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Unformatted text preview: bout fifteen thousand restaurants, second only to McDonald’s, and opens
about a thousand new ones every year. DeLuca is determined to build the world’s largest fast food chain. Many of the complaints about
Subway arise from its unusual system for recruiting new franchisees. The chain relies on “development agents” to sell new Subway franchises.
The development agents are not paid a salary by Subway; they are technically independent contractors, salesmen whose income is largely
dependent on the number of Subways that open in their territory. They receive half of the franchise fee paid by new recruits, plus one-third
of the annual royalties, plus one-third of the “transfer fee” paid whenever a restaurant is resold. Agents who fail to meet their monthly sales
quotas are sometimes forced to pay the company for their shortfall. They are under constant pressure to keep opening new Subways,
regardless of how that affects the sales of Subways that are already operating nearby. According to a 1995 investigation by Canada’s Financial
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This note was uploaded on 02/25/2014 for the course MGMT 120 taught by Professor Litt during the Spring '08 term at UCLA.
- Spring '08