Dive Brief:

• Subway has shifted its $5 Footlong promotion to digital-only redemption two weeks after the promotion was introduced, according to Restaurant Business.
• The change, which begins on Thursday, was made after the promotion failed to generate expected traffic numbers. A letter to franchisees notes, “we have not seen enough incremental traffic to grow owner profits.” 
• Subway, which launched the promotion on June 16, originally planned for the promotion to last the summer. 

Dive Insight:

With such strong resistance from its franchisees, it seems as though some type of concession on this promotion was necessary. Earlier this month, some Subway franchisees filed complaints with the Federal Trade Commission, which oversees franchisees, over the chain bringing back its $5 Footlong promotion. The franchisees alleged they are being bullied into honoring the promotion that they say doesn't make much money.

Pivoting to a digital-only promotion at this time could be a good move, as it will appeal to the brand’s most loyal customers who have downloaded its app. Having that targeted audience could also resonate for the brand as loyal customers tend to order and spend more.  

If those loyalty and higher ticket transactions generate a profit for Subway’s franchisees, it could be the compromise the chain has been looking for after years of back-and-forth over the $5 Footlong promotion. The promotion itself originally appeared 2008, when labor costs and cost-of-living were much lower, generating $3.8 billion in sales gains. The chain brought it back in 2012 and tried to do so in 2017, but franchisees pushed back citing rising costs.

A digital-only promotion, however, has promise in this environment. During the pandemic, as dining rooms remain closed or re-close in many states, more customers are using — and becoming comfortable using — digital channels to access their food. For example, Darden Restaurants reported last week that online ordering at Olive Garden grew by more than 300% year-over-year while LongHorn’s online ordering grew by 400%. This trend extends to limited-service as well. Chipotle’s online sales were up 81% in Q1 during the initial domestic onset of the pandemic.

For Subway, this also seems to be the case.  

“More than ever our guests are using the Subway app and online ordering to get their favorite Footlongs, and we want to meet them where they are online,” a Subway spokesperson told Restaurant Business in a statement.

Still, profits have to be attainable for franchisees if the franchisor is to be healthy. Those profits are harder to come by with deep discounting promotions. The challenge for operators now is that more customers could be seeking discounts as unemployment rates remain historically high.