A number of notable foreign brands have made their mark on Japan. Subway, the chain sandwich shop based out of the United States, is…not one of them.
In an intriguing development, a Japanese company – Watami – has snapped up all of Japan’s Subway franchises. The company’s promising to turn the flailing chain’s fortunes around. Can it succeed? Or is Subway just too dang American for Japan’s tastes?
From 178 stores to 3,000?!
Founded in the US in 1965 as Pete’s Super Submarines, Subway is an international brand that has over 37,000 locations in 100 countries. One of those countries is Japan.
If you’ve never seen a Subway in Japan – well, there’s a reason for that. The franchise here has struggled to take root since it was launched by Suntory Holdings in 1992. Numbering 480 stores at its height in 2014, the brand now only has 178 stores across the nation.
Part of the reason for this struggle is management changes. After 2014, Subway US began dissolving master franchise agreements, including its agreement with Suntory. As a result, Suntory sold most of its stores in 2016 to Subway International BV in the Netherlands. Over the past several year,s the chain’s ownership has fragmented further. (Suntory no longer owns or operates any Subway franchises.)
It seems that, after the franchise shed over half of its stores here, US corporate realized this strategy was a bonehead move. This month, it struck a new master franchise agreement with izakaya and fast-food restaurant company Watami. The new contract makes Watami the sole owner of the Subway franchise in Japan.
Watami CEO Watanabe Miki has vowed to turn the ailing franchise around. He called Subway “the only brand that could have 3,000 stores in Japan.” He vows to hit that high watermark – increasing the number of Subway stores over 16-fold – by 2030. That would make Subway as large as McDonald’s Japan, which currently has around 3,000 stores nationwide.
Japanese customers not into “cold and dry” sandwiches?
I first wrote about Subway Japan’s issues back in 2019, when the brand seemed on the verge of collapse. At the time, AG Corporation, which owned 20 stores in Tokyo, had filed for bankruptcy. In the five years between 2014 and 2019, the Subway brand saw 200 store closures.
At the time, I hadn’t actually been to a Subway Japan. I finally stopped in one this week – a small, dingy store in the Sunrise Kamata shopping Mall in Ota City, Tokyo. Ordering a chili chicken sandwich felt like ordering one from a Subway back in the US – a “build your own” experience that required making about ten different choices to get my meal.
That similarity to the American experience, say Japanese business experts, is part of Subway’s problem. Japanese customers surveyed about their experience with Subway cited “difficulty in ordering” as one of the chain’s net negatives.
Japan doesn’t have a “sub culture” like the US. Outside of egg salad, katsu, and a few other varieties, sandwiches aren’t a staple food here. The sandwiches that sell well tend to use soft “shokupan” bread with trimmed corners as opposed to the hard-crusted bread used in subs.
As a result, the Japanese public’s general impression of sub sandwiches, say some business experts, is that they’re “cold” and “dry.” With so many other cheap food options more tailored to the Japanese palette available, it’s little wonder people steer clear of Subways.
You can see this yourself by visiting any Subway store here. When I went to the Kamata store, it had a decent crowd shortly after noon. By 1pm, however, there was hardly a soul in sight. It was a stark contrast to other US-based brands, such as McDonald’s and Starbucks, whose stores are packed round the clock.
Why Watami might succeed where others have failed
That raises the question: Why would Watami risk so much investing in a brand with such stiff handicaps in Japan?
Watami mainly runs izakaya, or small-plate bars whose main business is serving alcohol. That business is facing tough times as fewer and fewer people in Japan are drinking. Subway gives Watami a chance to market a healthier option that could appeal to both young and old alike.
They have their work cut out for them. On the plus side, Japan’s experienced a health boom for the better part of the last decade. (That partly explains why fewer young people are drinking.) If the chain can contrast itself as the healthier option to shops like McDonald’s and KFC, it could attract both young women as well as health-conscious businessmen.
Another plus is that, as sole franchise owner, Watami can give Subway direction it hasn’t had for years. Gendai Media says that most franchises in Japan (cf. 7-11) are led by a strong corporate office that provides specific operating guidelines. That differs from the American model in which Subways have been operating, where franchisees are often free to run their stores as they see fit.
However, Watami still faces a host of challenges. Many existing Subway stores are outdated and – to be blunt – grimy. The company will need to invest in renovations to make its stores more “oshare” (fashionable) if it wants to attract younger, health-conscious customers – particularly women.
Ordering also remains a stumbling block. As Diamond Online freelance journalist Kamada Waka puts it, “This has been a hard sell for Japanese people, many of whom are shy.” Two possible antidotes: self-ordering kiosks, which have spiked in popularity since the global health crisis; and the ever-popular “set meals,” fixed order combinations requiring little to no personalization.
It’s gonna require time – and a lot of money – for Watami to create a “Japan-style Subway.” If it can pull it off, it might just save the franchise.
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Sources
ワタミ、SUBWAYの日本事業を買収 ファストフード展開. Nikkei
Subway (restaurant). Wikipedia
サブウェイ. Wikipedia JP
「サブウェイ」人気に日米で大きく差がついた「思わぬ原因」…「注文が難しい」だけではなかった. Gendai Media
サブウェイ「おいしいけど足が向かない」納得の理由、ワタミ傘下での“リベンジ”シナリオとは. Diamond Online
Subway slowed its closures last year, but not by much. Restaurant Business
ワタミが日本で「Subway」事業を展開へ. PRTimes
