Subway is a global fast food powerhouse, boasting a staggering 37,000+ locations across more than 100 countries as of 2021. With $16.2 billion in systemwide sales in 2021, it ranks among the largest restaurant chains by revenue, behind only McDonald‘s, Starbucks, and KFC globally.
Despite this massive scale and brand recognition, Subway remains one of the most prominent privately-held companies in the world. Subway stock is not traded on any public exchange, and the company has shown no indications of pursuing an initial public offering (IPO) anytime soon.
Private Ownership Under Doctor‘s Associates Inc.
Subway‘s ownership is tightly held by Doctor‘s Associates Inc. (DAI), a private company created by Subway founders Fred DeLuca and Peter Buck in 1966. DeLuca started the submarine sandwich shop at age 17 in 1965 with a $1000 loan from Buck, then a family friend and nuclear physicist (hence the "Doctor‘s" in DAI).
The pair grew Subway from a single shop to a massive franchising operation, making both DeLuca and Buck billionaires in the process. After Fred DeLuca‘s death in 2015, ownership passed to his widow Elisabeth and son Jonathan, who remain Subway‘s primary owners today.
Here‘s a breakdown of Subway‘s key private ownership entities:
- Doctor‘s Associates Inc. (DAI): The overarching private company that controls Subway
- Franchise World Headquarters LLC: Manages franchising operations and collects royalties
- FWH Technologies LLC: Owns and licenses Subway‘s point-of-sale software
- Subway IP Inc.: Subsidiary that controls Subway‘s intellectual property (trademarks, patents)
- Subway Franchisee Advertising Fund Trust (SFAFT): Manages Subway‘s advertising budget, funded by franchisee contributions
So while Subway itself is not publicly traded, Doctor‘s Associates Inc. sits at the top of a complex web of holding companies and subsidiaries that control the sandwich giant. This private structure has allowed the DeLuca family to maintain tight control and keep Subway‘s finances shielded from public view.
Subway‘s Struggles and Potential Sale Rumors
Despite its massive global presence, Subway has struggled in recent years with declining sales, store closures, and increased competition. Subway‘s U.S. store count has declined from a peak of 27,103 in 2015 to 21,147 at the end of 2021, a reduction of nearly 6,000 domestic locations.
Here‘s a snapshot of Subway‘s recent financial performance:
| Year | Systemwide Sales (Billions) | YoY Sales Growth | Total Stores |
|---|---|---|---|
| 2021 | $16.2 | -2.6% | 37,540 |
| 2020 | $16.7 | -7.5% | 38,313 |
| 2019 | $18.0 | -1.6% | 41,600 |
| 2018 | $18.8 | -4.3% | 42,431 |
| 2017 | $19.6 | -3.9% | 44,014 |
As seen above, Subway has experienced five straight years of declining systemwide sales, with the trend accelerating during the COVID-19 pandemic. The company has cited oversaturation of stores, changing consumer preferences, and outdated store designs among reasons for its slump.
Subway has attempted to reinvigorate growth through menu innovations, store remodels, and international expansion. However, many analysts believe more drastic action is needed, such as a full-scale turnaround under new ownership or fresh executive leadership.
These struggles have fueled rampant rumors that Subway was exploring a sale in recent years. In 2021, the New York Post reported that Subway had hired advisors to explore a potential sale that could value the company at over $10 billion.
Subway swiftly denied these rumors, with Elisabeth DeLuca stating emphatically "we are not for sale" in an interview with the New York Post. However, many industry watchers believe a sale or even an IPO could still be in the cards if Subway‘s stagnation continues.
Prospects for a Subway IPO
So could Subway stock hit the public markets anytime soon? While the company has historically resisted going public, an IPO could make sense now for several reasons:
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Liquidity for Owners: An IPO would allow the DeLuca family to cash out a portion of their ownership at a high valuation, while still maintaining control through special share classes. This could be especially appealing given Fred DeLuca‘s passing and potential estate planning considerations.
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Access to Capital: Going public would give Subway a massive infusion of cash to pay down debt, remodel stores, invest in technology, and fuel expansion. Publicly-traded stock could also be used as currency for acquisitions of complementary brands or franchisees.
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Prestige and Publicity: An IPO would generate huge publicity for Subway and solidify its status as one of the most valuable restaurant brands in the world. This could help attract top talent, secure better real estate locations, and boost consumer perception.
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Peer Pressure: Many of Subway‘s fast food peers are now publicly traded, including McDonald‘s, Yum Brands, Restaurant Brands International, Domino‘s Pizza, and Chipotle. As one of the last giant fast food holdouts, Subway may feel compelled to join the ranks of its publicly-listed rivals.
However, going public also comes with significant risks and drawbacks. Subway would face intense scrutiny over its financials, governance, and growth plans as a public company. It would also be subject to short-term pressures from investors and analysts, potentially hindering long-term strategic moves.
Additionally, the fast food industry is notoriously fickle and competitive, with changing consumer tastes and discount-driven promotions. As seen with other struggling fast food stocks like Potbelly, Noodles & Co, and El Pollo Loco, investors can quickly sour on restaurant concepts that fail to deliver consistent growth.
Valuation is another key question for a potential Subway IPO. While the company generates billions in annual sales, its recent declines and complex franchise model may give investors pause. Subway‘s reported $10+ billion valuation target could prove rich unless it can demonstrate a credible turnaround plan.
Looking at comparable fast food stocks, many trade at enterprise value to EBITDA (EV/EBITDA) multiples in the low-double-digit range. Burger King parent Restaurant Brands International trades around 12x EBITDA, while Wendy‘s is around 13x and Domino‘s Pizza is at 16x.
If we assume Subway can eventually generate around $1 billion in annual EBITDA (a generous assumption given recent trends), an 8-12x multiple would imply a potential enterprise value of $8-12 billion. Therefore, Subway‘s rumored $10+ billion asking price may only be achievable if it can convince investors of an imminent return to growth and profitability.
Conclusion: Will Subway Stock Be on the Menu?
In summary, Subway stock remains tightly held by the private company Doctor‘s Associates Inc, controlled by the DeLuca family. Despite recent struggles and sale rumors, Subway has repeatedly affirmed its commitment to staying private for the foreseeable future.
However, an IPO could provide the DeLuca family with a lucrative exit while giving Subway access to much-needed growth capital. The allure of joining its publicly-traded fast food peers may also prove tempting as Subway looks to turn around its struggling business.
Ultimately, the odds of Subway stock hitting the public markets anytime soon still seem relatively low given management‘s historical resistance. But if the company‘s challenges continue to mount, the calculus could quickly change.
For investors craving exposure to Subway and the fast food industry, the best options remain its publicly-traded peers like McDonald‘s, Yum Brands, and Domino‘s Pizza. But keep an eye on the Subway IPO rumor mill, because one day this sandwich king could finally serve up its stock to the investing masses.
