among the most underappreciated entrepreneurs in the restaurant business.

The Subway chain’s growth, from just 200 locations in 1982 to more than 44,000 today, made it one of the fastest-growing restaurant chains in history.

Yet, remarkably, Subway has remained private, even though at various points in history investment bankers would have formed a long queue to get a chance at buying stock in what would become the world’s largest restaurant chain.

Indeed, it was barely ever a consideration.

“Pete and I talked about that only once for about a half an hour,” DeLuca told Nation’s Restaurant News in 2010. “We asked ourselves if we really wanted to have a lot of other stockholders to answer to when it was already challenging enough to work with the franchise owners.”

To be sure, companies go public as a way to raise funds. And Subway generally didn’t need to raise funds. DeLuca was not interested in selling out, and the company’s franchise business model enabled the chain to add units rapidly without the need to raise a lot of excess capital.

Still, most big restaurant chains ultimately end up going public, making Subway somewhat unusual. It is one of only four chains among the 25 largest in the country, according to the NRN Top 100, that are privately held.

Fred DeLuca
Fred DeLuca. Photo courtesy of Subway

For his part, DeLuca suggested back in 2010 that answering to shareholders could conflict with the company’s ability to work with franchisees.

“We weren’t quite sure that the goals of public shareholders would be the same as ours and of the franchisees,” he said. “Franchisees’ goal is to make money at the store level, which is simultaneously good for the whole system. Shareholders may think differently from time to time, so we decided against it.”

That’s an issue that has faced several franchise systems over the years — McDonald’s Corp. has long walked a tightrope between satisfying shareholders and franchisees. That’s not easy to do.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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