'Home Mechanix' gets turnaround handyman

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A fight between Subway Sandwiches & Salads and its franchisees over how Subway's $100 million ad budget should be allocated has battered Hal Riney & Partners/Heartland, Chicago.

In one corner are the company and consultant Kenneth Armstrong, who are pushing to spend the entire ad budget on national media, eliminating the $40 million Subway spends on local ads.

On the opposing side are a number of franchisees, who have brought in the Television Bureau of Advertising and are lobbying to move the full budget to local agencies, eliminating $60 million spent on the national level.

TENSIONS BOIL OVER

Tensions boiled over when Riney was asked in the spring to create a media plan to bring all spending national. Anger about the plan, combined with franchisee dissatisfaction with Riney's creative, combined to throw the account into review last week.

"Riney was just a funnel [and franchisees] found it guilty by association," said Joe Hart, a franchisee in Atlanta and chairman of Subway's Franchise Advertising Fund Trust. The trust is an independent 12-member board of franchisees who administer ad funds accrued from operators contributing 2.5% of weekly sales.

RESPONSE TO GROWTH

A company spokeswoman said the review is in response only to Subway's quick growth, rather than any controversy surrounding Riney, which was invited to participate.

Barry Krause, managing director of Riney, said only, "We will continue relentlessly in providing ideas and support to help further build the Subway business." Subway is the largest client of Riney's Chicago office.

In a unorthodox move, Subway, with about 12,000 stores nationwide, is said to have invited virtually all of the 100 or so small agencies that handle Subway business on the local level to participate in the review for the national account. Subway also intends to trim the number of local agencies handling its business.

WHAT FRANCHISEES WANT

At the core of the controversy are Subway's franchisees, many of whom have been at odds with the parent company for years. One such franchisee is Mike Johnson in Gastonia, N.C.

"We'd like to have all the ad money spent locally," Mr. Johnson said. He claimed Subway is "bleeding the fund" at the corporate level, spending ad dollars on a number of non-ad things, such as various overhead expenses and even "legal fees to evict some franchisees."

"The idea that we are taking money out of the trust is ludicrous," Mr. Hart said, adding that while the trust pays rent to Subway from the ad fund, the amount is reasonable.

Franchisee and franchise ad trust Chairman Hart flatly denied the allegations, as did the Subway spokeswoman.

Mr. Hart said that at the behest of Mr. Armstrong--brought in by Subway's corporate office--Riney drew up the controversial media plan and presented it in April.

Based on Spot Quotations & Data, the Riney plan showed how by using more weeks of national commercials--including 15-second spots--a 100% national campaign was more efficient than spending any money locally.

TURNING TO TVB

After seeing the Riney proposal one of the Subway franchisees contacted Tom Conway, TVB senior VP-marketing. "This person had read in Ad Age about how we helped the McDonald's franchisees get back local ad money earlier this year," Mr. Conway said, "and asked us if we could help the Subway franchisees."

TVB is a TV station trade group that encourages advertising on local stations. After studying the Riney proposal, Mr. Conway and Tim Cornillie, TVB VP-national marketing, came up with a counterproposal that went beyond just keeping 40% of Subway's ad budget local.

"After studying Subway's position," Mr. Cornillie said, "it became clear that they would have much greater clout in the market by spending their entire budget locally. They would go from an 11% share of voice to a 19% share of voice in local markets."

The TVB plan was rejected by the franchisee ad trust's board, Mr. Hart said, though TVB continues to make presentations to local Subway ad boards and hopes its plan eventually will be adopted.

The issue should come to a head by August, at the Subway franchisees' annual meeting.

Copyright July 1996 Crain Communications Inc.

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