The Subway sandwich chain is nearing the end of a $178 million venture with the Carlyle Group to upgrade stores lining major tri-state traffic corridors.
The chain is in the process of finishing renovations for rest stops along I95, I395, the Merritt Parkway and Wilbur Cross Parkway in Connecticut. All locations will feature Subway and Dunkin Donuts restaurants.
The venture is part of a carefully crafted yet free-flowing growth strategy that places Subway restaurants in New York City within eyesight of each another, without competing for business.
Subway, which launched in 1968, has since grown to more than 35,000 locations worldwide, surpassing McDonalds in the number of restaurants operated, according to the Wall Street Journal.
“Somebody can look and say ‘Boy, these stores are awfully close together,’ but there is a method to that madness,” said Donald G. Fertman Jr., chief development officer for Subway. “Just because I can stand at one store and see another, doesn’t mean that there is an issue. This store is serving one tower and the other store is serving another tower. The people walking on the streets on the weekends or tourists are a bonus.
“A lot of New York has to do with going up. If I work on the 72nd floor, at noon me and 3,000 other people are going to try to get on that elevator and go to lunch. Lunchtime is very limited.
“Subway needs to be as close to those customers as possible. It doesn’t have so much to do with the proximity of one store to another down on the street, but the number of customer that that store is serving up above that store vertically,” he said.
For someone who feels they have a location where a Subway restaurant would work, there is a process.
The chain works with what are described as local development agents keeping decision-making centralized, while somewhat flexible.
“The [development agents] will work with franchisees on the site selection process,” Fertman said. “Every location is submitted and every lease comes to headquarters for a site evaluation. We review and negotiate the lease.”
That being the case, it is key for potential franchisees, brokers and owners to do their homework before approaching Subway with any proposals. Even with analytical data in hand, Subway cross references internally using their own criterion as a guide.
“The traffic analysis is kind of interesting,” said Fertman. “I get the demographics on the site — we have a proprietary demographic mapping system that our development agents use —that would help [us] analyze. But the best bet if I were a franchisee is to sit in front of that site, and watch the people go by. Talk to the people who are going by and learn if there are potential customers.”
To emphasize his point, Fertman gave an example of a competitor that placed a store in Downtown New Haven, Connecticut, a location that looked good on paper, but has particular traffic nuances that required a physical study for days and weeks on end.
“All the people in that area, when they left the mall, would go [in another direction],” he said. “Nobody would go [where their store was]. But unless somebody stood there in front of that location and counted the people going by and looked at the foot traffic and really understood the market, they wouldn’t know that that location was doomed to failure. That store opened and closed within six months.
“We put a store years later right out on the corner where all the people were and that store is still there today. It’s because I spent a lot of time there.”
For quality control, reps visit each store every month and will try a number of remedies, including finding a new franchisee before shutting down a location.
The company does not hold on to locations if they are not going to be Subway stores. But more often, they are looking to expand exponentially, saying their flexibility regarding space requirements can be a boon to brokers and owners who may have challenges renting out a space.
“There is a lot of opportunity in the northeast and here in New York we are looking for more locations,” Fertman said. “What is interesting about our concept is that we can go into 300 s/f and we can go into large spaces. We are very flexible in our space requirements, so we can work with a wide variety of landlords. We can be a landlord’s friend. If you have a space that is too small for anybody else, chances are that we can take it.”