Charley’s Subs thinks outside the mall for faster growth rates
Charley wants to leave the mall. Charley’s Grilled Subs, the 500-unit concept that is as much a part of American mall culture as Cinnabon or Orange Julius or the teenager, is eager to branch out on its own, into strip centers and freestanding locations.
The reason is simple: If the company is going to ramp up its growth, it has to find more traditional locations. “It is naturally limited,” said Bob Wright, chief operating officer for the Columbus, Ohio chain. “There are only so many large shopping malls around the country.” The company has 41 locations in strip centers and freestanding buildings, but has been working for the past couple of years to fine-tune the traditional model so it can add many more.
Charley’s didn’t start out to be a mall concept. It just ended up that way. In 1985, Charley Shin’s family made a wrong turn on a trip to New York and ended up in Philadelphia, where Shin discovered the famous Philly cheesesteak. He vowed to replicate that sandwich when he returned to Columbus. His mother then agreed to loan Shin her life savings to open his first Charley’s Grilled Subs in a traditional strip center location.
The company then opened a location in the Columbus Convention Center, and after that the brand developed into a mall-based concept, particularly when the chain began franchising in 1991. This was a mall-centric era, after all. “Recreational shopping was huge in the 1980s and ‘90s,” Wright said.
Yet malls have struggled since the economic downturn, and that has had an impact on the food courts populated by chains such as Charley’s. Mall vacancy rates are improving—average vacancy rate at malls in the top 80 markets fell to 8.3 percent in the first quarter of this year, according to the New York-based retail information firm REIS Inc. Yet retail vacancy rates remain higher than they were before the recession amid consumer weakness and heavy competition from Internet retailers.
Still, the limited nature of the supply of the nation’s malls has Charley’s looking outward. The chain’s growth has been good, thanks in large part to international growth—malls are still booming in many countries where hot weather draws people indoors for air conditioning. Over the past three years the company’s unit-count growth has averaged more than 10 percent. It expects to add 64 new units this year.
Yet that growth could double if Charley’s finds its footing outside the mall. “We strongly believe that when we do start to see this strip center strategy develop into action, we can accelerate that growth rate past 20” percent, Wright said. “That’s why you spend two or three years developing the system.”
Charley’s isn’t the first mall-based concept to look at expanding its reach. Perhaps the most famous: Chick-fil-A, which had been a mall-based concept for a while after founder Truett Cathy opened a location in an Atlanta mall in 1967 and is now the largest chicken concept in the U.S. Other concepts, such as Panda Express and Cinnabon, have been working on ways to expand their brands’ reach outside of the traditional shopping center.
There are certain considerations for a brand to move away from the mall, and one of the most important is real estate. In a mall-based system, center developers typically do all of the heavy lifting. Outside the mall, the company has to do that work. “You have to be a much better student of real estate,” Wright said.
The other issue is competition. Inside a mall, Charley’s can reasonably expect that a landlord won’t populate that mall with a ton of sandwich concepts. There’s no such expectation outside the mall. And the sandwich market is hotly competitive, including the world’s largest restaurant chain in terms of unit count (Subway) and the fastest-growing restaurant chain in the U.S. (Jimmy John’s, which according to GE Capital Franchise Finance had 74 percent sales growth last year).
But Wright believes Charley’s can stand up to that competition. “There’s nothing like it,” he said.