How Subway's Growth Keeps Accelerating



In 1965, Subway had one location. In 1985, it had 600. By 1995, it had 11,000. At some point this year it could well surpass 40,000 locations. So what, we asked, happened in the mid-1980s that put this modest-sized chain on the path towards becoming the behemoth it is today? Density.

In short: the chain reached a point where its density enabled its growth to accelerate. Don Fertman, chief development officer for the Connecticut-based chain, said that the chain's expansion accelerates once it reaches a density of about 1 store per 200,000 people. "At that point, things start to accelerate," he said. "We have boots on the ground. We have brand awareness. People understand the concept and what we're about. Suddenly, things take off." The company is seeing the same acceleration now in foreign countries that it experienced in the U.S. in the 1980s.

We spoke with Fertman and a long-time Subway development agent for a story that's running in the February edition of Franchise Times. But we also took the opportunity to gain some insight into how the world's most prolific restaurant chain continues to add new locations at an astonishingly fast clip even when one would think the world couldn't fit any more locations. This year, the company expects to add 3,000 units—a 7 percent growth rate that would satisfy any vice president of franchising. "We're accelerating pretty rapidly," Fertman said.

"As the brand becomes more popular, you can put them closer and closer together," said Curt DiPasqua, who operates Subway Development Corp. in Central Florida—and whose family, the subject of the upcoming feature in Franchise Times, has been involved in the company since the mid-1970s. When the company was first starting out, few people knew the brand. Franchisees didn't come in with as much money as they needed, and profits weren't guaranteed. Landlords, meanwhile, were skeptical of the brand.

These days, "landlords know us and like us," DiPasqua said. And franchisees eagerly open up new units. "For every store I put up, there are 8-10 existing owners who want to own it," DiPasqua said. It helps, also, that the chain is rapidly opening new non-traditional locations in places like convenience stores and hospitals. The challenge is in making sure stores don't cannibalize one another, he said.

 

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News, notes and commentary on franchise financing, including SBA lending, both the SBA 7(a) program and the SBA 504 program, franchise finance programs, development incentives, big deals and startup lending.

  Mary Jo Larson is the publisher of Franchise Times Magazine and its sister publication, the Restaurant Finance Monitor. She is a frequent speaker at meetings and conferences, and at the Restaurant Finance & Development Conference. You can find her on Twitter at @mlarson1011.
  Reporter Jonathan Maze covers restaurants and finance for Franchise Times. He also writes for our sister publication, The Restaurant Finance Monitor, and writes a daily blog on the restaurant industry at www.restfinance.com. You can also catch him on Twitter at @jonathanmaze.

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