Executive Insights | November 2011 | By Daniel P. Smith

The Subway Effect

In his own words, Subway’s chief development officer Don Fertman explains how the sandwich company’s business model has grown into a global economic force.

Don Fertman is chief development officer of Subway.
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When Don Fertman joined Subway in 1981, the company stood as little more than an ambitious regional player. Thoughts of the brand filling the corporate heavyweight shoes it does today seemed remote and distant.

But times have changed.

For the last three decades, Fertman, Subway’s chief development officer, has been an active player in spearheading the company’s rocket-paced rise. His perspective is one few in the industry can possibly share. He heads development for the biggest quick serve in the world, one that now has an ever-expanding array of 35,000 stores spread across 100 countries.

Fertman’s position is unusual, his enthusiasm high, and the story he shares shows the widespread possibilities restaurant brands can deliver.

From an airport in South Africa to a riverboat in Germany, a high school in Detroit to a crane at the top of the World Trade Center construction site in New York City, Subway restaurants are seemingly everywhere.

Last July, in fact, the Connecticut-based sandwich giant opened its 8,000th nontraditional location, a milestone few could have foreseen two decades ago when Subway claimed but 5,000 units and nontraditional locations were viewed as an experiment more than a realistic vehicle for growth.

Fertman only sees more possibilities.

In his own words, the veteran Subway leader details how the sandwich chain’s franchise-only system, nontraditional units, and focused business model lend a hearty push to local industries, as well as the global economy.

When I started in 1981, Subway had 166 stores. In those days, when you would say, “Subway,” someone would respond, “You mean the underground in New York?” After we started moving into franchising, the brand spread and reached a certain critical mass. These days, when you say, “Subway,” someone says, “I just ate there.” Subway’s now a part of the world’s consciousness and business climate.

Our average Subway store generates 8–10 jobs, which means there are about 350,000 jobs in our Subway restaurants alone. We then have 1,200 positions at our headquarters and regional offices. Combine that with our partners—the vendors who supply us goods, the farmers and meat manufacturers, food processing, and the equipment providers, and you begin to see that Subway cuts a wide swath.

You then add in that 35,000 stores have 35,000 landlords, and each store has provided work to local contractors and builders, and it’s clear that Subway’s a far-reaching brand that goes from Detroit to New Delhi.

As we’ve gone into 98 countries, we now have about one store for every 200,000 people in the world. That’s how people become aware of the brand. You reach a certain threshold and critical mass, and at that point sandwiches become a part of the culture and there’s a strong economic impact that grows from that.

This summer, we had our annual convention in San Francisco with nearly 4,500 people in attendance from all over the world. During the course of that forum, I got to speak with people—sandwich artists, franchisees, developers, vendors, suppliers, and various members across the Subway team. All of them were talking about their respective jobs at Subway. As I spoke with each individual, I got a deeper sense of how each person contributes to this greater whole and just how many lives Subway touches.

In our general session, Subway president and cofounder Fred DeLuca gave an address and recounted Subway history from our start in 1965 with one store to where we are today. With that, you could just see the growth, you could see the impact, the number of people that individually and collectively have been impacted by Subway and benefited from the brand’s growth around the world.

I can’t say making a global economic impact was ever our goal or a part of our plan. It’s really about being the best possible business for the largest number of franchise owners and winning more loyal customers around the world.

We set high goals and have achieved some amazing results—none of which would have been possible without a wonderful team of franchisees and their dedicated employees working on the frontlines, as well as our local developers and all of the other folks that make this happen worldwide.

We never take our eyes off this particular ball: Keep the costs down and the profitability up. As a result, we’ve been able to offer a business opportunity to a lot of folks over the years who had an entrepreneurial spirit but may not have been able to afford to get into business for themselves.

At our annual convention, I ran into one man I sold a franchise to way back in the early ’80s. He purchased his franchise by selling his Corvette. Then he financed the opening of his store on a bunch of credit cards. Now, I wouldn’t recommend his route as a good one in terms of financing, but this was somebody who was determined and believed in the concept. He and his wife now have 18 Subway restaurants and are building two more.

Those were a lot of the early Subway entrepreneurs: people who scratched together whatever they had, took their life savings, and put it into this dream, this opportunity.

To some degree, we’re still seeing that today in a lot of the new countries we’re entering. People recognize the potential Subway has and have started to build their own dream. As a result, the chain builds and a greater economic impact takes root.

We take an optimistic outlook. An ongoing story in Subway folklore, but a very real one, is when DeLuca announced in 1982 that we would have 5,000 stores by 1994 at a time when we had less than 200 stores and only McDonald’s had gotten anywhere near that mark.

At that time, he had the vision, but it took many of us a while to catch up. We reached the 5,000-store mark by 1990 and hit 10,000 stores by 1994. With that, we all saw what the possibilities were.