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While Competitors Shut Doors, Subway Is Still Growing

Fast-Feeder Is Looking to Open 800 Stores Nationwide and Rev Up Growth Overseas

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CHICAGO (AdAge.com) -- While Starbucks is closing stores and McDonald's is focusing its expansion efforts abroad, Subway, by far the largest fast-food chain, with 22,000 U.S. locations, is adding 800 this year.
Subway at Camp Ramadi, Iraq
Subway at Camp Ramadi, Iraq

Don Fertman, director-development for the sandwich shops, said there's now about one Subway for every 13,800 people in the U.S., although some markets, such as Philadelphia and Boston, are "under-served." He said he thinks Subway can take the ratio to one restaurant for every 12,000 people in the U.S. while revving up growth overseas, where it now has 8,000 outlets.

A major factor helping Subway sprawl is its low overhead. The shops don't need room for large kitchens, so there are outlets in hospitals, appliance stores, a smelting plant and even a church where the pastor wanted to provide job training for neighborhood kids. Subway is also the largest chain within Wal-Mart.

Mr. Fertman, who joined Subway in 1981, when there were 166 stores, said franchisee applications are up again this year and he credits the chain's advertising for sparking renewed interest. He said that when he joined the company, most people thought he worked for New York mass transit. Now when he says he works for Subway, people chant "Eat Fresh."

Subway is "possibly out of all restaurants, by consumer perception, the healthiest restaurant out there through a combination of marketing and product," said Darren Tristano, exec VP at Technomic. "Because of the amount of marketing dollars put forth by the company and brand recognition, they have a great opportunity to be successful."

The chain spent $360 million in measured media last year, according to TNS Media Intelligence, via McCarthy Mambro Bertino, Boston.

Big claims
Subway is private and does not release same-store sales figures, but it says that sales are up dramatically this year, which it credits to its $5 foot-long promotion. Hardy Grewal, who owns the franchise rights to Subway stores in Los Angeles and Orange counties, said his same-store sales are up 15% for the year. Meanwhile, he said, McDonald's and Burger King have been eking out single-digit same-store-sales gains in his market. "It's mind-boggling," he said. (Mr. Grewal noted that Los Angeles is one of Subway's best markets and therefore is not indicative of the rest of the chain.)

An Indian immigrant who came to the U.S. in 1989, Mr. Grewal was working as an accountant when he came to the conclusion that his wife needed something to do. He bought her a small Subway store, and soon she was making more money than he was. "I just wanted to keep her busy," he said. "When I saw that, I said if I can multiply these, I could do this much money. So that's what I did." His company now controls about 700 Subway restaurants.

Mr. Tristano said Subway still has room to grow -- within its existing stores. He noted that the average McDonald's brings in more than $2 million a year, while the average Subway earns closer to $375,000. And since Subway has about 50% more U.S. stores than McDonald's 14,000 locations, he said they can do more. "They've just started to get deep into breakfast," he said. "I still think there's opportunity for growth."
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