Subway’s sales struggles continues much like the rest of the over-bloated restaurant industry. Consumers are faced with so many options for meals away from home and restaurant operators are seeing their profit margins squeezed so tightly that many operators are losing money, closing their doors or putting their units up for sale. Today’s battle is over share of stomach and driving more diners to order from the restaurant whether it’s for dine-in, takeaway or delivery. So before sandwich giant Subway considers developing new brands or making acquisitions, they should review the current industry landscape and consider these 5 issues that affect their business:
1. Industry Saturation – although the recent recession forced many operators out of business, the downturn has also created an opportunity for chain restaurants to expand and increase their restaurant base. Franchising continues to create opportunity for new owners and entrepreneurs adding restaurants with the intention of becoming multi-unit operators. Inexperience has led many to close their doors or sell off their operations at dimes on the dollar. Operators run an average of 5 percent profit margins and for all those that succeed in double digits, many are breaking even or losing money. Within the quick-service and fast casual sandwich segment, chains have continued to expand regionally and nationally. Fast casual chains Jimmy Johns, Jersey Mike’s and Firehouse Subs have continued to open locations across the US, providing high-quality freaky fast subs and fresh made-to-order, portable meals. Demand continues to grow for these subs but each location struggles to build momentum when stores open nearby with $500,000-$800,000 in annual sales. More restaurants water down demand for existing stores.
2. Consumer Price Value Equation – Subway created a terrific success with $5 footlongs or what many consider 11-inchers. In fast food, the $5 price point is golden and it’s difficult to compete when so many four and five dollar value meals continue to satisfy value-seeking consumers. Little Caesar’s $5 hot-n-ready pizza and Steak n’ Shake’s $4 value meals create significant price value for lower income and younger consumers. With Subway’s higher price points, the brand has increased the gap from fast food. Quality hasn’t improved enough to gain ground on the higher priced, higher quality offerings from fast casual brands so consumers continue trade up to fast casual for quality and trade down to fast food for price. Subway remains on the fence in no-man’s land.
3. Technology Expectations – Technology continues to appeal to consumers, especially GenZ and Millennials. Brands that have been aggressively investing in technology like Dominos have continued to see strong same store sales growth. The trick is to make it simple for older consumers and easy for younger consumers who expect smart phone apps. Ordering applications are incentive to use a brand but rewards for frequency and loyalty are what drives customers to keep your app relevant and build their frequency. Getting free food is another strong form of value and helps develop deeper behavior towards ordering habits. Just like the reduced need for cash has made the wallet obsolete, punch card systems aren’t cool and are often lost or forgotten. Integrated loyalty programs are more contemporary today. Free Wifi can also create a lingering opportunity for customers and create that third place for customers to escape from home or work.
4. Staying Fresh – Fashion changes with each passing season and year-to-year. Many brands wait 7-10 years to update their interiors and it can take 3-4 years for a big system like Subway to update to a new décor across their entire system. It can be costly and a store may close to update their interior. Some of the most important features today are added for comfort and efficiency. Televisions provide distraction for single diners, USB and electrical outlets provide customers with added value to charge their devices and seating configurations can improve the experience for different occasions. Restaurants are often used for communal study groups with large tables, comfortable seating for social occasions and booths for business meetings. Although many Subway restaurants are designed for takeout, improving the appeal for a broader array of occasions can drive greater traffic to a location. The entire location doesn’t have to be remodeled if continuous evolution and updating can take place and customers can see the change.