How Subway Went Global

    Subway's director of development explains how the brand transformed into an international icon and which markets he's watching for the future.

    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:

    • Australia
    • New Zealand
    • United Kingdom
    • Spain
    • Italy
    • France
    • Germany
    • Puerto Rico
    • Japan
    • The Benelux countries(Belgium, Luxemburg, Netherlands)

    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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    All this talk about menu, how do you maintain a secure supply chain around the globe? We get economies of scale when we go into some place like Europe and we can deal with all the European Union countries where it’s easier to get product from border to border. In those cases we can have one or two sources for a number of countries.

    They don’t necessarily know about us. We arrive and sometimes they think we have something to do with an underground train.

    In other situations, if we can’t get something locally and we need to import either from another country or from the United States, it gets a little bit more pricey, but that way we can maintain our standards.

    And who brokers those deals? Here in the United States and Canada and in Europe and Latin America we have a purchasing co-op that works with the vendors. In countries where we don’t have a purchasing co-op, then usually the regional office works on that.

    Do potential international franchisees have to be a master franchisee and open an entire territory or can they open just a few stores? Honestly, we tried the master franchise route and that didn’t work too well for us. We still have a couple of master franchise units left and Japan is one of them. Russia is one of them. Another one is Saudi Arabia and I think that’s about it right now. We no longer do the master franchise agreements because we ended up giving up too much control, which is why the situation existed in Japan that I mentioned.

    What we look for is local developers, local entrepreneurs. We like to have people from the country who are going to be either hands-on owner/operators for the franchise business or development agents, where that is their only business and they have the focus on the Subway business as opposed to a larger corporation.

    Do international entrepreneurs seek you out to open new international units, or is Subway going to them? It’s a little bit of both. Our original plan was if you’re interested we’ll go there. And we got calls from everywhere from Afghanistan to Zimbabwe. In more recent years we’ve started determining which markets would be appropriate for entry by looking at a number of factors: the GDP, the cost of doing business, fast-food development, and such.

    We still get calls from those countries and what we do with those folks is we kind of put them on hold. We have them on a list and if it gets to the point where it’s appropriate to do business in that country, we’ll contact them because those tend to be very entrepreneurial folks.

    Even though Subway is in 90 countries, does the company still need to educate consumers about the brand when it opens a new territory? They don’t necessarily know about us. We arrive and sometimes they think we have something to do with an underground train. So it does take some education.

    In some markets, we have to train people or educate people on the benefits of eating sandwiches, why they’re tasty, why they’re healthy, why they’re fresh, why we have them on fresh-baked bread. It’s kind of starting from the ground up to provide the idea of putting meat between two pieces of bread and making a meal out of it.

    In other countries they’re already eating sandwiches, but maybe in France, for example, they’re eating a baguette with a little bit of meat that they get at a stand on the street corner, they’re all pre-made and they’re there ready to go and you can grab them and they’re cheap and the bread is hard. People are used to that, but then we have to educate them that when they look at a Subway sub it’s very different. It’s got more meat, it’s made to their order, they can have lettuce, they have those veggies, they can have it with or without veggies, as many veggie assortments as they want. It’s a whole new eating experience.

    Are international consumers comfortable with making demands about what should be on their sandwiches? Sometimes people are almost afraid to ask. We’ve come across that in some cultures and there we have to teach more suggestive selling on the part of the sandwich artist. But sometimes that’s difficult because the sandwich artists are also shy about offering the products.

    Have you had any real competition from any regional brands in the international markets? We’ve had the advantage of being first to market with our offering in most countries. I think the biggest sandwich market that we got into was the United Kingdom, and when we showed up there with one store there was already Pret A Manger all over the place. We’re now the No. 1 brand in terms of numbers of locations, but that took a lot of work.


    Don’s Favorite Sandwich: “It’s a pastrami sandwich, cut pastrami with cold potato salad on top and the potato salad is more of a vinegary kind of mix, not the heavy mayonnaise potato salad. And that’s on top of the hot pastrami and then some cheese on top of that. It sounds strange but it is delicious. That’s a very popular sandwich in Japan.”


    For readers who are interested in taking their brands beyond U.S. borders, what would be your best advice for starting that process? The first piece of advice I would give is take a look at the quick-service landscape in that market, and see what kind of growth is occurring there. Are the folks even familiar with quick-service restaurants and franchising?

    The next thing would be don’t be too quick to second guess the consumer and make immediate assumptions as to what to change. Ultimately, you’d be surprised how many folks are looking for the original experience. Sometimes you can be way too speedy in saying, “We see a lot of people who are eating rice and beans, so we better have a rice and bean sandwich.”