Saturday, May 6, 2017

Why are there so many Subway and Dunkin Donuts franchises everywhere ?

Have you ever wondered why there are so many Subway, 7-11 and Dunkin Donuts franchises ? Where did they all come from so fast ? And why are so many owners from South Asia or the Middle East ?

It turns out 7-11, Subway and Dunkin Donuts believe in a high density store model.  Because there so many food and retail choices, the risk of cannibalizing sales from a different store of the same franchise is low. There can be multiple Subways and 7-11s on the same block in some cities. Second, the corporate strategy has been to sell franchises. All three chains have a limited number of corporate owned stores. They simplified and perfected the franchise model.  Third, they keep start up fees low.  Subway, for example, has a franchise fee of only $15,000. 

In an interesting twist in the US, Subway, Dunkin and 7-11 franchises appeal to members of the growing South Asia and Middle Eastern communities.  These communities face a difficult time finding employment, so many immigrants look to immigrant owned franchise owners who provide employment.  Many are willing to work 60-80 hours per week.

The franchise model also matches perfectly with the economic aspirations of South Asia immigrants who have extra cash to invest. If you are here on a temporary work visas like H1-B, you want make good use of your extra money and time since it may be limited.   So a franchise is a good investment. Franchises are bought and sold within the immigrant networks when the owner returns to his home country.


Now, it looks like Subway and Dunkin have reached market saturation.  Any new store will take sales from and existing. Many stores are marginally profitable. And occasional a store will close. 


Entrepreneur magazine says a Subway franchise costs $120,000 in startup costs such as construction and equipment leasing. And you only need about $30,000 in liquid assets plus $80,000 in net worth. The current franchise fee is $15,000

Starting a Dunkin cost $225K plus $125K in liquid asset.  The net worth requirement is $250K. The franchise fee is $40,000.

All very low compared to MacDonalds which requires $1,000,000 in startup costs and $500K in liquid assets.

The founder, Fred Deluca, gave an interview to Inc. magazine where he admitted one of the chains key goals was to have a large number of franchises

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