The fast food industry is a multi-billion dollar market, with two of the biggest players being Subway and McDonald’s. Both chains have a massive global presence, with thousands of locations across the world. But the question remains, which chain reigns supreme in terms of profits? In this article, we’ll delve into the financial performance of both Subway and McDonald’s to determine who comes out on top.
A Brief History of Subway and McDonald’s
Before we dive into the financials, let’s take a brief look at the history of both chains.
Subway, founded in 1965 by Fred DeLuca and Dr. Peter Buck, started as a small sandwich shop in Bridgeport, Connecticut. Initially, the chain focused on providing quick, affordable, and healthy sandwiches to customers. Over the years, Subway expanded rapidly, and today, it has over 41,600 locations in more than 100 countries.
McDonald’s, on the other hand, was founded in 1940 by Richard and Maurice McDonald in San Bernardino, California. The chain quickly gained popularity for its innovative “Speedee Service System,” which focused on quick and affordable burgers and fries. Today, McDonald’s is the largest fast-food chain in the world, with over 38,000 locations in more than 100 countries.
Revenue Comparison: Subway vs. McDonald’s
When it comes to revenue, McDonald’s is the clear winner. According to QSR magazine’s annual list of the top 50 quick-service and fast-casual restaurants, McDonald’s generated over $38.5 billion in systemwide sales in 2020. Subway, on the other hand, generated around $11.3 billion in systemwide sales during the same period.
This significant difference in revenue is largely due to McDonald’s massive global presence and its ability to generate higher average sales per unit (ASPU). In 2020, the average McDonald’s location generated around $2.6 million in sales, while the average Subway location generated around $416,000.
Systemwide Sales Growth
While McDonald’s leads in terms of overall revenue, Subway has been gaining ground in recent years. From 2015 to 2020, Subway’s systemwide sales grew at a compound annual growth rate (CAGR) of 3.4%, while McDonald’s grew at a CAGR of 2.3%.
This growth can be attributed to Subway’s efforts to revamp its brand image, introduce new menu items, and expand into new markets. However, McDonald’s has also been working to turnaround its business, investing heavily in digital transformation, menu innovation, and restaurant remodels.
Profitability: Subway vs. McDonald’s
While revenue is an important metric, profitability is ultimately what matters most to investors and shareholders. When it comes to profitability, McDonald’s is again the clear winner.
In 2020, McDonald’s reported an operating income of over $9.2 billion, with an operating margin of around 24.1%. Subway, on the other hand, reported an operating income of around $344 million, with an operating margin of around 3.1%.
The significant difference in profitability is largely due to McDonald’s massive scale and global reach, which allows the chain to negotiate better deals with suppliers, manage costs more effectively, and generate higher margins.
Franchise Model
Another key factor contributing to the profitability difference is the franchise model used by both chains. McDonald’s operates on a franchise model, where around 93% of its locations are owned and operated by independent franchisees. This model allows McDonald’s to generate revenue through franchise fees and royalties, while minimizing its capital expenditures and operational risks.
Subway, on the other hand, operates on a similar franchise model, with around 99% of its locations owned and operated by independent franchisees. However, Subway’s franchise model is often criticized for being overly dependent on franchise fees, which can be as high as $15,000 to $20,000 per year.
Market Valuation: Subway vs. McDonald’s
When it comes to market valuation, McDonald’s is once again the clear winner. As a publicly traded company, McDonald’s has a market capitalization of over $200 billion, making it one of the largest and most valuable companies in the world.
Subway, on the other hand, is a privately held company, and its financial information is not publicly disclosed. However, according to Forbes, Subway’s estimated market value is around $11.3 billion, a fraction of McDonald’s market capitalization.
Private vs. Public Company
The private vs. public company dichotomy is an important factor to consider when evaluating the financial performance of Subway and McDonald’s. As a publicly traded company, McDonald’s is required to disclose its financial information to the public, which can be both a blessing and a curse.
On the one hand, public disclosure allows investors and analysts to scrutinize McDonald’s financial performance, which can lead to increased transparency and accountability. On the other hand, it can also lead to increased pressure to meet quarterly earnings expectations, which can be detrimental to long-term decision making.
As a privately held company, Subway is not required to disclose its financial information, which can provide more flexibility and freedom to make long-term decisions without the pressure of quarterly earnings expectations. However, it can also lead to a lack of transparency and accountability.
Conclusion
In conclusion, while Subway has made significant progress in recent years, McDonald’s is still the clear winner when it comes to revenue, profitability, and market valuation. McDonald’s massive global presence, scale, and franchise model give it a significant advantage over Subway.
However, Subway’s private ownership structure and focus on healthier menu options may provide a competitive advantage in the long run. As the fast food industry continues to evolve, both chains will need to adapt to changing consumer preferences and technological advancements to remain relevant.
In the end, the battle for fast food supremacy is far from over, and both Subway and McDonald’s will need to continue innovating and improving to stay ahead of the competition.
| Chain | Systemwide Sales (2020) | Operating Income (2020) | Operating Margin (2020) | Market Capitalization (2022) |
|---|---|---|---|---|
| McDonald’s | $38.5 billion | $9.2 billion | 24.1% | $200 billion |
| Subway | $11.3 billion | $344 million | 3.1% | $11.3 billion (estimated) |
Note: The financial data used in this article is based on publicly available information and may not reflect the companies’ current financial performance.
How Many Locations Do Subway and McDonald’s Have Worldwide?
Subway has over 41,600 locations in more than 100 countries around the world. This makes it one of the most widely available fast-food chains globally. In contrast, McDonald’s has around 38,000 locations in over 100 countries. While Subway has a higher number of locations, McDonald’s has a stronger presence in certain regions, such as Europe and Asia.
It’s worth noting that Subway’s business model focuses on franchising, which allows the company to expand rapidly. The company has over 24,000 franchisees worldwide, who operate the majority of Subway locations. McDonald’s, on the other hand, has a more balanced approach, with a mix of company-owned and franchised locations.
How Much Revenue Do Subway and McDonald’s Generate Annually?
McDonald’s generates significantly more revenue than Subway. In 2020, McDonald’s reported revenue of over $21 billion, while Subway’s revenue was around $11 billion. This difference is largely due to McDonald’s ability to drive sales through its high-volume locations and strong brand recognition.
Despite generating less revenue, Subway has a higher number of locations. This means that the average revenue per location is lower for Subway compared to McDonald’s. However, Subway’s business model is designed to be more profitable for franchisees, who keep a larger percentage of the revenue generated by their locations.
What Is the Average Profit Margin for Subway and McDonald’s Franchisees?
The average profit margin for Subway franchisees is around 4-5%, according to industry reports. This means that for every dollar in sales, franchisees can expect to earn around 4-5 cents in profit. McDonald’s franchisees, on the other hand, have a higher average profit margin of around 6-7%.
The higher profit margin for McDonald’s franchisees is partly due to the company’s scale and bargaining power with suppliers. McDonald’s is able to negotiate better prices for ingredients and supplies, which helps to increase profitability for franchisees. Additionally, McDonald’s has a more comprehensive support system for franchisees, including marketing and operational support.
How Do Subway and McDonald’s Compare in Terms of Brand Recognition?
McDonald’s has a significantly higher level of brand recognition compared to Subway. According to a survey by YouGov, McDonald’s is the most recognized brand in the world, with over 90% of respondents aware of the brand. Subway, on the other hand, has a brand recognition rate of around 70%.
The difference in brand recognition can be attributed to McDonald’s longer history and larger marketing budget. McDonald’s has been around for over 60 years and has invested heavily in advertising and promotional campaigns over the years. Subway, while still a well-known brand, has a more limited marketing budget and has historically focused on word-of-mouth and local marketing efforts.
What Is the Average Cost of Opening a Subway or McDonald’s Franchise?
The average cost of opening a Subway franchise is around $14,000 to $23,000. This includes the initial franchise fee, equipment, and inventory costs. The average cost of opening a McDonald’s franchise, on the other hand, is significantly higher, ranging from $2.2 million to $2.5 million.
The higher cost of opening a McDonald’s franchise is due to the company’s more extensive menu and higher equipment costs. McDonald’s franchisees also need to pay a significant franchise fee to the company, which is used to support marketing and operational efforts. Subway franchisees, on the other hand, have lower startup costs and can often finance their business through a combination of loans and personal savings.
How Do Subway and McDonald’s Compare in Terms of Menu Offerings?
Subway is known for its customizable sandwiches and salads, with a menu that focuses on freshly prepared ingredients. McDonald’s, on the other hand, has a more extensive menu that includes burgers, fries, salads, and breakfast items. McDonald’s menu is designed to appeal to a wider range of customers, including families and children.
The difference in menu offerings reflects the different business models of the two companies. Subway’s focus on customization and freshly prepared ingredients allows it to appeal to health-conscious customers and those looking for a quick, customizable meal. McDonald’s, on the other hand, has a more traditional fast-food model, with a focus on high-volume sales and a broad appeal.
What Is the Growth Potential for Subway and McDonald’s Franchisees?
Both Subway and McDonald’s offer growth potential for franchisees, but in different ways. Subway’s growth potential lies in its ability to expand into new markets and increase sales through marketing and promotional efforts. McDonald’s growth potential, on the other hand, lies in its ability to increase average unit sales through menu innovation and operational improvements.
McDonald’s has a more extensive support system for franchisees, including training programs and operational support. This allows franchisees to focus on increasing sales and improving profitability, rather than worrying about the day-to-day operations of their business. Subway franchisees, on the other hand, have more flexibility to adapt to local market conditions and respond to changing customer preferences.