The 3 Fastest Growing Private Full-Service Restaurants: What’s Their Secret?

April 19, 2018
By Gary M. SternApril 2018Chain Restaurants  Link to article

In the Barclays Capital 2017 industry report on the fastest growing 200 private restaurant chains in the U.S., most of the top 20 consisted of quick-service eateries except for three: First Watch, Black Bear Diner, and Bar Louie. First Watch, which ranked fifth, generated $231 million in revenue in 2017, Black Bear Diner, rated 13th, had $201 million, and Bar Louie was 17th with $275 million.

But what are these three full-service restaurants doing to boost revenue? How are they appealing to customers? Breaking the mold? Developing a distinctive niche?

The quick-service eateries have thrived because they nab smaller spaces at cheaper rents and appeal to a greater number of customers based on “convenience and price,” says Darren Tristano, CEO at CHD Expert, a Chicago-based specialist in the foodservice and hospitality industries. Fewer customers are spending time dining at sit-down restaurants, preferring delivery and take-out.

Millennials would rather dine on the run, often racing home to eat their food while staring at their 55-inch TVs and watching Netflix, Tristano says. Hence, fast casuals have the upper hand because customers can get in and out of dining in 35 minutes rather than spend an hour at most full-service eateries.

First Watch, Black Bear Diner, and Bar Louie have differentiated themselves from their rivals, Tristano says. There isn’t as much distinction for some consumers among the most recognizable casual-dining icons. But First Watch’s superior breakfast, Black Bear Diner’s distinctive West Coast ambiance and menu, and Bar Louie’s unique cocktails establish competitive niches, distinguishing them.

And that competitive edge and defined menu and ambiance have given their clientele a reason to keep coming back for more.

“First Watch does breakfast well compared to Denny’s and IHOP and does a good job of servicing an older customer who appreciates its menu,” Tristano says.

Black Bear Diners, located mostly on the West Coast but in the process of a major expansion currently, possess a clear-cut design with timber and bears, and have been winning over clients with their pie shops, coffee shop menu, hospitality, and moderate prices. And signature cocktails and alcohol, with food as a secondary draw, are luring clients to Bar Louie.

“The target market for these three chains is the lower to middle-income group, often older consumers, baby boomers, and families,” Tristano says. He adds that Black Bear Diner has struck a chord reaching consumers with its kids’ meals. Bar Louie has been attracting its fair share of millennials.

“People don’t want to be told how much you can eat. We give them plenty. I don’t measure out the home fries we serve.” — Bruce Dean, Black Bear Diner CEO.

Black Bear Diner CEO and co-founder Bruce Dean is quite explicit about what has fueled its growth to 109 restaurants in nine states, with plans to add 25 more in 2018. “We have great homemade food and offer a great value proposition,” he says from the company’s Redding, California, headquarters. Dean says its large portions attract a steady clientele; many of whom leave with leftovers.

Menu items such as Bigfoot Chicken Fried Steak and Eggs with Corned Beef Hash leave customers satisfied. “People don’t want to be told how much you can eat. We give them plenty. I don’t measure out the home fries we serve,” Dean says.

But Black Bear Diner also offers smaller portions and egg white healthy breakfasts for those so inclined. “Not everybody wants to eat like me,” Dean says, referring to his 6-foot-4-inch and 250-pound physique.

Unlike other chains that specialize in breakfast and lunch and close early, Black Bear extends to dinner. “We serve a lot of comfort food, like meatloaf that mom used to make,” Dean says.

Dean has built a family culture among its employees. “We have some of the lowest turnover in the industry,” he says, alluding to the fact that training new employees is time-consuming and costly.

Its décor attracts a loyal clientele as well. “People enjoy our carved bears and black bear theme,” which fits for a restaurant chain located mostly out West. Dean, however, says that it’s expanding to Oklahoma City and Houston, and expects the brown bears will resonate there as well.

Dean says that full-service restaurants encounter strong competition from fast casual and fast-service competitors. “Time is of the essence for most folks. People don’t want to sit and wait,” he says. He and his staff often focus on how Black Bear can expedite the experience, except maybe on Sunday afternoons after church or football when families want to linger and chat.

Though it’s a chain, every menu at each Black Bear Diner is different. “We want to make it a neighborhood community restaurant, where we emphasize hospitality.  Each menu is tailored to the community,” Dean says.

Helping to finance Black Bear’s expansion is an investment in 2016 from PWP Growth Equity, a $600 million private equity fund managed by Perella Weinberg Partners, a middle-market fund.

First Watch offers a strong value proposition to with its on-trend food options.

At the 249 First Watch restaurants located in 22 states, the secret is its consistency, says Chris Tomasso, its University Park, Florida-based president. It was named First Watch when it debuted in 1983, a nautical term, meaning first shift of the day or breakfast.

Tomasso says that the brand specializes in making everything fresh. “We don’t have deep fryers, heat lamps or microwaves. We make our granola in house, pancakes fresh and quinoa bowls fresh,” he says.

He says that First Watch has tapped the growth in breakfast and brunch, the two fastest growing segments in the restaurant industry.

Appealing to its target audience, First Watch also offers a strong value proposition. Its average entrée costs $8, making it appealing to a wide swath of diners. Its clientele consists of families with kids, business people who come for power lunches, millennials and senior citizens and “everything in between,” Tomasso says.

First Watch is open weekdays for breakfast and lunch and weekends for brunch and closes each daily at 2:30 p.m.  That early closing time enables its employees to have dinner with their families nightly, and how many full-service restaurant chains can make that claim, Tomasso asks?

Its clientele gravitates to ordering farm-stand breakfast tacos, lemon ricotta pancakes, French toast, or chickichangas, which are made with whipped eggs and natural chicken, and not deep-fried. It also has a thriving lunch trade, replete with sandwiches, soups, and salads.

First Watch is doing so well that it plans on opening about 50 locations in 2018, a nearly 20 percent growth rate. It received funding from a new partner Advent International, a private equity firm. “They help us with our long-term strategy,” Tomasso says.

Bar Louie is all about atmosphere and ambiance, and yes, a whole lot of handcrafted cocktails.

At Bar Louie, which launched in Chicago in 1990, the secret is in the atmosphere and ambiance, says CEO Tom Fricke. He described it as a series of “neighborhood bars, offering a unique and fun place for local friends and neighbors to gather and enjoy handcrafted cocktails, local beers and wines, food from scratch, awesome music, and great service.” For example, guests can partake of 35 handcrafted cocktails including signature martinis, margaritas, and sangrias feature fresh fruit and hand-squeezed juices.

Food consists mostly of bar fare, including sliders, nachos, flatbreads, sandwiches, available until 2 a.m.

An affiliate of the private equity firm Sun Capital acquired it in 2010 and has zeroed in on growth. It has nearly tripled Bar Louie from 45 units into 132 units. Fricke says Sun Capital focused on “systems and technology, innovation and menu upgrades.”

Fricke lauds the bartenders and staff at Bar Louie as helping generate repeat business. “They take every guest that walks through the door as if they were walking through their own front door,” he says.

These three chains, Tristano says, have thrived due to establishing a strong niche and via “good leadership, strong financials and operational performance and [establishing a] well-capitalized business.”

Growth in Upscale Doughnut Chains Becoming A Little Strange

April 10, 2018

St. Louis based Doughnut shop, Strange Donuts recently launched a franchise program to expand its locations across the US and Mexico. Strange Donuts is increasing the local footprint by adding two new stores in the next few months. Although the donut segment is highly competitive with global brands Dunkin’ Donuts and Krispy Kreme continuing to expand their operations, the emergence of upscale, cult shops has found a niche within indulgent consumer demand.

The upscale donut trend took shape years ago with the success of cupcake shops like Crumbs and Sprinkles which grew in New York City and Los Angeles.  The trend evolved to mashups like the Cronut in Brooklyn, cookie shops and has now evolved toward local, independent donut shops to deliver sweet craveability. The consumer white space was built on the demand for an affordable indulgence which every consumer could pay for and treat themselves to on both good and bad days.  So what makes an affordable indulgence? Generally consumers are looking for locally-made items that incorporate local ingredients that are more common and suit consumer taste preferences.  The items are usually baked on location and made fresh daily. Donuts in particular should be visually appealing, include more adventurous ingredients and generally are packed full of sugary sweetness. Prices can vary on low end of $1 to prices around $5.

According to CHD Expert, there are more than 13,000 donut shops in the US including 9,140 Dunkin’ Donuts, 316 Krispy Kreme and 470 Daylight Donuts.  Since almost every bakery, supermarket and gas station offers some form of branded or unbranded donut offering, the donut is one of the most available and competitive products in the foodservice industry.

Competing with big brands can be difficult for small shop owners and growing the number of stores for a brand means economies of scale, better purchasing power, greater investment in human resources and improved opportunity to lease key site locations.  Often restaurant operators need to reach a critical mass with between 20-25 locations in larger markets and 10-15 in small markets before the customer base recognizes a brand and will frequent their restaurants.  In addition, local chains which have 10 or more restaurants have the ability to leverage billboards, radio advertising and direct mail promotions to further build awareness of their restaurant and promote trial. Smaller brands are often more nimble, and enjoy the speed to market for new innovative products that can be big winners and draw crowds.  National chain restaurants are slow to roll out new products taking 12-18 months to test ideas, perfect recipes, build their supply chain and develop and execute a marketing campaign. Smaller shops can experiment in their kitchen and test products immediately with customers to see if they will be within the “customer zone of creativity”. This zone is the range of items that a customer will give an operator permission to sell.  For example, a customer will not give a fast food restaurant permission to sell eggs benedict because of the culinary skills, equipment and quality ingredients necessary to accomplish the menu item. When it comes to donuts, the sky is the limit on innovation and creativity.

Like Voodoo doughnut in Portland, Oregon, Firecakes in Chicago or Dough in New York regional shops are taking the country by storm.  Small groups that look to expand outside of their home town will face challenges competing with other favorite donut houses but ultimately, have an opportunity to steal share for big chains that have focused on high-margin beverages, breakfast and sandwich items and low cost, high value offerings.  The variety, creativity and hip factor surrounding these strange new donut shops will continue to drive indulgence, cravings and snacking occasions.Link to Original Forbes Article

Dunkin’ Drives Value With New 2-3-5 Menu and Egg Focus

April 3, 2018

Today’s foodservice consumer continues to use fast food as a way of life, leveraging the benefits of convenience and affordability. Younger GenZ and Millennial consumers can often be described as “value-seekers”, with an eye toward coupons, deals and groupons. In order to maintain their lifestyle and high frequency in dining away from home, value allows these consumers to spend less so they can dine out more. The emergence of the dollar menu and with inflation, the new value menu allows consumers to feel good about the price point of their purchase and customize their order through greater options and simple pricing.

Brands like Wendy’s Old Fashion Burgers have had dollar menu value since the beginning of the trend but it has evolved to McDonalds and others in the fast food segment. Most dollar and value menus have been historically aimed at the lunch and dinner daypart but with the emergence of all-day breakfast trends, value is coming to the breakfast daypart and it allows` brands like Dunkin’ to offer more “egg-cellent choices”.

Years ago, eggs received a bad reputation for having high levels of cholesterol. Science helped us understand that the cholesterol consumed in food was different from the cholesterol in our blood. When you consume more cholesterol, your body produces less. The egg became a healthy source of protein. In a competitive family-style segment, there is a rise in “egg-focused”, breakfast-lunch only restaurants like Yolk, the Egg and I and Egg Harbor driving breakfast occasions and increasing the propensity of consumer eating breakfast away from home. Breakfast is considered to be the most underpenetrated day part with many American consumers skipping this meal or eating cereal or instant oatmeal. The growth in breakfast has fueled many fast food chains sales based on convenience, better quality coffee and attractive low price points.

Dunkin’ already stands for value through their donut orientation but continues to sell more beverages than food. This shift will allow Dunkin to build higher check averages when consumers add food to their beverage order. The strategy should align nicely with McDonalds offering and help them compete with rival beverage-focused Starbucks and breakfast newcomer Taco Bell which recently introduced a Naked Egg Taco.

Dunkin’ serves a wide variety of consumer demographic from low-income to high-income groups. Their coffee and beverages will continue to drive patronage but the new egg menu should give their customers more options and a good feeling of value for their money.Forbes Blog Post

Innovative Taco Bell Brand Does It Again With New Nacho Fries for a Buck

March 14, 2018

In what has been Taco Bell’s most successful new product launch in their history, Nacho Fries appear to have hit home with American consumers. Driving appeal through both indulgence and value, this $1 craveable side makes it easy for consumers to add on to any meal and build strong trial. Quality potatoes continue to be a staple in the diet of many consumers.  Good supply and availability creates a low risk and attractive margin for operators. Adding a spicy seasoning and a dipping sauce makes this a strong target for kids and a product that can easily be consumed in the car, hot out of the bag.

French fries are the most popular side item at competitive fast food burger chains; McDonalds, Burger King and Wendy’s, Offering French fries increases the competitive market for meals occasions that include fries. This increases frequency for value-seeking consumers and expands the snacking daypart opportunities by satisfying hunger in between meals. For younger children, French fries can establish a bridge for a Mexican-inspired fast food chain to offer a menu item that has familiarity with kids, encouraging them to try new flavors and foods. For teen and tweens, the spicy flavor continues to increase in appeal and provides the kick that a more sophisticated, adventurous palate craves.

In addition to bolstering the dollar menu, Nacho fries are also an ingredient that allows customers to add a 49 cent “hack” to their entrees which creates a mashup of flavor and texture by incorporating the fries into the meal. Mashups have become very popular for desserts like Cronuts, which are a combination of a croissant and a donut. This trend is evolving into other meal parts and allowing culinary teams to be more creative.

So what does this mean for Taco Bell? Most importantly, this level of risk in innovation can have a high reward not only in sales but in the perception by the consumer that the restaurant brand is innovative. This increases willingness for trial and the inherent risk in purchasing new items as a strong track record will allow consumers to try with confidence. Innovative items drive social media posts with pictures across Facebook, Instagram, Snapchat and other platforms. The buzz marketing, press coverage and consumer curiosity can be a difference maker in a highly competitive restaurant market where big brands fight for share of stomach and share of wallet.

Will Burger Flipping Robots Replace Humans, Or Are They Just A Side Show?

March 9, 2018

Forbest Blog Post: Will Burger Flipping Robots Replace Humans, Or Are They Just A Side Show?

Recently, burger chain CaliBurger incorporated “Flippy”, the burger-flipping robot at one of their restaurant locations. Essentially, the plan was to utilize the machine to complement workers by increasing speed of service, not replace them. It didn’t take long for Flippy to take its break while the company evaluates how humans will interact with the robotic machine which neither talks nor takes a break. Company culture and productivity often depend on the ability for staff to communicate and interact socially. In the right environment, social interaction leads to better morale and inspires humans to work faster and smarter. The interaction also has a strong positive impact on the customer experience where friendly, attentive service improves a restaurant patron’s satisfaction level and improves loyalty and their intent to return.

Flippy’s appeal is not just based on how well the robot flips burgers. Apparently, news of the robots activity spread rather quickly and drove a number of consumers to the location to see it themselves. Now this addition becomes a marketing tool and attraction for guests to not only dine at the restaurant but to satisfy their curiosity and witness the marvel. Flippy is a new celebrity.

Restaurants continue to operate with a very low margin on average around 5%. Increasing speed of service, efficiency and reducing labor costs are strong reasons for building robotics into an industry that has lagged with technology integration. If the investment also drives customers through the door, the payoff can be very big for operators who can afford to invest in robots. Ultimately, humans will need to learn to work with robots and likely build new expectations on restaurant hospitality as it evolves.

Today, Flippy may appear to be a sideshow gimmick but likely, this is the start of a big trend for restaurants and will shape the future of hospitality.


Eatertainment: The Next Frontier for Casual Dining

December 4, 2017
With Dave & Buster’s setting the bar, entertainment-driven concepts have continued to gain steam around the country.
By Gary M. Stern December 2017 Expansion

When two savvy entrepreneurs launched Dave and Buster’s, a 40,000-square-foot eatery in a Dallas warehouse in 1982, where diners could play games, they likely didn’t know it would result in a new restaurant concept: “eatertainment.” Eat your food, hoist a beer or two, and bowl, play ping-pong or darts in a separate space before or after a meal.

These eatertainments eateries appeal to a wide swath of customers: youngsters love it, 20-and-30-somethings gravitate to it, and their parents can relive their youth or take their families.

Now the eatertainment segment is exploding, attracting a bevy of competitors. Most are primed for expansion in 2018. Besides Dave & Buster’s, leading eatertainment rivals include: Main Event, Pinstripes, Punch Bowl Social, and Topgolf.

READ MORE: Why Punch Bowl Social is the next big eatertainment chain.

But will the heated competition lead to slimming down, where top performers prevail and bottom-feeders fall by the wayside?

The eatertainment chains that thrive will grow in a measured way, choose their locations carefully and capitalize on their niche.

When Dave & Buster’s debuted its gaming plus dining concept 35 years ago, “It was revolutionary; it was eatertainment for adults,” says Darren Tristano, a River Forest, Illinois-based foodservice consultant. Previously, the major form of entertainment plus dining was Chuck E. Cheese’s, which targeted kids.

By offering gaming experience plus quality dining, Pinstripes is in the “sweet spot given the Amazon effect on traditional retailing.”

Eatertainment venues proved popular because they “caught on with young consumers, the millennials of their day. It had the gaming, the pool table, and the sports bar,” Tristano says.

Indeed millennials and GenXers are attracted to playing ping-pong, arcade games or bowling while waiting to eat or post-dining. “They’re exceptional multi-taskers so they can text, check social media, maintain a conversation, and play ping pong in between,” Tristano says.

Though casual dining chains Applebee’s and Ruby Tuesday’s have been struggling, eatertainment eateries are thriving because they “focus around being a destination and focus on the experience,” Tristano says. And most of these food-plus-gaming chains rely on a more upscale menu than their casual dining rivals, he points out.

In fact, menus at eatertainments appeal to millennials that prefer “grazing. They like to eat appetizers, rather than a main course. But he adds that “socializing is the driving force of these brands.”

The games may lure them in, but Tristano expects most eatertainment venues derive 75 to 80 percent of their revenue from food and beverage, and the remainder from fees for playing games.

Main Event
Main Event has 38 eateries that offer bowling, laser tag, billiards, interactive videos, and ropes adventure.

Because of the stepped-up competition in the eatertaimment space, growth has been slowing down, Tristano says. “Growth is coming from stealing chairs from existing businesses,” he says. He sees their revenue spiking by 3 percent a year, but “there aren’t enough new locations to go around.”

The eatertainment brands that will thrive are the ones that offer “value and frequency, whether it’s quality of food, or the bartender makes a great drink, or specializes in great value,” Tristano predicts. And the winners will attract steady customers who return once a week, not once a season.

Take Main Event, a fast-growing chain of 38 eateries with 16 located in Texas that offers bowling, laser tag, billiards, interactive videos, and ropes adventure. It’s opened 24 locations in the last three years and is slated for five new outlets in 2018.

Wayne Stancil, Main Event’s Plano, Texas-based vice president of operations, attributes its growth to the fact that “You can play games with family, friends or work friends, and let your hair down, because we bring everyone together under one roof in multiples venues.” Families are its target audience, and it attracts them via birthday parties, social media, community events and summer fun camps for kids.

Main Event “takes care of the veto vote. Someone might want seafood, steak or vegetarian, and we have something for everyone. Someone can bowl, play laser tag or billiards and we have great food and beverage,” he says.

Playing games when dining “moves us from the sea of sameness,” Stancil says. Most eateries found on any major highway dish out typical fare like burger, fries and beer, but Main Event offers “chef-inspired food and you can play a game. It’s a pleasant and unexpected surprise,” he says.

Main Event
With menus geared toward adults, eatertainment concepts, like Main Event, are a far cry from the Chuck E. Cheese model.

Pinstripes, a Northbrook, Illinois-based chain of eight eateries with four in the Chicago environs that specializes in upscale food with playing bocci and bowling, is also on the fast track. It’s expanding to Cleveland, Fort Worth, Houston, and San Mateo, California, in 2018.

By offering gaming experience plus quality dining, Pinstripes is in the “sweet spot given the Amazon effect on traditional retailing,” says its CEO Dale Schwartz. He says the irony is most people these days are tied to their iPhones but crave face-to-face interaction. “People are disconnected with real humans in forming quality connections. With Pinstripes, we’re going back to the future by embracing human connections,” he says.

But it’s the food and beverage menu that retains Pinstripes’ clientele. “We offer sophisticated fun. Everything is made from scratch, and we offer a phenomenal wine cellar and craft beers, in a comfortable family friendly environment,” Schwartz says.

Schwartz says the intense competition forces Pinstripes “to be hypersensitive to pick the right location and continue to grow at a measurable controlled pace. We’re opening four or five locations a year; we’re not opening 15 to 20 a year.”

Schwartz says about 75 to 80 percent of its revenue stems from food and beverage. And people come in for Italian American food with an inventive spin including Italian jambalaya, homemade gnocchi and grilled children with a spicy cilantro.

He says Pinstripes has carved out its own turf in the eatertainment industry. By comparison, Punch Bowl Social “is more focused on urban locations and Dave and Buster’s skews younger than ours,” he says.

Topgolf, says its website, offers, “competitive golf game for all ages and climate-controlled playing bays similar to a bowling lane.” Players use real golf clubs and golf balls, aiming for targets on a 215-yard outfield. Each ball is microchipped and tagged to the player’s account and players receive instant feedback on a TV screen.

Punch Bowl Social
Punch Bowl Social stresses its upscale, chef-driven menu, which produces 89 percent of its revenue.

But its CEO Erik Anderson points out that each venue offers an accomplished executive chef and chef-driven menu. He says that half of its customers are “non-golfers,” and it attracts an array of guests for “date night, a corporate event, happy hour, breakfast or a birthday party.”

Moreover, Topgolf has gone global. It has 36 venues throughout the U.S. and U.K. and is expanding next year to Australia and Mexico. Anderson says it’s planning to expand by seven to 10 outlets annually over the next few years.

Robert Thompson, CEO of Punch Bowl Social, which has 11 outlets with six in the works for 2018, says its urban setting differentiates it against rivals. “Everyone of the other brands orient toward the suburbs.  Urban is our sweet spot,” he says.

He also says Punch Bowl Social stresses its upscale, chef-driven menu, which produces 89 percent of its revenue, more so than most rivals.

To keep its edge, it’s introducing virtual reality parlors, where participants can see on a screen what others are seeing.

With competition heating up in the eatertainment industry, Pinstripes’ Schwartz admits the odds are that there will be winners and losers. “The strong will get stronger, and the weak will get weaker. With people’s ability to enjoy prepared food at Whole Foods and their equivalents, restaurants and eatertainment eateries will have to execute and deliver phenomenal food, consistent service and superior décor” to survive.

Punch Bowl Social Thompson envisions that some mergers-and-acquisition could transpire in the eatertainment industry in the next few years. “There could be some consolidation,” he says.

Thompson also observes that eatertainment is taking revenue dollars from traditional casual dining spots. “Instead of going for traditional casual dining, diners are spending their drinking and dining dollars in eatertainment,” he says. Hence, eatertainment will prosper while traditional dining continues to plummet.

Main Event’s Stancil also underscores the marketplace is wide enough for several chains to succeed with specific niches. “Many times there’s a Main Event located a mile from a Topgolf, and each caters to someone a little bit different,” he says, suggesting all can thrive.

Subway’s Sales Continue To Slow, 5 Factors That The Brand Should Consider Before Changing It’s Path

October 23, 2017

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.

 5. Broad Menu Offering – Today’s sandwich chains have broadened the menu to include soup, salad and side items. Often, side options create craveability and can increase check average. The typical Subway order includes a sack of chips and a drink.  At most deli’s, soup, salads and dessert provide strong opportunity to impulsively upgrade your meal into a more profitably order. Signature sides especially designed to accompany new, innovative sandwich lines, seasonal desserts that drive comfort and perhaps a whole or sliced pickle can give customers more options at Subway to keep their customers from going elsewhere. Finally, adding new beverage options to the mix can be another way to build their customer counts.  Beverage only and snack occasions are great off-peak traffic drivers and can keep stores busy all-day.

Subway should consider a barbell strategy for their menu offering. Offer smaller sandwiches for high value ($3-$4), larger sandwiches for middle of the road ($4-$5) and build into a higher quality premium sandwich line ($6-$8) that competes with fast casual brands. Investing in their dining room to make it more occasion friendly and improving their technology to simplify the experience will give customers greater reason to use Subway more frequently. Innovation will be a strong driver but you have to understand what the customer wants and give it to them.  Overall, Subway has a successful brand, broad customer base and fills a big gap in the industry. Before leadership overlooks what made the brand a global leader and changes course, they should consider smaller, meaningful adjustments to what the customer wants.

Darren Tristano