Jared raid is only Subway’s latest problem

AN FBI raid on the home of “Subway Guy” Jared Fogle isn’t the biggest crisis facing the huge sandwich chain.

YESTERDAY, it was dragged into a child-porn scandal.

But it turns out a raid at the home of “Subway guy” Jared Fogle is just the latest trouble to hit the ubiquitous sandwich chain.

The company has been struggling with sales, its CEO was diagnosed with cancer and it’s trying to persuade customers that its food delivers value and quality ingredients.

Here’s a look at the challenges facing Subway, the largest restaurant chain with about 44,000 locations globally:

MEAL DEALS

Subway is privately held and doesn’t publicly report its financial results. But last year, market researcher Technomic said average annual sales at US Subway locations fell 3 per cent to $US475,000 ($A639,670). That was the first decline since 2006.

The company hasn’t explained what it thinks might be hurting sales. But in an interview last month with The Associated Press, Subway Chief Marketing Officer Tony Pace noted that sales are a “multi-variable equation,” and that value promotions and prices don’t get a lot of attention.

That suggests one factor affecting performance could be Subway’s shift away from its $5 Footlong deal.

“It’s a challenging thing for chains that have built so much of their business off of a discount,” said Jonathan Maze, senior finance editor at the trade publication Nation’s Restaurant News.

Maze compared the $5 Footlong to the Dollar Menu at McDonald’s. As ingredient prices have climbed, both chains have tried to steer customers to other deals. Last year, Subway rolled out a $6 meal combo that includes a six-inch sub, chips and a drink.

But psychologically, Maze noted $6 just doesn’t have the same ring as $5.

$1 can make all the difference in the fast-food meal deal wars, Subway has learned.

‘HEALTHY’ SCEPTICISM

Perceptions of what is healthy are always in flux, which means food makers can suddenly find themselves on the wrong side of a trend. Subway, for instance, could be hurting from the popularity of gluten-free diets.

Food industry executives also say people are showing more interest in things like ingredients and quality, rather than calories and weight loss. That has prompted several companies, including Subway, to vow that they’ll get rid of artificial ingredients.

Still, Subway may still be hurting from a petition last year that called on it to remove azodicarbonamide from its bread, saying the ingredient is also used in yoga mats. The chain later said it had already been in the process of removing the ingredient, which is widely used in a variety of breads.

After its removal, Subway ran TV commercials noting its bread contains no high-fructose corn syrup, artificial trans fats or azodicarbonamide. One store in New York City also had flyers this week with the same message under the heading, “Our Best Bread Yet!”

ILLNESS AT THE TOP

Subway announced two years ago that its CEO and co-founder, Fred DeLuca, was diagnosed with leukaemia. It said DeLuca was focusing on his health, but that he was in regular contact with his management team from his home in Florida.

Then last month, Subway said DeLuca’s sister, Suzanne Greco, would take over as president, while DeLuca remained CEO. The company said at the time that the 67-year-old DeLuca remains “very active” in the company.

Last year, a soft-spoken DeLuca had met with reporters in New York City to talk about the business. Subway declined to share specifics on DeLuca’s condition last month.

Calls to phone numbers listed for DeLuca and Greco went unanswered Tuesday and Wednesday.

SMALLER RIVALS

Subway has 27,000 locations in just the US, nearly twice as many as McDonald’s, meaning saturation may be an issue.

The company also isn’t immune to pressure from competition.

Sandwich chains Jimmy John’s, Jersey Mike’s, Firehouse Subs and Potbelly are all far smaller. But each expanded its footprint last year, and each also has far higher average annual sales per store than Subway, according to Technomic. At $US1.2 million ($A1.62 million) a year, Potbelly’s average annual sales per store was more than double that of Subway’s.

In the meantime, Subway franchisees may be feeling pinched.

In addition to operational costs for things like equipment and rent, franchisees are subject to a variety of fees. At Subway, those include a royalty fee of 8 per cent of sales on a weekly basis, according to a document filed by Subway’s parent company Doctor Associates Inc. earlier this year.

An advertising fee of 4.5 per cent of sales is also deducted on a weekly basis.

A representative for the North American Association of Subway Franchisees wasn’t immediately available for comment.

Jared Fogle before losing weight to become the millionaire ‘Subway guy’.

‘SUBWAY GUY’ TROUBLE

It’s still not known what federal and state authorities hoped to find on electronics removed from Fogle’s home Tuesday. But Fogle’s lawyer, Ron Elberger, said his client wasn’t charged or arrested. He said Fogle was cooperating with the “investigation of unspecified charges ... and looks forward to its conclusion.”

Subway also said in a statement that Fogle “expects no actions to be forthcoming.”

Still, the company said it mutually agreed with its famous spruiker to suspend their relationship. Earlier, the company had already scrubbed references to Fogle on its website. And the news nevertheless casts a shadow on Fogle, who was widely seen as a regular guy who became one of the most recognisable figures in the restaurant industry.

WHAT NEXT FOR JARED FOGLE?

Meanwhile, a foundation Fogle created to encourage children to avoid the same obesity he overcame in college faces an uncertain future following the raid at his home, which came two months after the group’s then-executive director was arrested on child pornography charges.

A phone number to the Jared Foundation Inc. was out of service and its website was down Wednesday.

Following the raid, Subway suspended its relationship with Fogle, who shed 110kg more than 15 years ago as an Indiana University college student, in part by regularly eating the restaurant’s sandwiches.

The secretary of state’s office in Indiana, where the group was registered in 2004 as a non-profit corporation, said that it had administratively dissolved the foundation in February 2012. Valerie Kroeger, a spokesman for the state agency, said that action was taken after foundation failed to pay annual $5 reporting fees the two previous years despite being notified multiple times by the office.

“That means they’re no longer registered with the state to do business,” she said.

Despite the state’s action, the foundation retains its tax-exempt with the Internal Revenue Service, allowing it to receive tax-deductible contributions. According to the foundation’s annual filing with the IRS in 2013, the most recent one available, the group’s revenues were about $US127,000 ($A170,970) and expenses topped $US148,000 ($A199,240).

That form also showed that its “program service expenses” were about $US100,000 ($134,620) and that $US40,000 ($A53,850) in salary was paid that year to Russell Taylor, who had been the foundation’s executive director from May 2008 until shortly after his May arrest on child pornography charges.

Fogle has parted ways with Subway while the investigation is ongoing.

Fogle severed ties with the 43-year-old Taylor after federal investigators said they discovered a cache of sexually explicit photos and videos Taylor allegedly produced by secretly filming minor children at his home.

Taylor had overseen the operations of the foundation, through which Fogle has visited schools across the nation urging children to adopt healthy eating and exercise habits. The foundation’s website, before it was disabled, had described the group’s mission as “to eliminate childhood obesity by raising awareness and developing programs that educate and inspire kids to live healthier, happier lives.”

Tim Horty, a spokesman for the U.S. attorney’s office in Indianapolis, said prosecutors “are moving forward” with the case against Taylor, who is currently in federal custody. He and the FBI declined to comment on the raid Tuesday at Fogle’s home.

Taylor’s lawyer, Brad Banks, said he did not know how Taylor and Fogle had met but said the “primary basis of their relationship” was Taylor’s former employment with the Jared Foundation.

In 2011, that foundation endorsed the Coordinated Approach To Child Health, or CATCH, a group developed by a consortium of universities that calls itself a leader in childhood obesity prevention and education. But CATCH spokeswoman Shermayne Crawford said the group and the Jared Foundation had “mutually agreed to suspend the relationship” following Taylor’s arrest.

A criminal complaint filed against Taylor states that a woman identified only as “Jane Doe” contacted Indiana State Police last September, telling an officer that Taylor had offered “to send her images or videos of young girls through text messages.” The complaint states that Taylor “made this offer during a series of text messages that included discussions of sexual matters, including bestiality and sadistic or masochistic abuse.”

Fogle’s work in schools where he’s told kids about his weight struggles and how they can avoid obesity helped with the larger mission of drawing attention to the factors behind childhood obesity, said Victor Coleman, director of the Childhood Obesity Prevention Coalition in Seattle.

Coleman said he hopes the raid at Fogle’s home doesn’t “taint” his childhood obesity work, but he said that could change if he were to eventually face criminal charges.