Subway's woes started well before the Jared mess
For Subway, a law-enforcement investigation into spokesman Jared Fogle couldn't have come at a worse time.
The country's largest fast-food chain, which has more locations than McDonald's (MCD), was already dealing with a number of challenging issues, from declining sales to the illness of co-founder Fred DeLuca. The closely held company is owned by Doctor's Associates, which was founded by DeLuca and Peter Buck a half- century ago.
Much of the company's success came from a strategy of aggressive expansion, while also promoting healthy eating, as exemplified by Fogle, who shed 245 pounds, thanks to his diet of two Subway sandwiches per day and exercising. Fogle became the chain's pitchman in 2000, a role that Subway suspended this week after state and federal investigators raided his home.
But long before the raid, Subway was coping with a shift in consumers' tastes, with many diners preferring the organic or sustainable foods served at smaller rivals such as Chipotle (CMG) and Panera (PNRA). While sales at those chains are growing, Subway was hit by a 3.3 percent decline in sales last year, according to research firm Technomic.
"They've grown very aggressively for years, but the question is do you grow by quality or quantity?" Don Sniegowski, the publisher of Blue MauMau, a news site about the franchise industry, told CBS MoneyWatch. "Part of the problem is there are complaints among the franchisees about a lack of millennials."
Subway didn't immediately return a CBS MoneyWatch request for comment.
Franchisees are also concerned about DeLuca, who has leukemia and earlier this year handed some management duties to his sister, Suzanne Greco, according to Bloomberg. DeLuca was diagnosed with the illness in 2013 and has been recovering from a bone-marrow transplant.
Greco, who worked in Subway's research and development, is well-liked by the franchisees, Sniegowski said. But it's unclear what will happen to the company's leadership, given that Greco wasn't appointed as DeLuca's successor. Subway chief development officer Don Fertman told Bloomberg DeLuca is "engaged and hands-on. He is still CEO."
Subway hasn't exactly been standing still. It has taken many of the same steps as its hipper rivals, such as removing trans-fats from its bread. It also said earlier this year it's the first major restaurant chain in North America to remove from its bread a food additive called azodicarbonamide that's been linked to respiratory issues.
But those changes don't seem to be making much of an impact on diners, given the flashier food at Chipotle, Shake Shack (SHAK) and other rivals.
Part of Subway's troubles could be due to the recovering economy. As Americans get more money in their pockets, they're willing to pay extra when they eat out, while during the recession price may have mattered more. Subway did well during the recession, when a customer could buy a footlong sandwich for $5, Bloomberg noted.
Like Subway, other older fast-food restaurants such as McDonald's (MCD) are struggling to keep consumers coming back for seconds.