Subway Wraps Up Its Region

Blitz Magazine

A lot of British Columbians think that Subway is a BC company. They see Subway outlets while vacationing in other countries and just assume that Subway is another BC firm that has done well.

But Subway is not a BC company. It was founded in Connecticut, in 1962. Today, there are 13,000 Subway restaurants in 68 countries—1,300 in Canada. It is the second-largest franchise in the world, next to McDonald’s, in front of 7-11 and Century 21; and it is the largest franchise in BC.

In 1987, Gerry Lev, then a Calgary franchise consultant, discovered the Subway concept at a trade show. There were 1,000 Subways worldwide, none in Western Canada. In 1988, Lev founded Subway Developments of BC, and the division celebrates its 10th anniversary with 218 stores. And, out of all Subway divisions, and in terms of sales, the BC division is at the top, leading by up to 25%. If that lead is narrowing, it’s because BC has become the model for divisions which are following its lead and catching up.

How can this be? There are only 3.9 million British Columbians. But they eat a lot of Subway sandwiches—400,000 a week, putting annual sales at $90 million.

The answer lies in a potent combination of organizational ease, corporate savvy and media communications, all boosted by the intrinsic qualities of the BC lifestyle.

In the first place, as Lev explains, Subway restaurants are easy to own. “When you buy a franchise, you buy an operating system which has been perfected over time. One of the hallmarks of our system, and our success, is KISS—Keep it Simple, Stupid. The recipes are simple, procedures and operations are simple. There’s no cooking involved, so we don’t need thousands of dollars worth of equipment. The cost to open a Subway franchise is $140,000—a McDonald’s franchise can run from $700,000 to $1 million.

Secondly, Subway has benefited from a lack of competition. “In 1988, there were no sandwich chains in BC,” continues Lev. “There were sandwich stores, in office buildings, closed in the evenings and on week-ends. There was no alternative to burgers, and Subway sandwiches quickly became the perfect alternative, but with the convenience and economy offered by fast food.”

The price of a Subway sandwich begins at around a dollar and, although the corporation’s research shows that portability is not a major factor overall, it’s probably a bigger factor with BC consumers, who appreciate the fact that they can buy their lunch on their way to work or school, or stow one in a knapsack to eat at the beach or on the mountain.

“Freshness is our biggest selling point, value is number two,” continues Lev. “But what brought Subway to the forefront is the fact that our sandwiches are not pre-made. People watch their meal being made—precisely to their instructions. The Subway bread is baked in front of customers, which is another selling point; and there’s our traditional ‘U-Gouge’, which is a way of cutting the bread so the contents of the sandwich won’t fall out.

“Variety is another selling point. We have something for everyone—meat, vegetarian, low-fat—and one of the best breakfast sandwiches in the industry. But, getting back to the KISS formula, we’re in the business of appealing to the masses. Some Subway stores offer soup and salads, and we have items like potato chips. But our business is selling sandwiches.”

The Subway benefits are not difficult to communicate to a receptive public—everybody loves a sandwich. The big challenge has always been budget. Subway collects advertising funds from franchisers, and that money is spent on ‘national’ (North American) advertising, care of Chicago agency Hal Riney & Partners. That agency works with a corporate board, and a franchise board, while keeping everyone moving in the same direction—no mean feat, considering the company’s growth: from 10 restaurants to 1,000 in the first 20 years, to 11,000 a decade later, to 13,000 six years after that.

In addition, each division has its own advertising agency. The marketing plan comes from head office in Connecticut, Riney develops is nationally, and the local agencies worth with their own franchisee boards to develop the plan locally. In BC, the agency that is i2i Advertising & Marketing, and its annual budget is $4.5 million. That’s not much for the ultra-aggressive fast food industry, but it’s way more than the franchise had in 1991, when i2i partners Stuart Ince and Cam Iverson began with Subway.

“Back then, Subway BC was 14 stores and the franchisees had just pooled enough money to hire professional help,” recalls Iverson. “That amount was below $100,000, so the account didn’t interest many agencies. But we knew the chain would take off here. It fit the west coast lifestyle, and it fit well in terms of competing against other fast food chains.”

The BC division took off in 1993, when the franchisees decided to go beyond the 2.5% of sales which they were contracted to put into advertising and begin an Additional Funds Program, becoming the first Subway division to do so.

The extra budget immediately shot up our presence—and sales,” says Iverson. “The sub sandwich is part of the eastern deli mentality. With the extra money, we were able to make the Subway sandwich a BC thing.”

Therein lies the key to Subway BC’s success. “We made ourselves a BC company, and part of the BC community,” Iverson continues. “This wasn’t strategy—our franchisees are BC people and they want to be part of their communities and do things they can be proud of. So, aside from spending advertising dollars wisely, we get involved in events and promotions at a very local level—and it’s that community involvement which explains why so many people think that Subway’s head office is here.”

Subway BC is big on philanthropy. It raised $35,000 for Canuck Place (at the beginning, before the band-wagon effect kicked in). Ditto with AIDS Vancouver. Its Heroes for Hunger program gave a free sandwich to anyone who delivered a Food Bank donation. Every day, Subway feeds supporters of something: the Terry Fox Run, the Children’s Festival, the March of Dimes, Boy Scouts, the BC Boys Choir, Minor League hockey and Little League baseball. It supports scholarships, and it bought the ‘Shout No!” program, working with police and schools on child safety.

These are, of course, promotions. But community involvement is Subway BC policy, and philanthropic promotions stretch advertising budgets. “We don’t do many things in a huge way, and we never pick causes for profile,” says Lev. “Most international companies don’t get involved with local figure skating clubs, and we don’t get the publicity that others get, but we reach thousands of people by doing a lot of little things.”

Subway has also been smart about advertising. This has not always been easy, considering the fact that half of its radio spots and all of its television ads are created in Chicago. It took a while for US creative teams to realize that Canadian and American sensibilities aren’t the same.

“It used to be a horrendous problem,” recalls Lev. “I spent a lot of time saying ‘No, not in Canada.’ I don’t have to do that anymore. Now, they know Canada well and we get Canadian versions of everything.”

Once i2i has the marketing plan, it can do what it likes—another success ingredient.

“The BC franchisees are left alone in terms of advertising and promotions,” says Iverson. “And they’ve been aggressive at putting together deals which build Subway’s presence far beyond the dollars they have to spend. We have to work harder to push media dollars into creating image, so we’ve become involved in loads of cross-promotions and have forged strong relationships with media partners. Those promotions have been a large factor in putting us ahead of other Subway divisions.”

Subway runs ten major promotions a year. Its biggest is the annual ‘Survive in Style Sweepstakes’. The concept was a small part of the national marketing plan, but i2i worked with Global Television to make it fit the BC culture, and it took off.

“The national promotion was about fast food survival tips,” says Iverson. “We made it about what you need to survive in BC. We have a true partnership with Global in that we plan it together and tie it in with Global’s Sports Page. Then we give away vehicles, scooters, mountain bikes, cellular phones, vacations--$100,000 worth of prizes. It’s now bigger than most of Subway’s national promotions.”

Another major promotion is the chance to win a trip to the Stanley Cup Finals—essential, of course, for the all-important 18-34 male demographic. “Sports are very important to us and we don’t have the money to participate in the TSN buy,” continues Iverson. “The Stanley Cup promotion lets us tie ourselves to hockey without becoming involved with a team. We’re perceived as being sports-related, even though, at the professional level, McDonald’s is much more invested. We’ve done a little guerrilla marketing...I guess we’ve stolen some thunder.”

(In that vein, one famous tactic is the use of the Subway plane. If Subway can’t afford to sponsor an event, it rents a plane, attaches a banner and repeated flies over the event. After seven years, this remains one of Subway BC’s most successful marketing tools.)

Another smart move was looking at the competition and going in the opposite direction.

“Corporately, our market is 18-49, and that is what our media buys target, but we stay very aware of the 12-17 customer,” says Iverson. “McDonald’s targets families. Teens don’t want to be where families are. So we’ve presented Subway as the cool place to go. We aligned ourselves with the younger radio stations; the Z95—Subway sticker prize campaign was extremely successful. And we created the Sub Dude and got involved with snowboarding at the beginning of snowboarding—there was a time when no self-respecting snowboarder would be caught without a Subway sticker on his board. Teens love us—not only is a Subway sandwich a cool food to eat, but their parents don’t mind. Now, it’s kind of a cult food.”

As far as Lev is concerned, the Subway market is anyone with teeth. “It’s anyone who can eat a sandwich. BC has the largest senior population in Canada and seniors are concerned about blood sugar, fat and cholesterol. And children are the grown-ups of tomorrow. But we don’t have the funds to go after individual markets.”

So individual markets are targeted quietly. “A child’s choice is the determining factor of where parents go, but kids want toys,” explains Lev. “If Dairy Queen advertises a toy promotion, it’ll get the families. We can’t advertise that way, so we have a Kids Pack program—a school lunch with a sandwich, drink, cookie and toy. As a result, we feed more BC elementary students than anyone else.”

In BC, more than any another Subway region, women are a larger market: 50%. “Between 7:00 p.m. and 11:00 p.m., we get men; that’s when we sell the foot-longs with double meat and cheese,” says Iverson. “But at lunch, 60% of sales are to women. At the beginning, we had to focus on the 18-34s, then we built in the 12-17s, then we spread out to the 12-49s. Now, half of our customers are women. So we’ve broadened the net further. We run ads on female stations like KISS and QMFM, focusing on four-inch sandwiches, the lighter lunch, the sandwiches with six grams of fat or less.”

Subway heavily promotes the latter, but the low-fat aspect adds irony to any discussion involving the fast-food industry. “North Americans are fatter than ever, fries and chocolate are the top-selling foods, steakhouses are North America’s fastest-growing restaurant category and Wendy’s salads are gone,” says Lev. “So while it’s great that people see Subway sandwiches as an alternative to foods that they deem to be fattening, I’m not sure that they care about fat. People may think more about nutrition, but whether they act on it is a different matter. It’s just that the sandwich connotation is more positive.”

Connotation is another important point. “We’re careful to position ourselves in the sandwich category because of the submarine connotation,” says Iverson. “The submarine is rooted in the Northeastern US Italian-American community, where it’s a mainstay. In BC, before Subway came here, submarines were seen as something that fat men ate while they watched TV. Nobody had heard of a meatball sandwich. Or a foot-long steak-and-cheese with Marinara sauce. We communicated a different connotation for BC. Now, we sell a lot of those sandwiches.”

“Kentucky Fried Chicken is now KFC and McDonald’s calls its burgers ‘sandwiches’,” adds Lev. “Subway has never used the word ‘submarine’. As we’ve built our brand in BC, the focus has been on sandwiches, and the fast, inexpensive made-to-order meal. We’ve always promoted our 6” sandwiches—never our foot-longs. The 6” sandwiches fit with BC eating habits, and we won and R&D award when we devised 4” deli rounds, because we created a food that was appropriate for our market.”

All Subway restaurants sell 16 sandwiches—12 corporate, four local. The latter are created by franchisees, and this allowance is yet another reason for Subway’s success.

“The franchisees can choose what they sell, as long as it’s on Subway bread,” explains Lev. “And there’s no test kitchen, anywhere. We try things. If they work, great. If sandwiches don’t move, they come off the menu.”

i2i has used this flexibility for the highly-successful Sub of the Month promotion. “The freedom to create menu deviations has been a real bonus—and franchisees’ input is listened to,” says Iverson. “If head office were to introduce a sandwich which the franchisees knew no one in BC would eat, they could opt out. And we can push sandwiches which fit the BC culture. For example, we knew that chicken would work here, and that a Caesar salad would work here, so we helped develop the Kickin’ Chicken Savoury Caesar. It took off and became a national campaign. And the Sub of the Month program allows us to regularly present a different reason to come to Subway. It’s not rocket science, but it gives us product news and drives traffic.”

The two other Subway divisions which are catching up to BC are Alberta and Minnesota. They too have followed the formula of becoming part of their communities’ fabric, while staying with the national plan.

“A lot of other markets ran their own programs and, in the process, created too many Subway faces,” continues Iverson. “National ads would say one thing, local ads would say another, promotions would say something else. We create our own advertising and promotions, but we stay close to the national campaigns. So the advertising is different, but there’s always something that ties it together.”

Iverson says that the real credit goes, of course, to Gerry Lev and the Subway franchisees.

“Gerry’s progressive—he knew he needed to do more than just sell franchises. He’s a great communicator, he keeps everyone informed, brings in educational speakers. His franchisee support system has really helped the growth of this division. And the franchisees put a lot of energy into staying ahead of the pack. They’ve been willing to take risks and increase their spending. So we have BC people who have worked hard to put a BC face on an American corporation. And sales are way higher than in any other division. It’s an impressive accomplishment.”