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The upper crust

Variety boost sandwich sales


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John Montagu was busy, and he was hungry, which is what happens when you gamble for long stretches without a break. He wanted something quick to eat that would satisfy his need for meat and bread without the use of those cumbersome utensils. So, according to legend, the 4th Earl of Sandwich did what many of us would do today: He ordered the ingredients stacked so he could eat them with one hand.

That kind of simplicity has turned Montagu’s spur-of-the-moment invention in 1762 into a $121 billion market today, according to New York-based Packaged Facts, and that’s just at U.S. restaurants. “Almost anyone can make a sandwich,” said Darren Tristano, executive vice president of Technomic, a food-consulting firm out of Chicago. “It’s the most flexible thing out there. And other than the bread crumbs, it’s pretty easy.”

That ease isn’t limited to the sandwich itself. Shops specializing in sandwiches are relatively easy to open thanks to a low initial investment, and with strong, consistent demand they get a steady stream of business. Yet the sector is under growing pressure amid mounting competition and concerns that rising food and labor costs will eat into already thin margins.

Sandwich shops represent the fastest-growing sector in the restaurant industry, having added more units and more revenue between 2003 and 2005 than any other sector, according to Packaged Facts, a division of the market research firm MarketResearch.com.

That growth is led by some of the traditional shops, such as Subway, which now has more than 20,000 U.S. stores and takes in nearly $8 billion a year in system-wide sales. It also adds more units annually than any other franchise business in the nation. Rival Quizno’s, meanwhile, grew an estimated 18 percent last year, according to Technomic, despite ongoing problems with franchisees, some of whom have filed lawsuits in states such as Illinois and Wisconsin.

In addition, smaller chains are picking up steam, such as Wisconsin-based Milio’s Sandwiches and Denver-based Heidi’s Brooklyn Deli. And larger, fast-casual sandwich chains such as Missouri-based Panera Bread and Atlanta Bread Company have likewise grown fast while diversifying consumers’ sandwich choices.

“The economics work well for the sole proprietor, the person who wants to be their own owner of the business and manage their business,” Tristano said. “If you want to be able to earn $50,000 a year, manage a store, be your own boss, you can manage a Subway or a Quizno’s.”

Low cost, high demand

The estimated capital required to open a Subway, according to the company, is at most $222,800, a figure similar to that of many of its sandwich-shop competitors. A McDonald’s, by comparison, costs anywhere from $700,000 to $1.2 million to get off the ground.

Not all sandwich chains are that inexpensive, of course. Jason’s Deli requires owners to have $1 million in liquid assets. Fast-growing Panera requires franchisees to have $3 million, and the company estimates that its startup costs excluding real estate can run as high as $2.2 million.

Nevertheless, the low cost of many sandwich shops attract smaller franchisees with less money that might not otherwise operate their own eatery. Diane Wehr, for instance, bought five Subways around Birmingham, Ala., six years ago after she and her husband decided they wanted a family company. “We had zero restaurant experience,” she said. “That’s perhaps the beauty of it. We could not have bought one McDonald’s. We could buy five Subways.”

Frank Fagundes started Mr. Pickles in San Mateo, Calif., in 1994 after spending the first eight years of his adult life bouncing through various customer service jobs. He admits he didn’t know much about the restaurant business. “I had no idea about food percentages or labor costs,” he said. “I wish I did. It was very difficult at first.”

He said his store pulled in $30,000 that first year and many people didn’t think he’d make it. Then Fagundes hired a manager and began focusing more on customer service. At its peak the San Mateo store took in $700,000 a year in sales. Now Mr. Pickles has 41 locations throughout California, four of which opened in April.

While it may be relatively easy financially to start a sandwich shop, the bigger question is whether it’s easy to make money at it.

Wehr, a member of the board for the North American Association of Subway Franchisees, said a new Subway franchisee operating a single store can expect to make about $30,000, a year for five years, at least until the debt is paid off. At Mr. Pickles, Fagundes claims that franchisees of his can earn 25 percent profit, but the franchisee must put in much of the work operating the store. “We won’t sell to someone who wants to work absentee,” he said. “The manager has to work.”

At Illinois-based Jimmy John’s Gourmet Subs, the average store took in more than $922,000 in revenues and earned nearly $223,000 in income in 2005, according to the company’s uniform franchise offering circular. The company says that a first-time franchisee on average purchases his or her second store within 18 months. Its estimated initial investment ranges from $287,400 to $373,000.

Sandwich shop owners are helped by continued demand. Their ease of consumption is one reason, especially at lunchtime. Another: the belief that sandwiches are healthier than typical fast-food fare.

That belief has been solidified in recent years with Subway’s Jared campaign, which focuses on Indiana native Jared Fogle, who lost the equivalent of a linebacker (245 pounds) while exercising and eating Subway sandwiches. Even the company’s competitors give the campaign its due. “It’s helped all of us,” Fagundes said. “People truly believe sandwiches are a healthy alternative.

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