Subway Continues Restaurant
Closures, Turns Attention Toward Market Share And Global Expansion, by Darren
Tristano 5/1/18
Subway, the largest sandwich
chain on the planet, continues to close shops domestically, looking to close
500 stores in 2018 after shuttering 800 restaurants in 2017. The effort will
focus on pruning under-performing locations, which should drive traffic to
other nearby locations.
The 50-year-old chain continues to emphasize its market share,
looking to retain and grow its current customer traffic, according
to a
Bloomberg article citing a recent interview with chief executive officer
Suzanne Greco.
Quick-service sandwich shops like Subway are facing increasing
pressure from higher-quality fast-casual sandwich chains like Jimmy John's,
Jersey Mike's and Firehouse Subs. Together, these chains combined for sales in
2017 of just over $4 billion, according to Technomic Inc.
Sandwich chains in the United States account for over $30 billion
of annual consumer purchases; Subway accounts for nearly 35% of those sales,
with nearly 26,000 U.S. locations, according to CHD Expert, a global data and
insights firm.
Younger consumers continue to crave quality sandwiches that offer
premium sliced meats, upscale toppings and high-quality bread. Subway has
raised prices, moving away from the $5 foot-long, narrowing the price gap
between its product and its competitors'. Consumers willing to pay a few bucks
more are moving upmarket to fast-casual quality.
What went wrong with Subway’s growth and expansion? For one thing,
Subway is a franchisor of restaurants, with no stores owned or operated by the
company. Aggressive franchise development created an oversupply of restaurants
that cannibalized sales when proximity was too close. Franchisees began to
compete with one another instead of with competitive chains and independent sub
shops.
Innovation had been a weakness until more recently as more
limited-time offers and wraps have tempted consumers to return. Consumer taste
preferences have evolved to include more adventurous, spicy flavors and
ingredient variety. Traditional sandwiches still appeal to older Boomer and
GenX groups, but millennial consumers and GenZ are looking for natural, hormone
and antibiotic-free ingredients and flavorful ingredients and sauces that
satisfy their taste buds.
Today’s restaurant environment continues to maintain an oversupply
of restaurant operators. Some segments of the industry have little opportunity
for new sales growth and continue to operate in a “take share” environment
where winners steal guest traffic and sales from their competition with
aggressive advertising and value price promotions. With the industry in a
low-growth mode (3-4% nominally), many chain restaurants have shifted their
expansion strategy to global growth in developing countries around the world.
Subway continues to operate more restaurants than any other chain
globally and has ample opportunity to build its store counts abroad. Leveling
out sales in the U.S. and maintaining aggressive growth globally will allow the
brand to build a bigger footprint, expand its brand awareness, and bring
sandwiches to markets that have mostly seen American burger chain openings.
As I see it, Subway is finding addition through subtraction.
Placing its chips on global growth opportunity is a smart decision as it
continues to manage strong supply chain and operational strengths with its
system. Fewer restaurants in the U.S. is a start toward an industry equilibrium
between supply and demand that will allow operators to build margins and reward
the hard work these front-line workers and owners have day in and day out.
Norb Leahy, Dunwoody
GA Tea Party Leader
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