Smaller rivals are nibbling up the market share of sandwich giant Subway, as they apply new tactics to boost sales and appeal to a larger segment of folks eating out.
Subway’s domestic sales fell 3.3 percent to $11.9 billion last year from the prior year, according to new data provided by research firm Technomic Inc. in Chicago.
Subway lost its title last year as the nation’s second largest restaurant chain to Starbucks, which had U.S. sales of $12.7 billion in 2014. McDonald’s easily remained No. 1 with sales of $35.8 billion last year. Further, the sales drop for Subway came as the number of locations for the Milford, Connecticut-based chain actually rose 2.9 percent to 27,205 last year.
A greater emphasis on offering healthier quality ingredients, providing a more comfortable fast-casual dining atmosphere instead of just quick service and generating revenue from channels like mobile, delivery and catering are forces helping smaller chains pick up customers and gain ground on larger rivals, says Mary Chapman, senior director of product innovation at Technomic. Brands such as Jersey Mike’s Subs (No. 1 on Technomic’s fastest-growing sandwich chain list), Firehouse Subs (No. 2), Which Wich Superior Sandwiches (No. 3), Newk’s Eatery (No. 4), Jimmy John’s Gourmet Sandwiches (No. 5), and Schlotzsky’s (No. 12) are running strong.
Collectively, sales for the 32 sandwich chains on the Technomic Top 500 Chain Restaurant Report for 2015 were $22.7 billion in 2014, up 1.7 percent from 2013. The number of units for the chains last year totaled 40,651, up 3 percent from the prior year.
Though still by far the dominant chain in the sandwich category, Subway’s sales drop is significant because it indicates its growth may have peaked, Chapman says. She cited a couple of reasons why the chain’s average unit volumes, or the amount of sales per store, have declined.
Subway has long been known as a low-price option. But in the past year or two, the chain has raised prices on some items and eliminated or reduced the frequency of some popular promotions ($5 footlongs). Chapman added Subway is also known for offering "fresh" and "prepared for me" sandwiches, but there are a lot of restaurants offering that now, often with better ingredients.
Subway public relations manager Kevin Kane responded: "Subway is always improving and working to meet our consumer’s rapidly evolving needs, from our better-for-you menu choices to how we interact with our customers. Most recently, we’ve seen positive momentum as it relates to our flavor and quality improvements, as well as growth in customer perception of our everyday affordability with the ‘Simple $6’ menu."
Posting another year of record growth last year, Jersey Mike’s stuck to its culture of staying focused on the right kind of growth versus trying to grow too fast.
Jersey Mike’s President Hoyt Jones says the Manasquan, New Jersey-based chain’s strategy entails carefully selecting first-time franchisees and encouraging existing franchisees to expand. In fact, 50 percent of the 155 locations the chain opened in 2014 were owned by existing franchisees.
That plan helped Jersey Mike’s post a 30.2 percent sales gain in 2014, the biggest jump in the Technomic report.
For Newk’s Eatery, the opening of nine stores and a 6 percent rise in same-store sales fueled the Jackson, Mississippi-based chain’s growth last year. Newk’s Chief Development Officer Chris Cheek says Newk’s has benefited from being a "next generation" fast-casual restaurant, practicing a concept that includes moving away from assembly-line sandwich making. Newk’s niche is offering items made from scratch at every location in an open kitchen, making it more of a rival of larger bakery-café chains as opposed to sandwich shops. (Technomic includes the chain in its sandwich category, rather than bakery-café, because of its percentage of sales from sandwiches.)
Cheek says that approach is attracting millennials and Generation Xers. "That’s driving our comp store sales, interest in the brand from a franchisee perspective and making us very competitive in our category." The franchise plans to open another 29 stores this year.
Investing more than $2 million, Charley’s Grilled Subs/Charley’s Philly Steaks redesigned its menu, upgraded stores and added a new six-inch small sandwich to make over its image. Those enhancements helped the Columbus, Ohio-based chain post a 15 percent jump in sales last year.
The chain plans to use part of the investment to bring its two restaurants under one name—Charley’s Philly Steaks—by the end of 2015, says Kris Miotke, vice president of marketing for both brands. About 37 percent were under the Charley’s Philly Steaks label as of April.
