Jimmy John’s Growth Fast-Tracked

20150918-175928-pic-444050051Debra Pressey
(c)2015 The News-Gazette (Champaign, Ill.)
http://www.news-gazette.com/news/local/2015-09-20/jimmy-johns-growth-fast-tracked.html

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.

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