The day QSR interviewed Subway’s director of development, Don Fertman, the sandwich chain was celebrating. It had just hit the 32,000-store mark the day before, and the company showed no signs of slowing. In fact, Fertman confidently predicted that by the time the article ran, the chain would have added close to 500 more stores. For those interested in the math: That’s almost seven stores a day between interview and press time.
While the growth of nontraditional units in the U.S. has helped the chain boost its system to chart-topping numbers stateside, its international expansion remains equally aggressive. Fertman, who’s been with the brand since its first international store opened 16 years ago in Saudi Arabia, sat down to explain how the brand continues to grow despite the global recession, what territories he’s watching closest, and how your brand can follow in his footsteps.
What do you attribute to Subway’s international success? The secrets to our success are probably not secrets. I think they’re really obvious and it has to do with the fact that people want something that tastes good, that’s a good value, and is something that is hopefully good
Initially, Subway identified 10 major markets that the company was focusing on internationally. Are those markets still the focus? We’re looking at a number of markets. We’ve moved beyond the 10 markets that we had the big focus on because we found that other markets are growing, surprisingly rapidly.
For example, in our initial reading of top markets we did not include Russia. Right now Russia is up to 75 stores and our developer there has just announced plans to get to more than 1,000 stores by the end of 2015, quite an aggressive goal. But they’re looking at the economics in the market and they can see that Russia is a much bigger market than was originally anticipated. Another market is the United Arab Emirates, that was not on the top 10 but that is one of our fastest growing areas because it’s a fast-growing country. There’s a lot of construction going on there, there’s a lot of influx in population, there’s a lot of tourism. So that’s a strong growth area.
Subway’s Original Top 10 High Growth–Potential Territories:
Is there something that culturally is going on that makes expansions into those countries easier? There’s an opportunity for changing pace, and I think it goes back to what I was saying originally. If we’ve got something that tastes good, we’ve got something that’s a good value, something that’s convenient and appropriately adapted to the local taste without losing our original concept, then we have an opportunity to grow in those markets.
Another thing that’s been of interest to us is in India, you have quite an entrepreneurial spirit. It seems like there are many, many business people in India running either very small businesses or on the street. That entrepreneurial spirit is perfect for Subway because that’s still the way we do business. We look for entrepreneurs that are excited about the brand that want to take it and make it grow.
Is it hard to maintain menu and brand consistency across so many units? When we started in Japan the concept was changed originally to the point that a Subway customer from North America would walk into a store and look at the menu and really not know what to order because it wouldn’t be familiar to them.
It was still sandwiches, but the sandwiches were very much changed from what we had originally intended. They have since come to understood that what made Subway great was those six-inch, foot-long sandwiches and basic menu structure. I was just there last spring and I am pleased to report that they had some terrific sandwiches that were just like what you or I would have and they had their own version of sandwiches that appeal to the local taste.
Who develops those local sandwiches? We have store option programs where the store itself can offer a local sandwich. So if an owner wants to offer something that he thinks is special, as long as it stays within the ingredients and gets the thumbs up from the company, they can do so.
We have market option programs where the entire market gets in on the promotion of something like that, pastrami with potato salad and you’ll find it at all the stores in that given market and that’s decided upon by a majority of the franchisees in that market.
Then we’ll have entire country programs where we’ll have something like the $5 foot long in the U.S. or some kind of value promotion or limited-time-offer product in a given country that they’ll put in.
In the global rebalancing that follows the recession, analysts are pointing to BRIC countries (Brazil, Russia, India, China) as the catalysts for future financial success. Here’s what Subway has planned for those territories.
Brazil “We have just less than 400 stores, so that’s a rapidly growing country. And we have some terrific developers and franchisees in place, so that will be one of our top markets.”
Russia “It’s up to 75 stores and our developer there has just announced plans to get to more than 1,000 stores by the end of 2015. But they’re looking at the economics in the market and they can see that Russia is a much bigger market than was originally anticipated.”
India “It was interesting; we got into India with relatively low expectations. We hit the 100-store mark, we slowed down a bit. We’re now at the 150-store mark and all of a sudden things have turned around and we’re seeing a lot of acceleration there. We have another 100 franchises in development, and I see a lot of green lights.”
China “It continues to grow—we have 140 stores in China right now, but I’m looking at Yum! Brands. I’m looking at some of the other folks that have made tremendous progress there.”
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