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Fred DeLuca was angry at the people he made rich. It was the early 2000s, at a Subway convention at the glamorous oceanside Eden Roc Hotel in Miami Beach. Development agents — master franchisees deeply involved with the sandwich chain’s expansion — arrived in Bentleys and Benzes. Eager to show off the riches Subway provided, they wheeled their cars in front of the hotel and pulled out wads of cash to tip valets $50.
DeLuca, the chief executive and cofounder of Subway, pulled up in an old Lincoln. He fumed as he watched the development agents. They should know not to flaunt their wealth, he told an executive.
Few outside the Subway family who spotted DeLuca seething would’ve guessed he ranked among the world’s richest men. Despite an estimated net worth of $3 billion, he eschewed designer suits, flew coach, and berated his daughter-in-law if she dared to pay up for organic produce at Whole Foods.
Frugality didn’t always translate into modesty, though. As DeLuca grew Subway from a tiny submarine chain into a behemoth with 27,000 locations and $17 billion in global sales in its heyday, he refused to relinquish much control. He ran Subway like a titan, maintaining a tight grip on the company operations and surrounding himself with employees who loved and feared him. DeLuca devised a system that gave him the final say and even philandered with some franchisees’ wives, two sources said.
And he got away with it. DeLuca was the brilliant center of the Subway universe, nearing godlike status for many franchisees and employees. He created a secretive, complex multibillion-dollar enterprise, and ensured no one knew Subway the way he knew Subway.
DeLuca with employees in 1997. He visited hundreds of Subway locations a year, usually unannounced.
When DeLuca died, in 2015, at age 67, there was a power vacuum. He had insisted that Subway, the world’s largest restaurant chain, stay in the family, but he failed to set up a functioning succession plan. His death left his sister floundering as the new CEO; left his widow, who’d been absent from operations for decades, owning half of a multibillion-dollar business; and left insiders baffled by his lack of planning.
This week Roger Lipton, a restaurant-industry analyst, called Subway a “slow-motion train wreck.” In the past six years, the company has been laying off employees and closing stores, with hundreds of furious franchisees and development agents losing everything they invested in the chain. Now, rumors are flying that DeLuca’s widow, Elisabeth, and his cofounder, Peter Buck, are desperate to cash out and sell the chain.
Insider spoke with 20 of DeLuca’s employees, business partners, and friends, as well as recent staffers, to better understand why a man obsessed with his company failed to protect it, and why his surviving family may want to get out while they’re ahead.
Subway didn’t start with global ambitions. DeLuca grew up in public housing in the Bronx, New York, the son of a factory worker who dropped out of high school. In 1965, DeLuca, age 17, attended a Connecticut barbecue and asked his parents’ friend, a nuclear physicist named Peter Buck, for advice on how to fund his college education.
In his book, “Start Small, Finish Big,” DeLuca later said he hoped Buck would offer to pay his tuition. Instead, Buck proposed they open a submarine shop, with DeLuca running the restaurant and the scientist providing the funding. Before the day was over, Buck had written DeLuca a check for a thousand dollars.
They were a peculiar pairing, a lanky teenager whose mother accompanied him on trips to suppliers and an introverted 35-year-old scientist. The early days of Pete’s Super Submarines — later rebranded Pete’s Subway, then just Subway — were inauspicious. DeLuca paid for the University of Bridgeport using Subway profits, joining a fraternity and continuing to date Elisabeth, his high-school sweetheart whom he’d later marry.
Every Monday, Buck would visit the DeLuca household for spaghetti and meatballs, with homemade sauce made by Fred’s mother, Carmela. Dinner was followed by a discussion of business, with the pair reaching the same conclusion, week after week: Sales were bad and getting worse.
Despite financial troubles, DeLuca and Buck stuck to their agreement to open 32 restaurants in a decade. Things improved as the brand became better known, but it wasn’t until the mid-1970s when Subway became a franchise that the two men hit their stride. DeLuca and Buck recruited independent business owners to open restaurants under the Subway name in exchange for a franchise fee and ongoing 8% royalties.
Franchising and the development-agent system allowed Subway to open stores at an exponential rate. In 1982 there were 200 Subway locations. By 1988, Subway had 2,000 restaurants in the US. In 2010, it finally surpassed McDonald’s to become the largest restaurant chain in the world with 33,700 locations.
A former Subway employee who started at the company in the 1980s said DeLuca was obsessed with opening stores. The company’s annual planners had each year’s target number plastered on the cover — “‘10,000 stores by 1994’ or something,” the former employee said.
“We would all look at it and laugh — and not laugh in a bad way, but say to ourselves, ‘What?! That is insane!’ But by the end of the year we’d have 10,000 stores. I think that’s what made him great, was that he had the goals in mind, he wrote them down, he pushed them out, and people followed.”
As Subway became a household name — with more stores opening than KFC, Starbucks, and McDonald’s locations — DeLuca continued to run the company as a family business.
Many of the first franchisees and development agents were DeLuca’s friends and family, who then hired their own family members. DeLuca’s younger sister, Suzanne, grew up slicing olives in Subway shops. She and Elisabeth both served as officers at Subway in the early years of immense growth. Suzanne rose through the ranks to lead the company’s research-and-development team, while DeLuca’s wife retired from the business by the 1980s.
Numerous people who worked at Subway described the company as a “big family” under DeLuca’s leadership, with frequent social events for Subway families. When DeLuca’s son Jonathan was married in Boca Raton in 2005, his ex-wife, Ana DeLuca, said 150 of the 200 people at their wedding were in some way associated with Subway, at her father-in-law’s request.
“It was the focus of his being that he was successful,” the former executive said. “He used to talk a lot about how many people he could make successful.”
There were downsides to running a massive chain like a mom-and-pop shop. Wealthy franchisees and development agents who socialized with DeLuca seemed to have an outsized influence on his business decisions. And, according to DeLuca’s former associates, socializing could cross professional boundaries, making some employees uncomfortable.
In 2000, a calendar was distributed to employees featuring partially nude male executives posing in the shower, a conference room, and other bizarre settings.
Don Fertman, Fred DeLuca, and Dick Pilchen in a 2000 Subway employee calendar that was distributed internally.
Images courtesy of a former Subway employee
DeLuca was the January model. In his photo, the CEO is grinning and shirtless in a dim office with a navy towel slung seductively over his shoulder. In one hand he holds a glass of champagne, in the other a blue planner labeled “executive office.”
Nowadays, a calendar like this would be a public-relations nightmare for any company — especially one the size of Subway. But for those who knew DeLuca, it was hardly a surprise.
“If you wore a skirt and had a pulse, he would chase you,” the business associate said. That included the wives of Subway franchisees, this person and others said.
“He always felt that he could go and he could approach any woman” at Subway conventions “because he was responsible for their husband’s success in stores,” the same associate said.
In the early ’90s, Connecticut instituted a personal-income tax and DeLuca moved to Fort Lauderdale, Florida, to avoid paying the new taxes, while Elisabeth stayed in a modest home in Orange, Connecticut. She didn’t live like a billionaire’s wife, her former daughter-in-law Ana DeLuca said.
Elisabeth and Fred DeLuca with their grandchildren, including Ana DeLuca’s daughters from a first marriage.
Courtesy of Ana DeLuca
“She wasn’t taking care of herself,” she said. “There were no facials, there were no manicures.”
Ana said she had asked DeLuca not to bring his girlfriends around her and her children out of respect for Elisabeth. “Poor Liz,” Ana said. The moment she left DeLuca’s side “the other girls came around.”
Ana also said that one of DeLuca’s long-term girlfriends, Cindy Mattson, told her in 2012 that she and DeLuca had adopted a child together. The child was named Luca, to honor the DeLuca family name without too obviously outing the baby’s billionaire father.
When DeLuca died, Mattson filed claims against the estate saying that he had adopted Luca — albeit not formally — and promised to support her and her son with $20 million, court documents obtained by Insider show. Jonathan and Elisabeth denied the claims. In 2016 Mattson filed a document saying she had received full payment or otherwise settled or compromised on the claim. (Mattson did not respond to requests for comment.)
Ana said DeLuca got away with “infidelities” because his success and wealth trumped any bad behavior, even within his own family. She said, “Fred could do anything that Fred wanted to do and everybody would just agree, turn their head to the other side.”
After Subway franchised in 1973, Buck moved to the role of silent co-owner.
While he enjoyed a quiet life as the rich nuclear physicist — DeLuca refused to give him an office in the company headquarters — the CEO remained obsessively hands-on.
Up until 1990, DeLuca insisted on signing nearly every company check. Instead of going on vacation, DeLuca traveled internationally to scout areas for expansion. Every decision had to go through him. An ex-employee recalled once working on a project about the history of Subway and DeLuca editing the prepositions in the text.
Workers were “swimming in a fountain of Fred,” the former employee who started at Subway in 2001 said. “He was very smart and hardworking, but one of the problems was that he ran the franchise when we had 30,000 stores as if we had a hundred stores.”
DeLuca refused to relinquish power and control, convinced that only he and his lieutenants could run Subway. When he was considering hiring an outsider to be president of Subway in the early 2000s, John Haynes, a franchising expert, told DeLuca not to waste his time.
“I said, ‘Nobody’s going to be a good president for Subway, Fred, because a good president is going to stand up to you,'” said Haynes, who coauthored DeLuca’s book. “‘And you don’t want somebody who’s gonna stand up to you. You want somebody who’s going to lower the boom when you tell them to lower the boom.'”
DeLuca was making a million dollars a day in royalties alone in the early 2000s, according to a deposition of banker Fran Saavedra. Saavedra — who said she managed DeLuca’s money in addition to being romantically involved with the Subway cofounder — said every Monday a $7 million royalties check would be deposited into his account. “They called it their bonus money,” Saavedra said in the 2017 deposition.
In Florida, DeLuca initially lived in a small two-bedroom condo. He briefly moved into a 15,000-square-foot home around 2000, after a failed real-estate investment left him in possession of a mansion so over the top that the rapper Diddy asked to include the front steps on one of his album covers. DeLuca refused to buy a TV for the $7 million home, the business associate said.
DeLuca at a 1997 dinner for franchisees.
Despite his net worth eventually exceeding an estimated $3 billion, DeLuca was notoriously frugal.
The billionaire flew coach, insisting upgrades were a waste of money, and once refused to buy a $2 bottle of water because it was too expensive. The business associate recalled DeLuca trying on a suit he liked in the early 2000s, without first checking the price. When a salesperson told him it cost $450, DeLuca reacted as if someone was “going to shoot him.”
“He took that thing off like it was on fire,” the associate said. “‘I can’t spare 400.’ No, you only make a million dollars a day.”
Former daughter-in-law Ana said DeLuca became infuriated whenever she bought organic products and insisted that Whole Foods was out of the family’s price range. She said that her billionaire father-in-law refused to give her and Jonathan money to remove mold infesting their home. Ana said she believes that DeLuca’s stinginess was born out of a quest for control.
“It wasn’t even for the enjoyment because, you know, his house wasn’t comfortable. His house was old,” Ana said. “He traveled on the back of the plane. His house had termites. Our house had mold. And he was a billionaire.”
DeLuca’s spend-less mentality was a cornerstone of Subway’s business model. Subway owns zero stores, which allows the company to dodge volatile expenses, such as food and labor costs. Franchisees’ profits are directly tied to sandwich sales, while Subway, the corporate franchisor, makes money by collecting royalties and fees from franchisees.
Expansion provided direct profits for DeLuca and Buck as well as the development agents who took a cut of the royalties. More stores meant higher profits, even if individual sandwich shops saw sales slip.
But while DeLuca’s bank account ballooned, some franchisees said they suffered from the company’s rapid expansion. These franchisees said that an increase in neighboring Subway store openings cannibalized their sales and hurt their bottom line. Many felt that DeLuca prioritized growth over long-term investments in operations and menu development.
Franchisees lacked the ability to push back against rapid expansion because of Subway’s infamous franchise agreement, which was structured to limit their control over the business. In 1998, Keith Kanouse, a Florida lawyer who chaired a commission on fair franchising standards, told Fortune, “I’ve seen over 300 franchise agreements, and Subway’s is the worst.”
Franchisees often signed the draconian agreement because of the low barrier to entry, with startup costs at a small fraction of rival fast-food chains. In the same article, Subway executives said that some simply did not understand what they were signing because they did not speak English. In the late ’90s, up to half of Subway’s franchisees were immigrants. When tested for basic English skills and math proficiency in 1997, 35% of trainees failed the test.
DeLuca in 2014, the year Forbes estimated his net worth to be $2.6 billion.
Diane Bondareff/Invision/AP Images
Many franchisees and development agents managed to become extraordinarily wealthy despite the less than ideal arrangement. But even some of those people were terrified of DeLuca. At Subway he held all the power. And he was not afraid of cutting people out of the family.
“He knew he created a system that people behaved out of fear,” Haynes said, adding that even the wealthy regional directors had flimsy contracts. “He won lawsuits. … He had more money than God. So, who wants to sue Fred DeLuca?”
In June 2013, while meeting with franchisees in Canada, DeLuca was overcome with chills and shivers. A Toronto doctor diagnosed him with leukemia. He was taken by air ambulance to Connecticut for treatment.
The illness couldn’t have come at a worse time for Subway: Sales were lagging, with franchisees blaming over-expansion and a reliance on the $5-footlong campaign. What’s more, the chain was facing a series of public-relations nightmares.
In 2013, a teenager in Australia ignited controversy, saying the chain’s footlong sub fell short of 12 inches. The next year, a food blogger started a campaign to change Subway’s bread recipe after claiming that the company used a chemical also found in yoga mats. Then there was Jared Fogle.
Fogle famously lost more than 200 pounds eating Subway sandwiches when he was a student at Indiana University. The chain hired the 22-year-old as a spokesperson in 2000. Ads starring Fogle were a hit, with sales shooting up 20% after Fogle’s first national commercial. In early 2013, Subway’s chief marketing officer, Tony Pace, told the New York Daily News that Fogle was responsible for up to half of Subway’s growth since 1998.
Jared “The Subway Guy” Fogle in 2015, the same year he was charged with distributing child pornography and traveling to have sex with minors.
Matt Sayles/Invision for Subway Restaurants/AP
DeLuca had not been particularly close to Fogle. According to the business associate, DeLuca found the spokesperson annoying, especially when he started demanding more money.
Subway abruptly cut ties with Fogle in July 2015 after federal and state authorities raided his home, where they found sexually explicit images of children and correspondence with kids. In August 2015, the FBI charged Fogle with distributing child pornography and traveling to have sex with minors.
Subway said it had no knowledge of Fogle’s actions, but Fogle’s ex-wife, Kathleen McLaughlin, sued Subway, claiming the company was notified at least three times about Fogle’s interest in children — and that it had failed to take action. (McLaughlin’s suit was dismissed, with an Indiana judge saying the case was outside his jurisdiction.) Former franchisee Cindy Mills told Insider in 2015 that she had told four people working at Subway’s marketing organization about Fogle’s sexual interest in children but the company failed to take action.
While Subway has declined to comment on Fogle, Mills said the company had previously told her it couldn’t take an action against Fogle — based on her reports — because he was not an employee.
DeLuca died a month after Fogle’s arrest.
“We were running a Fred model without Fred,” a franchisee of more than 20 years said, “and nobody had any clue how to run it.” Despite decades of running Subway and two years of illness, DeLuca had done little to craft a succession plan, insiders said.
DeLuca’s sister Suzanne Greco was promoted to president while he was being treated for leukemia. When DeLuca died, Greco became CEO. DeLuca had wanted to keep Subway in the family, and somehow Greco was the only relative left working at the company. (DeLuca’s son, Jonathan, opted out of the family business to start a software company.)
Suzanne Greco had massive shoes to fill as Subway’s second CEO.
Bizuayehu Tesfaye/Invision for Subway Restaurants/AP
Besides a brief stint as a dance teacher in her 20s, Greco had never worked anywhere but Subway. Some colleagues and franchisees said they felt she was ill prepared to replace her older brother, deeming her not seasoned or dedicated enough for the role.
A Subway franchisee with two decades of experience called Greco “a pathetic, poor copy of Fred.” “We never understood. Why would he kill something that he cherished?” the franchisee said.
One former corporate employee recalled seeing Greco texting on her phone during meetings when she was leading the research-and-development team. In the middle of one meeting Greco excused herself. As she stood to leave, the employee caught a glimpse of her phone, which showed she was trying to book Miley Cyrus tickets, presumably for her daughters. (Greco did not respond to requests for comment.)
“Generally she was not reachable and really checked out — really mostly cared about her kids and their equestrian careers and what concerts they were going to see,” the former employee said.
Shortly after DeLuca died, Subway’s board, led by Buck and Elisabeth DeLuca, hired Bain and Co. to assist in a turnaround. (A former executive said Bain was hired on a 60-day project; insiders said the consultants are still getting paid to try to turn the company around.) Greco also hired top executives who worked with industry giants like McDonald’s and Coca-Cola.
These consultants and executives arrived to find a “mishmosh of people and talent,” one former Subway executive said. The ex-Subway executive recalled the infiltration of suited execs facing down a bunch of shabbily dressed DeLuca “yes men.” Another ex-executive hired under Greco described the Milford office as a “weird, insular” culture, where people with outdated skills kept their jobs for decades.
New and old employees told Insider morale was low.
Subway’s location count has declined every year since its 2015 peak. Some insiders blamed Greco for the chain’s fading relevance in the post-Jared era. Issues related to sales cannibalization reemerged as franchisees complained about over-expansion and stale vegetables. Greco told The Wall Street Journal in April 2018 that Buck and Elisabeth DeLuca were “not thrilled” by her plan to turn things around by rebranding stores with bright modern decor.
Greco wanted to update the appearance of Subway stores, with bright modern colors.
A month later Greco was out as CEO. A Subway executive who worked with Greco said Elisabeth and Buck decided that she should “retire,” likely heavily influenced by development agents who had turned on DeLuca’s little sister.
Trevor Haynes, a Subway veteran who started at the chain in 2006, was promoted to interim CEO with Greco’s exit. But things didn’t get any better.
Store closures and massive executive turnover continued under his leadership, as did sales declines. The New York Times published an investigation in June 2019 saying that development agents acted like “hit men,” forcing out franchisees so they could snatch up profitable locations.
In late 2019, Subway hired John Chidsey, a former CEO of Burger King, as its permanent CEO.
Chidsey, who came out of retirement for the role, has been bashed as distant and out of touch by a number of franchisees. The CEO’s primary form of communication, they say, has been through infrequent video messages to franchisees, who have no ability to provide feedback.
After DeLuca died, his widow, Elisabeth, took over his share of ownership, splitting profits roughly 50-50 with Buck. With Subway bringing in more than $13 billion in sales globally in 2020 — down from $17 billion in 2015, according to Technomic estimates — the two still earn hundreds of millions of dollars annually from royalties alone.
Buck, Elisabeth, and their sons restructured the company in 2018 and continue to steer the sinking ship, but mostly behind the scenes.
“The minute they hired Chidsey, they disappeared,” one franchisee said. “There’s no involvement. We never hear from them. There’s no evidence that they even still own the company.”
Buck, for his part, has been experiencing severe health problems for years, while Elisabeth has been busy with The Frederick A. DeLuca Foundation, which went from a minuscule operation to a thriving nonprofit following DeLuca’s death. In 2018, the foundation recorded $11.2 million in grants and donations. Elisabeth moved to Florida after DeLuca died, and quietly started The Elisabeth C. DeLuca Foundation last year.
Chidsey’s arrival has fueled rumors that Elisabeth and Buck have been trying to sell Subway. According to the industry veteran John Gordon, Burger King parent company Restaurant Brands International and Inspire Brands, the parent company of Sonic and Arby’s, both performed due diligence into acquiring the company in the past year and a half.
The arrival of John Chidsey (right of The King of Burger King) led to speculation of Subway’s imminent sale.
As the CEO of Burger King, Chidsey spearheaded its sale to 3G Capital in 2010, slashing costs and alienating franchisees along the way. Today, insiders say they can’t help notice the similarities to what’s happening at Subway.
Since Chidsey’s arrival, upwards of 500 jobs have disappeared from the Connecticut headquarters. Major departments, including culinary and marketing teams, are moving to Miami, where the company announced a new office in March. The chain is cutting the number of development agents, which would make the company more attractive for a sale, franchisees and former executives told Insider.
But Subway has said that it is not for sale, while the DeLucas and the Bucks have stayed quiet as Subway closes locations and franchisees revolt.
In recent weeks, franchisees have taken aim at Elisabeth. “We had to take away from our families so that we can pay royalties to you, a multi-billionaire who does not need a bailout or any federal aid,” read one of two open letters backed by a group of 100 franchisees.
A franchisee who signed the letter told Insider that they’re targeting Elisabeth because she is “the person who holds the purse strings,” though she “continues to live in the shadows.”
Franchisees and development agents said the situation has gone from bad to worse since they publicly voiced concerns. Subway recently debuted an even more restrictive agreement that allows the company to determine stores’ hours and menu pricing, as well as ban “any disparaging or negative comments about Subway in any forum or on any medium.” The only alternative is for franchisees to sign a franchise agreement with royalties of a whopping 10%.
James Marshall/Getty Images
A number of former executives and franchisees told Insider that they believe the only way to save Subway is to sell the chain and move on without the DeLuca baggage. One former executive who joined after DeLuca’s death said they think the company was obsessed with maintaining the wealth of its two owners. Subway’s comeback is impossible while Elisabeth and Buck continue to own the company because they won’t invest in a turnaround, the ex-executive said.
The franchisee who signed the letter to Elisabeth said that he feels as if she and Buck never really cared about Subway, beyond seeing the chain as a cash cow.
“The only person who actually gave a shit about Subway was Fred DeLuca,” the franchisee said. “We miss Fred. As much as we now dislike his autocratic way, at least it worked.
“Now, we don’t have the autocrat, and we have nobody who gets it.”