The “better burger” niche is already crowded with domestic startups, but a new player from New Zealand, BurgerFuel, soon might break into the competition and onto the fast track to growth, helped by a partnership with Subway founders Fred DeLuca and Peter Buck.
According the The New York Times, DeLuca and Buck acquired a 10-percent stake in BurgerFuel in January through their investment company, Franchise Brands, which supports small and midsize concepts. BurgerFuel reportedly hopes to leverage this strategic alliance into expansion throughout the United States by selling franchises to operators of Subway, which is 100-percent franchised and has more than 25,500 restaurants in the United States.
Officials from Milford, Conn.-based Subway did not respond to inquiries for comment as of press time.
Darren Tristano, executive vice president of Chicago-based research firm Technomic Inc., noted that Subway’s growth in extremely nontraditional spaces — such as a church, a Goodwill training center and auto showrooms, to name a few recent openings — show franchisees’ willingness and demand to open restaurants.
Fellow industry expert Dennis Lombardi, executive vice president of Columbus, Ohio-based WD Partners, added that those Subway franchisees might be looking to open more units but, depending on where they are located, might not have the chance to grow as fast with more Subway locations as they could with a new concept, like BurgerFuel.
“It may not be about the 25,000-plus Subways [in the United States], but more about a franchisee’s home trade area, where it’s hard to expand your own franchise business and almost have to wait for somebody in the area to sell,” Lombardi said. “This gives the franchisees the opportunity to have a growth vehicle, and typically these kinds of new brands have a higher revenue potential relative to Subway’s.”
With BurgerFuel as a possible growth vehicle, Subway might have a way to enable its franchisees’ growth in more traditional spaces or make inroads with a slightly different customer base, Tristano said. He added that Subway’s tack of looking for a concept outside its segment — similar to Chipotle’s interests in ShopHouse Southeast Asian Kitchen and Pizzeria Locale, or Buffalo Wild Wings’ investment in PizzaRev — is likely the better option than taking its current offering and trying a more upscale take on it, as Taco Bell plans to do with U.S. Taco Co. and Urban Taproom.
“Subway is looking for growth potential, and it probably has more opportunities outside of the sandwich segment than within sandwich,” Tristano said. “They should look at something that could work in a co-branded way, like maybe with desserts. They still have so many franchisees that they could really leverage that base.”
Lombardi added that BurgerFuel’s possible entry to the United States “is not exactly coming in at the early stage of the better-burger trend.” In addition to muscling into a crowded segment, BurgerFuel would present completely new operations models or real estate needs to Subway franchisees, but “that’s not an overwhelming issue” to the better-performing operators in the system, he said.
“Subway is doing something nice for its franchisees by making this concept available to them,” Lombardi said. “But you’re not going to give a marginal operator the ability to expand into a second concept. If they want to grow, they’ll have to show Subway they are good at what they do.”
Both experts agreed that a possible expansion of BurgerFuel in the United States could be an intelligent long-term plan for Subway, and neither saw it as an indication that Subway’s growth could be slowing down in the United States.
“If you think about Subway’s royalty stream coming into its two owners, it’s crazy; you probably wouldn’t need to do anything else,” Tristano said. “But progressive brands always need to think about where the future is. There may be a day when people don’t believe Subway is the healthiest restaurant in the world, so Subway would need some bench strength and a way to hedge a little.”
Lombardi said that day is not really close to arriving.
“There are no real negatives in this, and I’m not surprised it’s happening,” he said. “Subway is still the golden goose for them. I just interpret this as another growth angle, an ‘and,’ not an ‘or.’”
As of May 13, Subway had 41,800 restaurants in 106 countries.