Part II Did Subway franchisees profit from the $10 for two footlong subs during the pandemic?
Subway, the fast-food restaurant franchise, came out with a promotion offering two
footlong subs for $10 during the early days of the Covid-19 pandemic as a way to drive traffic to its restaurants. Franchise owners were not happy with the promotion, claiming they lost money on every sub sold. Assume that the costs related to the cost of one Subway footlong sub and the Subway franchisee include the following (assume a selling price of $10/2, or $5):
Cost item
Details Per footlong average(Turkey sub food cost=$1.80; Roast beef sub food cost=$2.84)
Cost per sub
Food ingredients
$
2.32
Labor S16.00/hour wage rate,each worker can Labor cost per sub make 8 subs per hour Credit card transaction fee 1.0% of sales price Electricity $400 per month divided by 4,000orders per month Rent $1,600 per month divided by 4,000 orders per Rent month Franchise and startup fees $43,200 divided by 180 Franchise fee amortization months(15 years)divided by 4,000 orders per month Royalty fee (paid to 9.0% of sales Subway as a franchise fee Advertising fee (paid to 6% of sales Subway as a franchise fee Equipment leasing cost $800 per month divided by 4,000 orders Cost per sub
2.00
0.05 0.10
0.40
0.06
0.45
0.30
0.20 5.88
$
Questions 1. Identify each of the listed costs of one footlong sub sandwich as either variable or fixed. 2. What costs and factors do you think should be relevant to the footlong sub sandwich pricing decision? Explain. 3. What is the variable cost of each $10 footlong sub combo sold (remember that the $10 covers two subs)? 4. Do you agree that a Subway franchisee would lose money for two footlong subs sold for $10? Why or why not?
