Subway Restaurants (US)

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Subway is the world's biggest sandwich chain. It overtook McDonald's as America's biggest fast-food restaurant by number of outlets in 2002, and achieved the same feat on a global scale in 2010. Growth has been generated partly by Subway's offer of a healthy alternative to burgers and fries, but also a supremely efficient franchising model organised by parent company Doctor's Associates. As a franchising machine it has few equals, voted the #1 franchise opportunity in the US an astonishing 17 times since 1985 because of its levels of franchisee support and development and the potential for growth. The advantage to customers is the flexibility of the menu, as well as its made-before-your-eyes freshness. The privately owned business now has more than 40,000 restaurants worldwide, all franchised, and continues to expand with astonishing speed, opening an average of 2,000 new outlets each year. 

Selected Subway advertising

Advertising

Who handles advertising? Click here for Agency Account Assignments. Ad Age estimated global measured advertising expenditure of $635m in 2013. In the US, Kantar (in Advertising Age) reported measured expenditure of $515m for 2013, out of an estimated total of $573m.

Competitors

Subway's principal rivals in the limited service sandwich chain segment are Arby's and Jimmy John's. Panera Bread is similar but tends to be classified as a bakery/cafe. See Restaurant Sector for other companies

Contact

Doctor's Associates Inc
325 Bic Drive
Milford, CT 06460
United States
Tel: +1 203 877 4281

Subway Franchisee Advertising Fund Trust
488 Wheelers Farm Road
Milford, CT 06461
United States
Tel: +1 203 882 2700

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 22nd Jul 2015: Subway chief marketing officer Tony Pace announced his resignation after a decade in that role to set up his own consultancy, to be named Cerebral Graffiti. Pace stressed that his departure has no connection to the PR crisis surrounding long-standing brand ambassador Jared Fogle, but the timing of his departure couldn't arguably come at a worse time. Adding to the upheaval, the sandwich chain also announced a creative review out of current agency MMB. Pace's successor has yet to be named.

Adbrands Weekly Update 9th Jul 2015: Sandwich chain Subway is wrestling with a PR crisis following disclosure of an FBI raid on the home of its long-established brand ambassador Jared Fogle. Though Fogle has not been charged with any offences, the investigation appears to be associated with the arrest earlier this year of the former head of his charitable childhood obesity foundation for producing child pornography. Subway has temporarily suspended its association with Fogle pending further developments. Fogle has served as Subway's main brand ambassador for 17 years, after he famously lost 245 pounds on a diet consisting mainly of the chain's turkey sandwiches.

Adbrands Weekly Update 30th Apr 2015: Tesco confirmed plans to move its substantial media account to MediaCom after more than two decades at Initiative. That move seemed virtually inevitable once Tesco announced the pitch list, pitting the UK's biggest and best media agency against one of the weakest. The loss is a serious blow to Initiative: Tesco was its biggest client by far. It was MediaCom's second big win this week, following on from its capture of the Subway restaurant business across the Asia Pacific region.

Adbrands Weekly Update 27th Mar 2014: Small is better when it it comes to fast food restaurants in the US. That seems to be the lesson from the 4th annual Consumer Picks survey conducted by hospitality trade magazine NRN, ranking the country's limited service chains according to various factors including food quality, cleanliness, service and atmosphere. The survey was compiled from more than 44,000 votes submitted by 5,700 restaurant customers across the nation. Clear winner by overall score was In-N-Out Burger, with just 292 outlets across the country. It scored the highest mark in eight out of ten categories, while industry giants McDonald's and Burger King came last and next-to-last respectively in the burger category, and ranked 103rd and 104th overall. (Only Chuck E Cheese fared worse out of 105 chains). Close behind In-N-Out in the overall ranking came Haagen-Dazs ice cream cafes, followed by Chick-Fil-A, also the clear leader among chicken restaurants (KFC came bottom in this sector). Rounding out the top five chains were Krispy Kreme and Panera Bread. McDonald's, Burger King and KFC were by no means the only big chains not to find favour with consumers. Starbucks was the highest rated of any major brands, but managed only 44th place overall, while Subway scraped in at #50. Pizza Hut, Taco Bell and Wendy's were all outside the top 70. 

More from Adbrands Weekly Update

Brand & Activities

Subway continues to expand with astonishing speed. As a franchising machine it has few equals, voted the #1 franchise opportunity in Entrepreneur magazine's Franchise 500 rankings 17 times between 1985 and 2010 because of the levels of franchisee support and development and the potential for growth. The advantage to customers is the flexibility of the menu, as well as its "made before your eyes" freshness. Subway offers an extensive menu of hot and cold sandwiches served in "submarine" baguettes, as well as a range of salads. All the sandwiches are made to order in front of customers. The range varies from outlet to outlet and country to country. In fact, the company claims to serve almost two million different sandwich combinations, but its most popular items are Tuna, Turkey Breast and Cold Cut Trio subs. Subway's signature sandwich is the BMT, featuring salami, pepperoni and ham on a bed of vegetables. The acronym has come to stand for Biggest, Meatiest, Tastiest, but in fact it originated in a restaurant located alongside the Brooklyn Manhattan Transit system in New York. 

A major factor in the rapid growth of Subway, especially since 2002, has been a general perception by the public that the chain's range of made-for-you sandwiches and salads are healthier than traditional burgers and fries. These brand values have been strongly supported by Subway's marketing campaigns, which for several years featured real-life consumer Jared Fogle, an American college student who claimed to have lost 245 pounds in weight by eating only Subway sandwiches for a year in a diet program of his own design (combined with lots of walking). That relationship was abruptly suspended in 2015 after Fogle's home was raided by the FBI, reportedly in connection with charges brought against the former head of his charitable foundation.

Other brand endorsement partners include Olympian swimmer Michael Phelps and Brazilian football legend Pele. Even First Lady Michelle Obama gave the chain an implicit endorsement when it teamed up with her Partnership for a Healthier America campaign. In 2007, the group launched a new FreshFit menu, at the same time as it also began selling pizzas in more than half of its US locations. In 2012, it was the first quick-serve restaurant to win the American Heart Association's Heart Check Certification on a number of menu items and meals, and it regularly tops customer surveys for perceived quality, health and value for money.

By mid-2015, the Subway system comprised almost 44,100 shops in 110 countries ranging from Afghanistan to Zambia. (McDonald's has a little over 34,000). However, revenues per outlet are low by comparison with McD, averaging just $464,000 per year in each US Subway in 2014 (compared to $2.5m per year for each McDonald's or Panera Bread). All outlets are franchised. The only company-owned store, which operated mainly as a research and development site, was sold to a franchisee in 2005. The main corporate entity which controls the brand, menu and marketing and oversees operations and quality is Doctor's Associates Inc (named after the qualifications of its founders). Total global systemwide sales are expected to top $20bn in 2015, of which more than a third is generated outside North America. Doctor's Associates takes an annual royalty of 8% from each outlet, equivalent to $1.6bn in 2015.

The US is the biggest market by far, with 27,060 outlets by mid-2015. Even in this saturated market, Subway continues to add new stores at a rate of well over 500 a year. Local systemwide sales were $12.27bn in 2014, but that represented the group's slowest growth rate for several years: just 0.4%. As a result it was overtaken as the #2 US restaurant chain behind McDonald's by Starbucks. The biggest international territory is Canada with over 3,215 outlets, followed by the UK, now more than 1,995. Other important markets are Brazil (1,916 outlets), Australia (1,460), Mexico (989), Russia (651) and Germany (610). China, France and India each had more than 500 stores. Further international expansion is high on Subway's list of priorities, with the company promising to have more foreign than US outlets by 2020. The company has been especially active in the "non-traditional" sector of the market, opening stores in more unusual locations including college campuses and schools, athletic clubs, hospitals, airports and department stores. The most non-traditional outlets of all are located in a car dealership in California and a church in Buffalo, New York. An outpost inside the Pentagon in Washington claims to be the most secure fast food outlet in the world. However plans to open outlets on Amtrak passenger trains in New York were cancelled in 2005 after objections from railway unions.

In fact, despite its massive footprint, the company is almost entirely decentralised. Some critics have argued that the Subway brand is now more about pyramid-selling than sandwich making. Doctor's Associates Inc, which controls the Subway trademark, awards franchising sales rights for individual territories to a network of unconnected development agents. They in turn select and manage the actual franchisees, often outlet by outlet. Central roles such as purchasing and advertising are managed by committees elected by franchisees, while Doctor's Associates simply sets down general guidelines for the store management and marketing, and of course collects a healthy royalty payment. Advertising is managed the Subway Franchisee Advertising Fund Trust. The group also manages a number of sports sponsorships including NASCAR driver Carl Edwards.

As with any such business, some franchisees, attracted by the powerful sales message, have struggled to make a profit from their patch but have found it just as hard to surrender their franchise. This led to some negative press coverage and a few lawsuits between 2000 and 2008. On the other hand, other franchise-holders have down very well out of the system, and the company claims that 70% of new outlets are opened by existing franchisees. Nevertheless rows between the sides break out on a reasonably regular basis. In summer 2006, the trust which manages advertising on behalf of franchisees sued Doctor's Associates over the introduction of a new contract which effectively gave the trademark-owner power to redirect advertising dollars away from the central trust and into a new vehicle controlled directly by Doctor's Associates.

Management

Founder Fred DeLuca remains CEO of Doctor's Associates. Longtime business partner Peter Buck remains a director, and the two men are joint owners of the company. Forbes estimated the net worth of each at $2.6bn in 2015. DeLuca's sister Suzanne Greco is VP, operations, research & development. Don Fertman is chief development officer. 

Tony Pace, SVP & chief marketing officer for the Subway Franchisee Advertising Fund Trust (SFAFT), announced his resignation in July 2015, a few months the departure of VP, global marketing Jeff Larson. A fulltime successor has yet to be named but Pace's predecessor Chris Carroll returned to oversee marketing on an interim basis. Other marketers include Karie Ford (VP, media), Justin Zandri (VP, creative & brand strategy), Sonja Tilki (director, marketing activation) and Paul Bamundo (director of sports marketing, public relations & partnerships)

Background

Subway Restaurants was founded in 1965. Fred DeLuca was then a 17-year-old college freshman, intending to train as a doctor. The problem was how he was going to pay for tuition fees. Family friend Peter Buck, himself a qualified doctor of nuclear physics, suggested DeLuca pay his way through medical school by opening a sandwich bar, and offered him $1,000 of seed capital. The first restaurant opened in Bridgeport, Connecticut in August 1965 and was called Pete's Super Submarines. Unfortunately it lost money, but Buck and DeLuca became partners, opening several additional outlets in an attempt to grow profits through volume. In the mean time, DeLuca graduated with a degree in psychology from University of Bridgeport. Finally, with their fifth restaurant, the business began to turn a profit. The name Subway (originally Pete's Subway) was adopted in 1968, and by 1974 there were 16 outlets in and around the state of Connecticut.

However the financial rewards were still smaller than DeLuca and Buck had anticipated. So in 1974, they changed strategy, opening Subway up to franchisees. This proved enormously successful, allowing the brand to take advantage of volume purchasing and marketing, without exposing its owners to the cost of running individual shops. Gradually they closed down their own outlets to concentrate on marketing the Subway brand to the franchise sector. As a result, the number of outlets soared over the following few years and in 1978 the system set up the Subway Franchisee Advertising Fund Trust (SFAFT), pooling a share of revenues to pay for national advertising. 

By 1981 there were 200 restaurants in the US; a year later the number had grown to 300. The first international outlet opened in 1984 in, of all places, the Middle Eastern state of Bahrain. Other territories followed including Puerto Rico (1985), Canada (1986), Australia (1988) and Mexico (1990). The pace of expansion ramped up in 1995 and 1996, as the chain entered more than 30 new markets. The group opened its 20,000th outlet in October 2003 when 20 restaurants opened on the same day in locations as far apart as the US, China, Australia and England. In 2004, the group opened its first outlets in new territories Chile, Grenada and Hungary. Subway broke through the 30,000 outlets barrier in October 2008, and through 40,000 in August 2013.

Last full revision 29th July 2015


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