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Subway group invites competition


Representatives from Toledo-based Marco’s Pizza had such high hopes for a business expo in New Orleans late last month they spent $100,000 on their display booth, sent each one of their area representatives to the event and offered a three-for-one special on franchise fees. Their goal was to sign 200 franchisees.

That seems like a lot for a business expo, but Marco’s is eager to expand quickly and the event was at a convention filled with the very people the company hopes to attract—almost everybody in attendance had experience running a small franchise restaurant.

The event: A meeting of the North American Association of Subway Franchisees.

In a novel twist, NAASF opened its annual convention in New Orleans this year to more than 20 other franchise concepts, as well as the general public. Part of the reason, according to the association, was to give opportunities to residents of the city still recovering from Hurricane Katrina.

Mostly, however, the franchisors were brought in to give NAASF members opportunities to branch out beyond the sandwich-making business. Subway is rapidly approaching saturation in the U.S., where the number of stores has grown by a third in just the last four years, to more than 20,000.

As a result, Subway franchisees looking to expand their business must increasingly look beyond their original concept. “If you’re in a town, you’ve (likely) run out of space to put some of our restaurants,” said Jim Hansen, NAASF’s chief executive.

With more than 15,000 members, NAASF is believed to be the largest franchisee organization of its kind in the world. Its annual convention is correspondingly big—Hansen conservatively estimated attendance at 1,000, but some estimates say as many as 2,000 people were to attend the event. Last year’s convention in Las Vegas drew more than 1,600 people. (The convention was held after this issue of Franchise Times went to press.)

NAASF chose to hold the event in New Orleans largely in response to Katrina. Officials with the organization toured the Gulf Coast months after the storm hit nearly two years ago. More than 30 Subway restaurants in that area have yet to reopen, either because they were wiped out or their area didn’t have enough people left to support the business.

Many Gulf Coast franchisees had to leave the system because they didn’t have the finances to start over again. In response, NAASF set up a charitable fund designed to help franchisees, their families and employees in the event of a natural disaster. The fund could help provide some initial startup funding to get franchisees back in business, said Raj Pannu, a New Orleans-area franchisee and member of the NAASF board.

Pannu herself had six stores before Katrina hit. Today she has two, but is about to re-open the third. She is working to reassert her Subway presence in the area. “I just want to rebuild my stores and see what happens in the future,” Pannu said.

Other Subway owners may want to diversify, however, and so NAASF is bringing in the 20 other concepts to join more than 100 suppliers and vendors who typically populate a NAASF expo. Hansen said officials with Subway parent company Doctor’s Associates have no qualms with the expo—they just want to make sure none of the concepts are in direct conflict with Subway. Subway itself has looked at other concepts to offer franchisees as territories are developed, Hansen added.

Whether many Subway owners are eager to branch out remains to be seen, although some attending concepts were certainly hopeful. Valpak, the Atlanta-based direct marketing franchise, gave away four free franchise territories along the Gulf Coast. Marco’s, meanwhile, treated the event as its best chance to fuel a planned rapid expansion over the next few years.

Marco’s—which already has some Subway owners among its newer franchisees—built a “mini-store” costing more than $100,000 in a visible area of the expo. Because it has no location in New Orleans the company had to rent the use of a pizzeria two miles away to prepare the company’s signature dishes for the convention.

It also offered a limited-time deal giving Subway franchisees three units for its typical one-unit franchise fee of $17,500—so long as all the stores are opened by 2009. “We’re being pretty aggressive,” said Cameron Cummins, Marco’s vice president of franchise marketing and recruiting.

He said his company’s eagerness is simple: The people attending the event are all existing franchisees with a proven ability to run a profitable store. “What better place to go to find franchisees of unbelievable quality who’ve already been successful than this environment?” Cummins said.

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