Enterprenuer :Fred DeLuca

Report By

Syed Sarmad Andrabi

1PE07CS110

Fred DeLuca began the Subway Sandwich chain as a 17 year-old in need of money for college. His
company grew from two unsuccessful outlets in suburban Connecticut in 1965, to over 30,000 stores
around the world in 2008. Subway sandwiches are available in 64 countries. For several years in the
1990s, it was consistently named the top franchise opportunity in Entrepreneur magazine’s annual ratings
issue. DeLuca is known as a hands-on CEO who regularly checks up on Subway stores posing as an
average customer.
DeLuca was born in the 1948 in Brooklyn, New York. His father worked in a factory. As a child the family
lived in a housing project. De Luca earned money by collecting empty bottles and cashing them in for
$.02 each. When he was 10, the family moved to Schenectady, New York, and there he further honed his
entrepreneurial skills with a paper route that grew to more than 400 addresses. In his teens, he moved
once again with his family to Bridgeport, Connecticut. He later earned a degree from the University of
Bridgeport, but was already well on his way to heading a successful fast-food company at the time of his
graduation.

Though DeLuca is a billionaire, he keeps to modest lifestyle, driving a seven-year-old car and often flies
coach, rather than the more expensive business class. Until 1990, he signed every check issued by the
company.

As a teen, DeLuca wanted to study medicine, and needed money for tuition. He took a job in a hardware
store the summer before college, but realized the meager wages would not last long. He asked a friend of
his parents, Dr. Peter Buck, for a loan of $1000, which he would use to open a store. Buck, a nuclear
physicist, saw potential in DeLuca’s plan: to begin a fast-food venture that provided a healthier, less
fattening bill of fare. At the time, burgers and pizza were the standard fast-food menu. DeLuca seized the
idea of submarine sandwiches—a novelty food named because the long oblong bun shape.

Buck loaned DeLuca the money and he became coowner of the company. The first store opened in 1965
in Bridgeport, Connecticut; DeLuca was still 17 years old. At the end of that summer, he had only $6 left
over. This outcome did not discourage Buck and he suggested that they open a second store, for higher
visibility. As DeLuca told Fortune it was done to create the image of success. The second store lost
money as well. DeLuca and Buck opened a third store. They changed the name from Pete’s Submarines
to the catchier name Subway. The venture began making a profit, earning $7,000 its first full year. Buck
remains as co-owner in the company with DeLuca.

DeLuca did earn his degree from the University of Bridgeport, but found the entrepreneurial life hard to
resist. He planned on expanding Subway to at least 30 stores by the end of its first decade in business,
but in 1974 was half short of that goal. When he brought a friend on board to help run one of his stores, it
gave DeLuca the idea that well-trained owner-operators would be the best suited to build the Subway
chain. This led him to start franchising his business. DeLuca hired development agents to sell the
franchises. For an investment of about $85,000, husband-and-wife teams can own their own store;
Subway provides the training. In contrast, the start-up cost to open a Mc-Donalds is about a $1 million.
Subway signs a lease for a small commercial space with a landlord, and rents are low since the stores
have limited seating. The bread is baked on the premises. Staff costs are also nominal—during busy
periods, just two people are needed: one to make the sandwiches, which is not complicated, and one to
staff the register. There is no grill and no fryer. DeLuca believes that overall volume sales increase in a
region along with the number of Subway shops in that area. DeLuca’s belief caused some concern
among franchise owners. Franchisers who, in some cases, had given what amounted to their life savings
to the Subway parent company for the right to operate a store, were unhappy when a new Subway outlet
opened a few miles away and cut into their revenues. In 1998, Subway had over 10,000 stores in the
United States, but faced criticism: there were 160 lawsuits pending against the company in various
stages, from franchisers who claimed fraud to landlords suing for unpaid rent. This figure was higher than
the combined number of lawsuits pending against seven of Subways biggest competitors

DeLuca, and his company respond to criticism by pointing out the nature of the franchise business. In
many cases, franchisers are first-time business owners. One of DeLuca’s maxims is: Everybody goes to
high school, but not everybody reads the book, according to one of his associates quoted in Nations
Restaurant News. Franchisers are provided with a two-week training session, and then provided with
guidelines about cleanliness and service—but they don’t always follow them. DeLuca recounted an
anecdote about one store he visited with dirty windows, and how he told the owner they needed washing.
When he returned a day later, the windows were still dirty. I was really upset, because I knew that would
negatively impact their sales, but I couldn’t do anything about it, he told Suzanne Kapner and Peter O.
Keegan in Nations Restaurant News.
When Connecticut instituted a personal income tax in 1991, DeLuca moved his wife and son to Florida.
His son earned a degree in economics and works for the Subway chain. Though DeLuca is a billionaire,
he keeps to modest lifestyle, driving a seven-year-old car and often flies coach, rather than the more
expensive business class. Until 1990, he signed every check issued by the company.

“Fred understands franchisees better than most presidents because he started out very poor,” one
franchise owner told Nations Restaurant News. " He knows the value of a dollar and the hard work it
takes to make sandwiches, wash floors, and clean bathrooms. He came from there."

 As of October 2008, the company counts over 31,000 franchised locations in 91 countries and produces
US $9.05 billion sales every year. In 2007, Forbes magazine named DeLuca number 242 of the 400
richest Americans with a net worth of $1.5 billion