Subway franchisee faces bankruptcy

KIRK HARGREAVES/The Press

FAST-FOOD FIGHT: Keely Clements sheds tears outside the Wairakei outlet owned by the seller of her failed Northlands Mall business.

Relevant offers

A Christchurch Subway store owner is accusing the multi-national sandwich chain of flooding the city with too many stores, bringing her to the brink of bankruptcy.

Keely Clements also says her repeated pleas for support from Subway management were ignored, despite telling them her Northlands Mall store was losing money.

That franchise was closed on Monday, after mall management terminated the lease, because it was owed $164,000 in unpaid rent.

Clements also stands to lose her second store, in Kaiapoi, after Subway served her with papers to terminate her lease on July 1, meaning there was no way for her to on-sell the store and recoup capital.

Clements has been protesting outside Subway stores in Christchurch this week to highlight her situation. Christchurch has 23 stores, one for every 16,000 residents.

Clements worked at Subway before buying a franchise in Kaiapoi in 2005 for $480,000. After the success of that store, a year later she bought a second franchise at Northlands Mall for $410,000.

Almost from day one sales dropped and it was not long before the profit from her Kaiapoi store was paying the wages and other costs at Northlands.

She sold one of her two investment properties and put $295,000 into the business, but it kept losing money.

She went to Subway South Island development agent Stan Greene to see if the store could be moved elsewhere because the site was not working.

Clements said Greene was unsympathetic, saying she was not capable of running two stores.

"I wanted some kind of help. I was told they were there to help us with that type of thing," she said.

Subway's website said it provided a "helpful, competent, and successful network of support".

It says from step one throughout the entire franchise process Subway provided "training and guidance that aids in the operation of each restaurant".

But Clements said she has beaten her head against a brick wall and bankruptcy was now inevitable.

Her second investment property is for sale and she has remortgaged her home.

She tried to sell the Northlands franchise and had an offer for $200,000, but it fell through when Subway would not let her sell until she had paid her debts to them, something she could not afford to do until she sold it.

Clements stopped paying Subway royalties and advertising fees for both stores about eight months ago because she decided it was better to pay wages and now owed Subway $132,000.

Greene refused to comment to BusinessDay, saying it was a legal issue and forwarded all inquiries to the company's lawyer, Kelly Foley, at law firm Buddle Findlay.

Foley said Subway had attempted on numerous occasions to recover the substantial money owed by Clements but has experienced unsatisfactory results.

"The Subway chain follows standard New Zealand business practices," Foley said.

Subway refused to answer questions about whether it provided Clements with appropriate support and about whether there were too many stores in Christchurch.

Franchise Association of New Zealand acting manager Kevin Connell said the North Island branch of Subway withdrew its membership last year and he was not aware of the South Island branch being a member.

Newest First

Oldest First

Mark   #40   05:26 pm Jan 28 2009

Franchises are great for some people and not for others. Some companies are good and some aren't. I guess that's life. Don't judge all by the actions of a few. I know little about Subway but I think they have a few outlets now??? If you are thinking a franchise might be a good option for you then I suggest you talk to as many current franchisees as possible before deciding one way or the other. Contrary to Ian's opinion, I think the number of people in franchised businesses shows it is a great way to be in business - just be careful.....as you would be with any business you went to.

Steve   #39   05:26 pm Jan 28 2009

The Subway brand is a powerful one but it is not immune to dilution. Too many competitors in any single market is a recipe for diminished returns. Subway has clearly become greedy (my oh my, what a surprise!). Greed & Fear rule markets. This lady is no dummy. She basically got greedy herself. She should have stuck with the one store along with her investment properties. Are we really supposed to feel sorry for her? What a joke.

Jim   #38   05:26 pm Jan 28 2009

All I can say is I bet there is more to the story than what the media and franchisee is telling you. I see more mis-management by the franchisee not Subway.

So because of what "Subway Big Bosses" are doing! why should that be taken out on other franchisees by people boycotting them. Shouldn't it be "Subway Big Bosses" losing out not store owners...

Marc Milton-Talbot   #37   05:26 pm Jan 28 2009

Franchises are a rort.You're nothing more than an employee but bearing all the liabilities and restrictions.The only ones who profit are the franchisors.They're not in business to help you, but themselves at your expense.Avoid these sharks like the plague.

Shawn   #36   05:26 pm Jan 28 2009

world is unfair

Ro   #35   05:26 pm Jan 28 2009

1. For the price you pay for subway you could make 3 times as many sandwiches if you bought equivalent ingredients and made them at home.

2. "I love there food" - please learn to spell

3. I will be continuing my boycott of Subway. I have friends who own a Subway franchise who are in a very similar position and like Keely are losing money with no support.

Osher   #34   05:26 pm Jan 28 2009

open a franchise is like buying a house, "Location, location, location"

Jo   #33   05:26 pm Jan 28 2009

I always wondered why there was one in Northlands Mall then another one 5 minutes walk away on Papanui Road. Which was there first? Bad foresight by one of the businesses? It's not like the Northlands one is even in a prime location being so far away from the Food Court.

Now this one is closed, I just walk to the Papanui Road one. No love lost for me.

Les Stewart MBA   #32   05:26 pm Jan 28 2009

My best to Keely and her family.

It is not much comfort but you are not alone, at all. Modern franchising does NOT create wealth for franchise: it simply re-distributes it using perfectly legal means.

The contract gives others the right to lie, cheat and steal from the franchisee. And everything is wrapped up with gag orders.

Indeed, many hundreds of former franchisees have told me over the last 10 years that franchising is Unsafe at any Speed.

Take heart and don't let them shame or trick you into silence.

Mr. Les Stewart Midhurst, Canada lesstewart.wordpress.com

Ewen Castle   #31   05:26 pm Jan 28 2009

The problem is not with the Subway Franchisor. The problem is with M/s Clements. It is a case of Caveart Emptor. M/s Clements has either made a bad investment, in buying the francise or is incapable of running her business profitably. Why do people blame others when they should look in the mirror for the answer to their situation.

Ad Feedback