Zaxby’s Plans Four BR Restaurants

September 29, 2015

Timothy Boone
Copyright 2015, The Advocate / Capital City Press LLC, All Rights Reserved. Distributed by NewsBank, Inc.

Zaxby’s, the Georgia-based chain that specializes in chicken tenders, chicken wings and salads, plans to open four restaurants in metro Baton Rouge over the next few months.

A franchise restaurant at 1850 W. La. 30 in Gonzales, near the Interstate 10 exit, should open at the beginning of October, said J.J. DeRoy, director of market development for Zaxby’s corporate restaurants. At the end of October-early November, a company-owned restaurant at 34071 La. 16 near Watson is set to open, while a Zachary location on Main Street, across from Wal-Mart, should be open by mid-December.

The chain has also applied for a permit to build a third company-owned Zaxby’s, in the Long Farm traditional neighborhood development at Airline Highway and Antioch Road. The city-parish Planning Commission should vote on the final development plan for that restaurant at its Sept. 21 meeting. Once ground is broken on the restaurant, it should be complete in about four months, DeRoy said.

Each restaurant will have about 40 to 60 employees. The restaurants will be about 3,500 square feet and have seating for 90 people.

Zaxby’s is making aggressive moves in a market dominated by Baton Rouge-based Raising Cane’s. The chains have similar menus, with a signature meal consisting of chicken fingers, fries, coleslaw, Texas toast and a tangy sauce. But Zaxby’s offers a variety of other dishes, including chicken wings, Buffalo chicken tenders and salads topped with grilled, fried or Buffalo chicken.

DeRoy notes that Zaxby’s has done well in the crowded marketplace for fast, casual chicken. After all, the chain has grown despite being in the shadow of Atlanta-based Chick-fil-A, the largest national chicken restaurant.

“We certainly know the competition is out there,” he said. “That’s the nature of the beast we have to deal with.”

It’s the other menu items, such as the wings and salads, that cause Zaxby’s to stand out, DeRoy said. “The chicken tenders are great; they got us to where we are today,” he said. “But our fresh approach to the process can’t be compared. And our guests see our true value when they look at the variety of menu items.”

Zaxby’s was founded in 1990 in Statesboro, Georgia, near the campus of Georgia Southern University. The company has grown to nearly 700 locations in 16 states. According to QSR magazine, which tracks the quick-service and fast-food industry, in 2014 Zaxby’s posted nearly $1.26 billion in sales. That put Zaxby’s as the 25th-largest quick-service eatery in the U.S., sandwiched between Jimmy John’s and Five Guys Burgers and Fries.

Zaxby’s, which opened its first Louisiana restaurant in West Monroe in 2012, now has six locations in the state, including stores in Lafayette, Ruston, Monroe and two in Bossier City.

“They’re more of a regional brand, but they’re aggressively growing toward the north,” said Darren Tristano, executive vice president of Technomic, a food industry research and consulting firm based in Chicago.

Despite the local popularity of Raising Cane’s, Tristano said there are a lot of opportunities for Zaxby’s in Baton Rouge. KFC, which long dominated the chicken market, has “hit the wall” and seen sales slide for the past five years. McDonald’s, which sells plenty of chicken sandwiches, has seen its sales plunge by 11 percent in the past year.

“There are shares to be gained from McDonald’s and KFC,” he said. “That’s where Zaxby’s will see it’s shares come from, not from other fast-casual chicken chains.”

U.S. Taco Closes: Taco Bell Shutters Experimental Upscale Eatery in Huntington Beach

September 28, 2015

Nancy Luna
Tribune Content Agency, LLC
(c)2015 The Orange County Register (Santa Ana, Calif.)

Taco Bell has closed U.S. Taco Co., an experimental fast-casual restaurant that failed to generate the kind of foot traffic needed to sustain the year-old Huntington Beach taco eatery.

The upscale “American taco” concept was the chain’s attempt to win the taste buds of sophisticated fast-casual eaters. But the Irvine-based chain cited “lower than anticipated foot traffic” and “hurdles securing alcohol permits” as challenges contributing to its decision to close U.S. Taco.

The Day of the Dead-themed eatery, at 150 5th St., closed Thursday.

Taco Bell said the closure allows the company to focus on Taco Bell Cantina, the company’s new urban concept that caters to its next generation of customers — millennials. The first cantina restaurant, which will offer an enhanced Taco Bell menu along with beer, wine and alcohol-infused slushie beverages, opens Tuesday in Chicago.

The next cantina will open later this month in San Francisco. Taco Bell said they are incorporating successful features from U.S. Taco — its open kitchen layout and edgy design — into new concepts like cantina. And, despite its closure, future U.S. Taco restaurants may open, the chain said.

“U.S. Taco Co. remains a fantastic concept, and was very successful as a place to experiment and learn,” Taco Bell Chief Executive Brian Niccol said.

Last year, Taco Bell unveiled U.S. Taco., a slick counter-service eatery attempting to appeal to non-Taco Bell eaters with disposable income. Jumping into the fast-growing $34 billion fast-casual space, the experimental restaurant featured a menu of American-inspired tacos, milkshakes and seasoned fries. Each taco was a twist on a classic regional dish — from an East Coast lobster roll to Texas-style brisket.

But from its inception, U.S. Taco ran into one major hitch.

The original “taproom” business model included a menu of craft beer and wine. But the eatery, located in the city’s bar heavy downtown, was unable to secure an alcohol license when it opened. The restaurant was finally able to secure a permit this summer.

Restaurant industry analyst Darren Tristano said brands “moving upscale” face challenges, including higher operating costs and higher price points.

Adding alcohol to your menu also is tough: “Adult beverage is not in (Taco Bell’s) DNA so it can be a difficult transition,” said Tristano of Chicago-based Technomic.

Tristano, who had visited U.S. Taco during visits to California, said legacy brands like Taco Bell should be true to their brand. In the case of Taco Bell, that’s “convenient, consistent, high value and indulgent crave able food.”

Jimmy John’s Growth Fast-Tracked

September 25, 2015

20150918-175928-pic-444050051Debra Pressey
(c)2015 The News-Gazette (Champaign, Ill.)

CHAMPAIGN — It was the “Slim 5,” a sandwich of salami, Italian capicola and cheese, that Seth Hobbs found himself ordering most when he was a college student and eating Jimmy John’s Gourmet Sandwiches “all the time,” he recalled.

Since he’s made the switch from customer to hardworking owner of two Danville Jimmy John’s franchises, his new favorite is the Italian Night Club, he said. That’s one of the heftier items on the menu, a genoa salami, capicola, smoked ham and provolone cheese sandwich topped with lettuce, onion, tomato, mayo and homemade Italian vinaigrette.

But it was more than just love of the food that drove Hobbs, a 27-year-old former ballplayer for the Joliet Slammers, to become a Jimmy John’s franchisee three years ago.

“It’s one of the fastest-growing chains out there,” he said. “And it’s one of the best profit margins for what you have to put into it.”

The chain Jimmy John Liautaud founded when he opened his first sandwich shop in Charleston in 1983 has been steadily adding locations and climbing national industry rankings.

Since 2007, the chain has quadrupled its number of shops, from 500 to more than 2,000, with most of them franchises.

Some recent industry accolades: Last year, Jimmy John’s was ranked No. 5 in Entrepreneur Magazine’s Franchise 500 list and No. 8 in its fastest-growing franchises list.

Nation’s Restaurant News 2015 Top 100 report ranked Jimmy John’s the nation’s seventh-fastest-growing restaurant chain, with 307 new locations added in 2014 to boost the total to 2,109. That was as of last year. A 2015 total wasn’t available from the company.

Keys to the chain’s growth have been simplicity, including speed of service, sports connections and consistent leadership, according to an NRN report.

Jimmy John’s remains far behind the global sandwich behemoth Subway, which has more than 27,000 U.S. locations, and more than 44,000 shops worldwide. But Subway’s sales declined about 3 percent last year, and it fell from second-largest to third-largest in both the NRN’s Top 100 and food industry research firm Technomic’s Top 500 Chain Restaurant Report Restaurants this year.

Meanwhile, three fast casual sandwich chains — topped by Jimmy John’s, Firehouse Subs and Jersey Mike’s — grew, according to Technomic.

Jimmy John’s, which leads that fast casual sandwich category, has “been moving at a very rapid pace,” Technomic Executive Vice President Darren Tristano said.

While Firehouse Subs and Jersey Mike’s don’t rival Jimmy John’s in unit numbers and sales, they’ve also been growing fast. Jersey Mike’s, the fastest-growing chain in the NRN Top 100, had a 29.3 percent growth in the latest year and third-fastest-growing Firehouse Subs saw its domestic sales grow 24.8 percent.

Tristano looks for Jimmy John’s to continue to do well because it offers comfortable dining environments, good food and a delivery service that sets it apart and boosts sales, he said.

Jimmy John’s caters to both college students and a more affluent customer in the Millennial generation, he said. Those college students who dined on Jimmy John’s while they were at school: “Most of them have grown up, and they’re continuing to eat at Jimmy John’s.”

Cost: $323,000 to $544,000

Hobbs graduated from Ball State University in construction management in 2011, started work on a master’s degree, then left to play professional baseball. Being an athlete prepared him well for the work and dedication the restaurant business requires, he said. As a franchisee, he puts in 75- to 90-hour work weeks.

With Danville being so close to Champaign, home to Jimmy John’s headquarters and multiple shop locations, he said, the name recognition for the brand was good in Danville, and his first Jimmy John’s shop at 3120 N. Vermilion St. did well “pretty much right off the bat.”

After opening his second shop at 306 W. Fairchild St., the first one took a bit of a hit in traffic, he said, “but we’re hoping it will bounce back.”

The North Vermilion location will be getting a new drive-through soon, he said, and he’s interested in adding more locations.

The initial investment in a Jimmy John’s franchise, not including the real estate, is $323,000 to $544,000 — including the $30,000-$50,000 franchise fee payable in a lump sum upon signing the agreement, according to the chain’s website.

That’s substantially more than the cost of opening a U.S. Subway franchise, which is $116,000 to $263,000, including the $15,000 franchise fee. But a Subway franchisee will pay the company more in royalties and kick in more for advertising a year, a total of 12.5 percent, compared to 10.5 percent for Jimmy John’s. And that 2.5 percent difference can be substantial for a franchise owner, Tristano said.

Firehouse Subs has an even potentially higher cost of initial investment for a new franchisee, from $131,150 to $928,405, with a single-unit franchise fee of $20,000, according to that chain’s website. And a franchisee can expect to fork over 9 percent of sales to the company a year, 6 percent in royalties and 3 percent for advertising.

Freaky working conditions

The speedy service hailed as one of the keys to Jimmy John’s success isn’t necessarily great for the company’s workers, according to one former Baltimore employee, Isacc Dalto, who was one of the founding members of the Industrial Workers of the World/Jimmy John’s Workers Union campaign in that city.

Both that campaign and an IWW campaign in Minneapolis went public in 2010, and both continue even after a union election that lost by a hair in Minneapolis that year.

Dalto, 25, worked for Jimmy John’s for one year before his hours were cut to one day a week, which, he contends, was in retaliation for union organizing, and then he quit. He continues to organize Jimmy John’s workers even though he is no longer an employee, he said.

Dalto said he has issues with Jimmy John’s “poverty wages,” sick day policy and a lot more.

“I was called in to work for a three-hour shift sometimes. You’re not allowed to call in sick. You are responsible for finding your own replacement. If you cannot find a replacement for yourself if you are sick, you are written up,” he said. “I was personally asked to work when I had pinkeye, which is not good for the public or customers, and beyond that, there’s a lot of issues with the flow of work and the pace of work. A sub is supposed to be made in 30 seconds on the assembly line.”

The company’s reference to subs “so fast you’ll freak” doesn’t make for such great working conditions for employees, Dalto contends.

“Comparable businesses, like Subway or Potbelly, don’t push workers at this breakneck pace. Aside from being miserable, it’s also very unsafe. People cut themselves when they’re doing this,” he said.

The Minneapolis IWW campaign included workers employed by one Jimmy John’s franchisee staging a work stoppage and picket, thousands of posters about the sick leave policy being posted and six employees being fired. The National Labor Relations Board ordered the employees reinstated in 2014, but they have never returned to work, according to the IBB.

Mum’s the word

Jimmy John’s seems to love social media, but the media maybe not so much?

Some 3.1 million people like a Jimmy John’s Facebook page, and many people post on it, some lovingly about the food, and the chain replies. Jimmy John’s also has more than 389,000 followers on Twitter and more than 34,000 followers on Instagram.

But news stories — which have been numerous as the chain has increased its footprint across the U.S. — often indicate the chain declined to comment, and that’s included no comments on everything from reports about an IPO in the offing to a controversial noncompete agreement required for lower-wage Jimmy John’s workers.

Reuters reported this past May that Jimmy John’s Franchise LLC was preparing for an initial public offering that could value the chain at more than $2 billion, including debt.

This past April, a federal judge in Illinois declined to grant an injunction sought by two former and current Jimmy John’s employees seeking to have noncompete agreements nullified, saying the employees lacked standing to pursue their claim because they had never been injured by the noncompete agreement.

In June, two U.S. senators, Chris Murphy, D-Conn., and Al Franken, D-Minn., introduced the Mobility and Opportunity for Vulnerable Employees, or MOVE Act, that would ban noncompete clauses for employees earning less than $15 an hour or $31,200 a year or the minimum wage where they live.

Liautaud wasn’t available for an interview for this story, and didn’t respond to questions that were emailed to him. A company spokeswoman solicited and received a list of questions from The News-Gazette on Sept. 9 after a local Jimmy John’s franchisee who was contacted for an interview contacted her, but in subsequent inquiries didn’t respond to any of the questions or requests for interviews, saying she hadn’t been able to reach the right people.

Several franchisees who were called and asked for interviews didn’t call back. One out-of-state franchisee who did answer his phone cut off the conversation after inquiring about whether there would be any negative references in the story about the Jimmy John’s chain. Another said franchisees aren’t encouraged to speak to the media.

Jimmy John’s: From 1 shop to 2,000-plus

1983 — Jimmy John Liautaud opens his first sandwich shop in Charleston, with the help of a $25,000 loan from his dad. He later opens stores 2 (Macomb) and 3 (Champaign).

1994 — Liautaud begins franchising.

2002 — Jimmy John’s is a 160-store chain.

2007 — 500th location opens.

2010 — The year store No. 1,000 opens, union organizing campaigns go public in Minneapolis and Baltimore. A vote in Minneapolis is 87-85 against union representation.

2011 — Liautaud and his wife, Leslie, pledge $1 million toward the construction of the new Stephens Family YMCA and Larkin’s Place play space. He also donates $50,000 to Promise Healthcare to help add a dental clinic.

2011 — Liautaud applies for Florida residency and says he may move his chain out of state because of tax increases.

2014 — With 2,000th locations, Jimmy John’s is ranked the sixth-fastest-growing chain by Nation’s Restaurant News, with sales of $1.5 billion.

2014 — U.S. Reps. Joe Crowley and Linda Sanchez ask the Federal Trade Commission and Department of Labor to investigate the hiring practices of Jimmy John’s. This comes after reports that the company requires low-wage workers to sign non-compete agreements “that severely impact workers’ rights,” Crowley says.

2014 — Reuters: Jimmy Johns Franchise LLC is preparing for an initial public offering in a deal that could value the chain at $2 billion-plus. The company declines comment.

2014 — The National Labor Relations Board orders a Minnesota franchisee to reinstate six Jimmy John’s employees fired for exposing company policies the IWW said could expose customers to sandwiches made by sick workers.

2015 — Some launch a Jimmy John’s boycott on social media with pictures of Liautaud posing with dead animal bodies. A new hashtag is born: #BoycottJimmyJohns.

2015 — NRN Top 100 ranks Jimmy John’s the seventh-fastest-growing U.S. chain, with sales of $1.8 billion.

Take the Grub and Run

September 9, 2015

Karen Robinson-Jacos and Laurie Joseph
Copyright 2015 The Dallas Morning News. All Rights Reserved.

Between killer work schedules, soccer games and sagging skill levels, many adults don’t have the inclination to prepare a three-course meal, or the time to sit in a restaurant and enjoy one. That helps account for the growth in “off-premise” dining, where a restaurant chef does the cooking and you enjoy the meal in front of your TV. Now technology, including apps that allow hungry consumers to order and pay in advance, is expected to make restaurant dining rooms even emptier.

Fiesta Restaurant Group

Addison-based Fiesta Restaurant Group, which operates the fast-casual chains Taco Cabana and Pollo Tropical, hopes to double its current off-premise business over the next 10 years and has hired its first corporate director of off-premise consumption. The new director, Willie Romeo, will focus on to-go, online ordering, catering, drive-through and mobile app orders.

Corner Bakery Café

Off-premise sales** at Dallas-based Corner Bakery Café have been growing about a percentage point a year. Next year, the 24-year-old company hopes to begin testing its first drive-through lane.

Mooyah Burgers

Plano-based Mooyah, which competes in the “better burger” space, is looking to boost its to-go business. The company has opened two locations with drive-through lanes but is not focusing on that model.

Essential takeout

More than a third of working-age adults consider buying to-go food “essential” to the way they live, according to the National Restaurant Association.

Deliveries on the rise

At fast-food restaurants, more than 70% of the orders are eaten off-site. Figures from the NPD Group show that delivery orders, which account for the smallest segment, saw the largest percentage growth rate for the year that ended in June.

There’s an app for that

Restaurant chains including Plano-based Pizza Hut and its corporate cousin Taco Bell, along with Starbucks, Subway and others have rolled out apps that allow you to order, pay ahead of time, and just pick the food up on the fly. Look for more chains to launch their own apps or to partner with players like (not available yet in North Texas) or MasterCard’s Qkr.

The bottom line

“The biggest thrust for operators has been in the catering area to promote off-premise sales opportunities. Most of the growth in takeout has been in independent restaurants that have changed their business model to accommodate takeout opportunities for their customers. Also, there have been a lot of delivery discussions from brands such as Uber and Postmates.”

Darren Tristano, executive vice president, Technomic restaurant research service

“We are seeing that currently on-premise visits are growing while off-premise is holding steady or declining. That partly has to do with generational differences. Millennials are cutting back on restaurant visits. They were more inclined to use off premise. Baby boomers are now heavier restaurant users and they have a tendency to eat on premise.”

Bonnie Riggs, restaurant industry analyst, NPD Group

“‘What’s for dinner, Mom?’ was sometimes the scariest question I heard all day. With healthier restaurant options and technology that helps meal-pickup-time fit your schedule, restaurants can grow revenue and reduce the strain on the dining room during peak periods.”

Hard Pass on Alcohol and Fast Food Combinations

September 2, 2015

Rachael Andersen
(c) Copyright 2015, Argus Leader. All Rights Reserved.

I generally try to keep a pretty open mind, and overall I am tolerant of some pretty strange ideas … even if I don’t agree with all of them.

There are a few things, however, that I just can’t completely wrap my brain around.

Take fast food, for example. It makes total sense to me. You’re in a hurry. You’re starving, and you need to grab a quick bite. Find the nearest drive-through, and your problems are no more.

Now, consider a beer menu at a restaurant. I not only understand this, I condone it. There is nothing more relaxing than enjoying a beverage at dinner while in good company.

But when you combine those two concepts, you end up with a (somewhat) new trend that I’m just not sure if I can get behind: beer (and other alcohol) offerings at fast food restaurants.

For the past five years or so, well-known fast food giants have begun offering alcoholic beverages at select locations. Favorites such as Burger King, Sonic, Qdoba, Chipotle, White Castle, and others offer choices of bottled beer and wine, and in some instances, mixed liquor drinks. Even Starbucks is in on the trend, offering an “evening menu,” which includes beer, wine and appetizer options.

Most recently, Taco Bell has started marketing beer, wine and frozen cocktails. “Just put yourself in the mind of the young male customer,” said Darren Tristano, executive vice president at Technomic. “He might want to have a chalupa. But he’s with a female, who says, ‘I really don’t want to have Mexican, but I’d love a glass of wine.’ You’ve eliminated the veto vote by providing what is likely going to be a nicely priced wine.”

I may be an anomaly, but when I want a glass of wine, I don’t typically imagine myself enjoying it in a teal-and-purple plastic swivel chair at a table smeared with nacho cheese and old lettuce shreds. This is not to say I’m not a fan of Taco Bell and its undeniable charm, but there is a time and place for everything.

Additionally, I consider most fast food restaurants to be family-friendly. Beer can certainly be present in these types of environments, but there will inevitably be people who abuse the offerings. I definitely wouldn’t want to bring children around these situations.

One must also consider the fast-paced, “grab-and-go” nature of fast food restaurants. Obviously, these fast food chains are not offering beer for sale in their drive-throughs. But consider this: When was the last time that you sat down to eat at a fast food restaurant and stayed longer than about half an hour? If I drink a beer, I like to give myself time to enjoy it and let it digest a bit before I leave a restaurant. I have to wonder if the fast-paced environment of these restaurants may lead people to down a drink and hit the road.

I’m all for restaurants expanding their business and trying new things. And I undoubtedly enjoy seeing beer selections at various eateries. But I’m just not sure I can get behind the idea of beer at fast food restaurants. When I think of a bar, I think of beer. When I think of Starbucks, I think of coffee. When I think of Taco Bell, I think of guiltily delicious faux Mexican. I’m just not sure that the trouble of attaining a liquor license is worth it for these fast food chains.

Although Sioux Falls has yet to see much of this trend, if it’s successful in bigger metropolis areas, I don’t think we’re too far behind. Maybe by the time wine is offered at my favorite Starbucks, I’ll be more open to the idea. But for now, when the cashier at Burger King asks if I’d like a beer with that, I’ll reply, “Nah — I’ll stick to fries.”

With 27,205 Stores, Subway Gets Indigestion

August 17, 2015

Julie Jargon
Copyright © 2015, Dow Jones & Company, Inc.

Aggressive expansion in U.S. leaves chain with crowded footprint and slumping sales

Subway, suffering through its biggest slump in years, is testing just how sprawling a fast-food chain can get before it becomes too big.

In its 50-year history, the sandwich chain has penetrated seemingly every commercial nook in the U.S., from strip malls to laundromats to car dealerships. With more than 27,000 domestic restaurants, it boasts far more U.S. outlets than any other retailer. McDonald’s Corp. has about 14,300, and Wal-Mart Stores Inc., about 5,200. The only thing comparable is the U.S. Post Office, which manages 31,662 retail offices.

But Subway’s expansion has hit hurdles. Sales at its U.S. restaurants dropped last year for the first time in more than a decade, falling 3.3% to $11.9 billion. That made it the only major sandwich chain besides Quiznos, owned by QCE Finance LLC, to suffer a sales decline in 2014, according to restaurant research firm Technomic Inc.

Franchisees are frustrated, with some selling their restaurants at reduced prices, and perceptions of Subway’s food quality slipping, according to franchise owners, attorneys and restaurant consultants.

Priyal Patel sold his Subway in Prospect Heights, Ill., in May for $77,000. He bought it in 2006 for $195,000 and spent $85,000 to remodel it. “No one wants to buy a Subway now,” he said. “People are selling for whatever price they can get.”

Don Fertman, Subway’s chief development officer, said the transfer rate of stores from one owner to another has been steady for a number of years.

Subway, which is incorporated as Doctor’s Associates Inc., has slowed its expansion, but is far from halting it. It has been opening about 400 stores a year in North America since 2013, down from 800 to 1,200 before that and as many as 2,000 annually in the late 1990s. “I don’t see us going back to that level, but 800 is possible,” Mr. Fertman said in an interview.

Darren Tristano, executive vice president at Technomic, said Subway is already nearing the limits of growth. “The problem is that new restaurants have to steal share in order to be successful,” he said. “A lot of the weaker brands that Subway has fed off, like Quiznos and Blimpie, are not around as much. They’re going to struggle to steal enough share to be able to keep opening more stores.”

Mr. Fertman says Subways aren’t cannibalizing each other and that restaurants in the most Subway-dense markets actually have higher average sales. Subway’s international growth remains strong, with system sales up 12% last year to $7.7 billion.

Subway owes its growth in part to an aggressive franchising system. Other big fast-food chains, including McDonald’s, Restaurant Brands International Inc.’s Burger King and Wendy’s Co., long owned and operated a portion of their restaurants — in part, to test new products and study their customers. Recently, those companies have been selling those outlets to cut costs and focus on rent and royalty fees — a strategy that can mean more stable revenue and higher profit margins but that also risks undermining chains’ ability to maintain consistent quality in restaurants.

Subway, co-founded in 1965 by aspiring doctor Fred DeLuca, started franchising nine years later, and today its restaurants are 100% franchise-owned. To boost growth, it has used an unusual system of “development agents,” often former or existing franchisees who buy the rights to develop a region.

For adding stores, agents receive a portion of the 8% royalty fee Subway collects as well as half the initial $15,000 franchise fee. The agents can earn bonuses for opening restaurants ahead of schedule — or be penalized for falling behind, according to Subway’s franchise documents.

Opening a Subway typically requires an initial investment of just $116,600 to $263,150, compared with $1 million to $2.3 million to open a McDonald’s. Subways also need less real estate: their assembly-line system means kitchens can be as small as 300 square feet — less than a third that of the smallest McDonald’s.

Most restaurant companies employ their own people to scout for locations in the U.S. — in part to ensure new outlets don’t compete with old ones. And other chains have cut store counts when growth has overreached. Starbucks closed hundreds in 2009. McDonald’s closed restaurants in the early 2000s and has been trimming its U.S. store count this year.

Hardy Grewal, Subway’s largest U.S. development agent, said that while the system incentivizes expansion, “development agents aren’t stupid. We don’t open stores to close them.” Mr. Grewal owns five Subways in Los Angeles, and his agent territory includes 910 stores in Southern California and 1,000 in the mid-Atlantic. He said he’s focusing on moving restaurants to better locations and only expanding in properties with captive audiences, like airports.

“Any time you open more and more units, there’s always some impact,” he said. “People are still making some money — it’s just not what they used to make.”

Average sales per Subway restaurant in the U.S. declined last year by 3.1% to $475,000, according to Technomic. John Gordon, founder of restaurant consulting firm Pacific Management Consulting Group, found in a 2012 survey of sandwich-chain profitability that Subways average annual profits of $70,000 a store.

With sales down, he estimates that amount has fallen to $30,000 to $40,000. Mr. Fertman said Subway doesn’t have a full picture of franchisees’ profitability because they aren’t required to share that with the company.

Subway is facing other challenges. It suspended ties with its longtime pitchman Jared Fogle in July after federal authorities raided his home as part of an investigation that officials have yet to disclose. Mr. Fogle, through his attorney, has said he is cooperating with authorities. And Mr. DeLuca, the 67-year-old chief executive of Doctor’s Associates, who has been battling leukemia, has turned over management of daily operations to his sister.

Subway also scored five percentage points or more below the average of the limited-service sandwich category on food and beverage attributes in a recent consumer survey, according to Technomic.

Les White, who owns 47 Subways in Arizona and is chairman of an association that represents 6,500 Subway franchisees in North America, said Subway is working on initiatives to improve food quality, including the removal of preservatives and artificial ingredients. “What’s difficult about trying to change a company this large is it’s difficult to change things immediately,” he said.

Wendy’s to Look Into Dropping Antibiotics

July 31, 2015

wendys-chickenJD Malone
(c) 2015 Columbus Dispatch. All Rights Reserved.

Instead of a spicy rub or a slice of artisanal cheese, Wendy’s latest chicken sandwich is getting attention for what it won’t have.

The Dublin-based chain is poised to begin testing antibiotic-free chicken in several cities as it tests both consumer response and its supply chain.

Wendy’s plans to test a new chicken sandwich in mid-August in seven markets, and antibiotic-free chicken in four of those seven — Orlando, Fla., Gainesville, Fla., Kansas City, Mo., and Austin, Texas.

Central Ohio won’t see the new chicken unless it goes nationwide. That move is pretty likely as long as there is enough antibiotic-free chicken available, analysts say.

Further details on Wendy’s plans were not forthcoming.

Still, analysts think it’s the right move to swim with other chains doing similar things. McDonalds, Chipotle and Chick-fil-A have all pledged to remove antibiotics from their chicken. Big producers including Tyson and Perdue also have announced a pivot away from using antibiotics unless medically necessary.

“On the list of bad words, antibiotic had definitely moved up,” said Darren Tristano, vice president at Technomic, a Chicago-based food-service analysis and consulting firm. “The overall trend is taking things (thought to be) harmful out of the supply chain. Consumers want this.”

“The time is ripe,” said Tim Powell, principal of Think Marketing, a Dublin-based food-service consultant. “Today’s consumer is far better-educated on where their food is coming from, and they have shown they will pay more for it.”

The new chicken will also be used in salads and other menu items featuring grilled chicken.

Wendy’s has been looking to tweak its menu lately.

Earlier this year, the chain tested a black bean veggie burger in Columbus and received a lot of attention for trying a nonmeat sandwich. There’s no word on whether that sandwich will join the chain’s menu permanently, but it’s part of a bigger strategy among quick-service chains to keep up with fast-casual restaurants such as Chipotle.

They have to speak the same language to lure similar customers.

“You have to do things like this,” Tristano said. “You don’t want to be one of the last. You want to be one of the first.”


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