Subway partners with Beyond Meat as part of its comeback bid

Key Points
  • Subway is partnering with Beyond Meat, starting with a meatball marinara sub made with plant-based meatballs.
  • The sandwich chain has been struggling in recent years after rapidly expanding across the U.S.
  • Shares of Beyond have been soaring since its May initial public offering, although the stock has tumbled in the last week after a secondary stock offering. 
Beyond Meatball Marinara sub
Source: Subway

Subway is betting that a partnership with Beyond Meat can revive its struggling business.

The sandwich chain is partnering with the maker of plant-based meat products, starting with a test of a Beyond Meatball Marinara sub. The limited-time sandwich will be available in 685 locations in the U.S. and Canada starting in September.

Sales to restaurants accounted for nearly half, or $33.1 million, of Beyond's net sales during its second quarter. The El Segundo, California-based company has snatched up partnerships with chains like Dunkin', Del Taco and Tim Hortons as more consumers eat meat alternatives.

Euromonitor is forecasting that the U.S. market for meat substitutes will grow to $2.5 billion by 2023. Flexitarians — omnivores who are looking to reduce their meat intake — make up 98% of buyers of meat substitutes, according to Nielsen data.

Investor enthusiasm about the growth of vegan meat alternatives and Beyond's future opportunities have sent the company's stock soaring since its initial public offering in May. Shares of Beyond, which has a market value of $9.8 billion, are up 544% since its IPO, although they have tumbled in the last week after a secondary stock offering.

Partnerships are also part of Subway's comeback strategy. In the last six weeks, Subway has announced partnerships with King's Hawaiian for its bread and Halo Top for its first-ever milkshake. It is also remodeling 10,500 U.S. stores and rolling out delivery across the nation.

Subway, which is privately held, had seen years of massive expansion. During the 2008 financial crisis, the sandwich chain saw success with its $5 footlong. But newer Subway restaurants began to steal sales from nearby locations. Also, rivals like Chipotle Mexican Grill and Potbelly appealed to customers with seemingly healthier fare, and rising commodity costs made the signature foot-long sandwich deal unprofitable.

In 2016, Subway closed more restaurants than it opened and has since accelerated the pace of closures. In 2018, it shuttered more than 1,100 U.S. locations, bringing its total number of U.S. stores to fewer than 25,000, according to franchise disclosure documents. Subway is facing multiple lawsuits from former franchisees alleging that it wrongfully terminated their franchise agreements.

Despite the closures, Subway is still the largest U.S. restaurant chain by number of stores, topping McDonald's roughly 14,000 U.S. locations.

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