It is being floated, seems reasonable, but not exciting. Subway doesn’t have the best reputation so maybe that is a point against. Supposedly on sale for 10b.
BTW titles must be 15 characters and me adding a bunch of ??? did not fool it, lol.
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I sure hope not. It is a business without a moat and no pricing power. Exactly not the kind of business Buffett wants.
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Exactly, Jersey Mikes is making a big splash up here in New England lately, so there’s always another competitive franchise out there ready to make a decent sandwich at a good price. Hell, before I retired from United, that was the go-to on the way to the gate in Newark for a quick meal. Always a long line of Flight Attendants and Pilots standing there. If you were in a rush, then you bypass the line and would have to run to the gate and wait for your onboard crew meal. They did a smart thing sticking ol’Danny Devito in those commercials. Seeing that roly poly Jersey boy salivating over a hot sandwich makes everyone else want to do the same. Clever marketing.
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While I’m not arguing for Berkshire to pick up Subway, the issue of moats comes up all the time. (No one is building another railroad line through the suburbs to the Port of Los Angeles, and China isn’t moving to the Atlantic, so BNSF has a pretty good one, I’ll say.)
But what is the big moat for Nebraska Furniture Mart? Somebody else can’t open a furniture superstore, even in another city and do a Walmart borg to grow around them? What was the moat for Dexter shoe (oops, not a good example.) The Buffalo News had a terrific moat, right up until it didn’t and like most every newspaper in the country is reeling back on its heels.
What was the moat for Pilot? And why won’t Buc-ees just grow right around them, as Lowe’s did with Home Depot? Where’s the moat for Clayton?
Moat is a great and wonderful thing, but it’s not the only thing. Arguably there are plenty of businesses with good cash flows, (somewhat) enduring advantages, which might come available. I don’t know that “moat” should be the be-all and end-all of the discussion.
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A good example would be, “what was the moat for Dairy Queen?” Which is a similar all-franchise, stale brand that Berkshire has done very well economically on. I don’t love the thought of owning Subway, but asset light franchising businesses are not bad businesses generally speaking.
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Keep it simple. Buy and invest in companies only in Insurance and Energy.
This is an interesting thread for us. We drive Vegas to Southern Cali twice a month so we stop at Pilot or Flying J , four xs a month. If every location had a Subway , with an app, truckers and others could text in their orders and the food would be ready upon arrival. However, 500-1000 locations wouldn’t be that substantial in the near term, since subway has so many existing locations. Just a thought.
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I’d be concerned if Subway is even being considered for a BRK acquisition. Hopefully they can do better.
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It looks like it is going for about 10B and makes a decent amount of profit, if they do not buy it, you could maybe work backwards for a cashflow per $ ratio or something for a somewhat interesting analysis, obviously hard to compare apples to apples though. One thing working against a sale would be the founder wants to retire, not keep running it. I would guess 9 out of 10 BRK operations don’t have a significant moat so at that point it is about financials.
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Not to prolong the argument, but I don’t really see a big difference between Dairy Queen and Subway. Both franchise based, serving a popular - if common - fast food niche. Vulnerable to competitors but not so much to disruption. Why is DQ good but Subway bad? (I acknowledge that Subway sandwiches are just OK, but then I think DQ food is awful.)
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Seems to me, the labor cost calculus is currently very different today, then it was, when he bought Dairy Queen. PLUS, he might consider that acquisition a mistake?
I’ve seen countless pictures of him enjoying a DQ cone, so I don’t think that’s it. And it takes multiple people to run a DQ, a Subway can run with as few as one (like the one up the street from me.)
Maybe the whole segment should be up for review, given labor costs and whatnot, but I don’t think “quick take-out” is going anywhere, especially considering the proliferation of new entrants, from Chick-Fil-A to 5 Guys to Cook-Out and others. If “saturation” was an issue I would think most of these new wanna bees would go under in months, instead they’re around for years.
Side comment: talking with the woman behind the Subway counter, she says her owner has over 250 locations and is one of the biggest franchises in the country. Jeezuss! What kind of house you think he lives in?
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I walked past Subway inside of Walmart the other day. It was empty and looked a bit lonely. Down the street at Jersey Mike’s, there is a line out the door every day around lunchtime. I know where I like to go for a hot or cold sub sandwich nowadays, but I do try to avoid the rush hour lunch crowd. It lightens up after 1-1:30 pm.
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Subway franchise costs like $10 to $15K; So it is not like lot of money invested in the business. The owner is playing economies of scale.
I checked into the cost of a franchise, just for fun and they list for 100k on up in S. Cal. You can maybe get one for cheap elsewhere, but it all scales, a footlong is $12 here, amazingly Chipotle is cheaper. Going through subway and not buying an established franchise and you’re paying twice as much. Looking at going direct, it looks like with the same capital you could get 4-5 Subways (300k each) or 1 DQ (2m).
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