Subway FDD Item 12 is the section of the Franchise Disclosure Document that addresses territory rights, and for Subway franchisees, it has historically been one of the most problematic items in the entire FDD. The core disclosure is straightforward: Subway does not grant exclusive territories. The company reserves the right to open additional locations, approve new franchisees, and develop non-traditional locations in any geographic area, including directly adjacent to existing franchise locations. At Lopes Law LLC, we have counseled numerous Subway franchisees dealing with the consequences of this policy, and the territory issue remains one of the single biggest risk factors in the Subway franchise system.

This guide explains what Subway’s Item 12 discloses, provides historical context on how the lack of territorial protection led to massive oversaturation across the system, analyzes the current store closure strategy, and helps prospective buyers understand what the territory landscape looks like following the 2023 Roark Capital acquisition.

What Does Subway’s FDD Item 12 Actually Say About Territory?

Item 12 of any Franchise Disclosure Document is titled “Territory.” The FTC Franchise Rule requires franchisors to disclose whether the franchisee receives an exclusive territory, what rights the franchisor reserves regarding the placement of additional units, and what conditions apply to the franchisee’s geographic area.

Subway’s Item 12 disclosure states, in substance, that the franchisee does not receive an exclusive territory. The franchise agreement does not prohibit Subway from establishing other franchised or company-owned locations in any area, regardless of proximity to the franchisee’s location. Subway retains the right to sell products and services through any channel of distribution, including online sales, delivery platforms, catering, and non-traditional venues, without any obligation to compensate existing franchisees for lost sales.

This means that if you invest $150,000 to $300,000 in a Subway franchise, there is no contractual barrier preventing Subway from approving another franchisee to open a location across the street, around the corner, or in the gas station next door. This is not a theoretical risk. It has happened repeatedly throughout Subway’s history and is the primary driver of the system’s oversaturation problem.

How Did Subway’s Lack of Territories Lead to Oversaturation?

Subway’s growth strategy for decades prioritized unit count above all else. At its peak, Subway had more than 44,000 locations worldwide and approximately 27,000 in the United States alone. That made Subway the largest restaurant chain in the world by location count, exceeding even McDonald’s.

The problem was that growth in unit count did not correspond to growth in customer demand. Subway continued approving new locations in markets that were already saturated, and because no exclusive territories existed, there was no structural check on this expansion. The result was predictable: individual location revenues declined as the same customer base was split among more and more Subway restaurants.

Consider a market with 100,000 potential Subway customers. If that market had 10 Subway locations, each location served roughly 10,000 customers. When the market expanded to 20 locations without any increase in customer demand, each location’s customer base was cut in half. Revenue per location declined, but the fixed costs of operating (rent, labor, equipment, the royalty percentage) did not decrease. The margin compression was devastating for individual franchisees.

This pattern played out across the country. Suburban strip malls with multiple Subway locations within a mile of each other became common. Urban areas saw Subway locations on consecutive blocks. The aggressive development culture, driven by development agents who earned fees for opening new locations, created a systemic conflict of interest: the people responsible for approving new locations were financially incentivized to approve as many as possible, regardless of the impact on existing operators.

For a broader discussion of how territory encroachment affects franchisees across the industry, see our in-depth guide on franchise territory encroachment.

What Is Subway’s Store Closure Strategy and How Does It Affect Territory?

Since peaking at more than 27,000 US locations, Subway has closed thousands of restaurants. The US location count has dropped to approximately 20,000 to 21,000, a reduction of roughly 6,000 to 7,000 locations. This contraction represents the largest sustained closure wave in quick-service restaurant franchise history.

The closures serve multiple purposes. First, they eliminate the weakest-performing locations, which raises the system’s average unit volume. Second, they reduce density in oversaturated markets, which should improve the revenue of surviving locations. Third, they signal to prospective franchisees that the system is being rationalized after decades of unchecked growth.

For prospective buyers, the closure trend has mixed implications:

• Positive signal: The reduction in total locations suggests that surviving locations should, on average, perform better as the competitive density within the Subway system decreases. If the market near your target location has recently had closures, the remaining locations may benefit from redirected customer traffic.
• Negative signal: The closures confirm the severity of the oversaturation problem and raise questions about whether the current location count is still too high. Thousands of franchisees lost their investments when their locations closed. If closures continue, your location could be at risk.
• No guarantee of protection: Even with closures reducing density, Subway’s FDD still does not provide exclusive territories. There is no contractual commitment that Subway will maintain a reduced location count in your market or refrain from approving new locations in the future.

How Do Non-Traditional Locations Compete with Traditional Subway Stores?

Non-traditional Subway locations are a significant territory concern that many prospective franchisees overlook. These are Subway restaurants located inside other businesses or venues, including gas stations and convenience stores, Walmart and other big-box retailers, airports and travel centers, hospitals and college campuses, military bases, and sports arenas.

Non-traditional locations can directly compete with traditional street-level or strip mall Subway restaurants. A Subway inside a Walmart that is half a mile from a traditional Subway location captures customers who might otherwise have visited the traditional location. Because Subway’s franchise agreement does not provide exclusive territories, the opening of a non-traditional location near a traditional location is completely permissible under the contract.

Non-traditional locations also have different economics. They typically have lower buildout costs, lower rent (as part of a host venue), and access to captive foot traffic. This means they can operate profitably at lower sales volumes than a traditional location requires. However, the revenue they divert from nearby traditional locations can push those traditional locations below their break-even threshold.

When evaluating a Subway franchise opportunity, always map not just the traditional Subway locations in your market but also every non-traditional location. A gas station Subway a mile away is as much a competitive threat as a traditional Subway across the street. For a comparison of how other brands handle territory issues, see our analysis of Chick-fil-A’s FDD Item 12 territory provisions.

A Client Scenario: When Encroachment Destroyed a Franchisee’s Investment

A Subway franchisee who had operated a location in a suburban market for seven years contacted our firm after experiencing a 30% revenue decline over 18 months. The franchisee’s location had been generating approximately $480,000 in annual gross sales when Subway approved two new locations within a 1.5-mile radius: one in a gas station convenience store and one in a new strip mall development.

The franchisee’s annual gross sales dropped to approximately $335,000 within 18 months of the two new openings. At that revenue level, after paying the 8% royalty ($26,800), the 4.5% advertising contribution ($15,075), food cost (~31%, or $103,850), labor (~33%, or $110,550), and rent ($36,000), the franchisee was operating at a net loss of approximately $15,000 per year, not including debt service on the original buildout loan.

When the franchisee contacted Subway about the revenue impact, the franchisor’s response was that the franchise agreement did not provide exclusive territory protection and that new locations were developed in accordance with the FDD disclosures. There was no legal remedy available under the franchise agreement because the franchisee had signed an agreement that explicitly stated no territorial exclusivity was provided.

At Lopes Law LLC, we reviewed the franchisee’s options, including potential claims under state franchise relationship laws, negotiation with the franchisor for financial relief, and exit strategies including transfer or voluntary termination. The franchisee ultimately negotiated a transfer of the franchise to another operator at a significant loss. The lesson is clear: the time to evaluate territory risk is before you sign, not after your revenue has been destroyed by encroachment.

What Should Prospective Subway Franchisees Evaluate Regarding Territory?

When considering a Subway franchise, conduct the following territory analysis:

• Map every Subway location within 5 miles: Include both traditional and non-traditional locations. Count the total number and note the distance from your target location. Calculate the population per Subway location in your immediate market.
• Research recent closures: Determine how many Subway locations have closed in your market in the past three years. Closures can indicate oversaturation, but they may also indicate broader market challenges that would affect a new location.
• Assess non-traditional location risk: Identify every gas station, convenience store, Walmart, college campus, and travel center in your market that could potentially host a non-traditional Subway location. These venues represent future encroachment risk.
• Talk to existing operators: The Item 20 disclosure in the FDD lists current and former franchisees. Contact operators in your target market and ask specifically about sales trends, competitive density, and whether new locations have opened nearby during their tenure.
• Review the franchise agreement’s territory provisions word by word: Confirm that no territory protection is provided. Understand exactly what rights Subway reserves regarding future development in your area.
• Model revenue at reduced levels: Because there is no territorial protection, model your profitability at 70% and 50% of projected revenue to understand your downside exposure if encroachment occurs.

How Does the Roark Capital Acquisition Affect Territory Going Forward?

The 2023 acquisition by Roark Capital has introduced uncertainty about Subway’s future territory strategy. On one hand, the aggressive store closure program suggests that Roark Capital recognizes the oversaturation problem and is prioritizing unit-level economics over unit count growth. This is a meaningful shift from the previous ownership’s growth-at-all-costs approach.

On the other hand, the franchise agreement and FDD still do not provide exclusive territories. Roark Capital has made no public commitment to implementing territorial protections for franchisees. Any expectations about future territory policy based on the closure trend are speculative, not contractual. If the territory protections are not written into your franchise agreement, they do not exist as enforceable rights.

Prospective franchisees should evaluate the current FDD on its stated terms. If Item 12 says no exclusive territory, that is the legal reality you are buying into. Hoping that new ownership will change the policy is not a substitute for a franchise agreement that protects your investment.

For a comprehensive understanding of how different FDD items interact with the territory question, see our guide on what an FDD review includes and our analysis of Item 19 financial performance representations.

Frequently Asked Questions About Subway FDD Item 12

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Last updated: March 10, 2026