In 2016, for the first time ever, Subway Restaurants had fewer locations open at the end of the year than it had at the beginning of the year – at least in the United States. Subway is ubiquitous… although McDonald’s is the No. 1 chain measured in sales, Subway is Number One in terms of units. Still, in 2016, Subway’s domestic unit count went down 359 units or 1.3 percent.
Understanding why this is so may hold important lessons for supermarket deli executives when strategizing a successful path for the years to come.
One possibility explaining this retrenchment is the reaction to a problem common of many retailers – with the move toward increased online buying, there is just no need for as many stores. Subway has a whole digital initiative, is working with many companies to enhance delivery options and, just recently, announced a “bot” to allow people to order and pay via Facebook Messenger. It is a two-pronged effort: enhance delivery options and make going to a restaurant more convenient and less time-consuming with the use of digital tools.
Sandwiches are typically ordered for immediate consumption, and anyone who has teenagers or is familiar with young Millennials knows they are versatile at ordering everything off their phones. This means that many of the supermarket online ordering systems are too complex to serve the purpose. Yet, few supermarket delis have aligned with delivery services.
Down near Deli Business’ headquarters in Boca Raton, FL, my 15-year-old son frequently orders from Delivery Dudes, but, at least in our area, ordering a sub to be delivered from Publix, Wal-Mart or Subway is not an option. Still, there are plenty of other options that do delivery — from independents such as D’Best Sandwiches to chains like Firehouse Subs – and they get the business.
There may, though, be even more to it. For a moment in time, Subway positioned itself, with its ill-fated Jared campaign, as the healthy fast food. There is something to this as, of course, looking over the glass at all the veggies and condiments, one can, in fact, select low calorie, low fat or low carb options. Of course, how many people actually do so is unknown. A friend who works for Seasons 52 once told me that when the chain started offering desserts in small test tube-like containers in order to let people have just a low-calorie taste, the chain executives were shocked at how many people ordered the whole rack!
A bigger problem may be the whole fast food scene has moved upscale. It is Five Guys and Shake Shack that are the new competitors, not McDonald’s. In fact, the same son who uses Delivery Dudes so earnestly and is perfectly happy from time to time to eat Chicken McNuggets from McDonald’s recently asked me, unprompted, “Isn’t McDonald’s really mostly for poor people?”
I thought about that for a moment. McDonald’s is so large that I would tend to say it is for the great middle class. But then one realizes the middle class is shrinking and not just in a monetary sense. A teaching assistant at Harvard may have a low income but probably an upper-class mindset, focusing on a foodie culture, valuing things such as local, organic and GMO-free, but also just generally sensitive to food quality and taste as opposed to getting adequate calories.
Subway is trying to deal with this issue — eliminating antibiotics from its chicken and moving to cage-free eggs. But the task is daunting. The soft bread and the no-name meats all suggest something more low-scale and, of course, fundamentally, the chain is very promotionally driven — you can sign up online and get a weekly coupon and other special offers, and, in the end, Subway still sells the foot long sub of the week for $6.
The problem for most supermarkets is that, although they could compete aggressively by offering unique sandwiches and salads, with upscale breads, meats, cheeses, veggies, and condiments in stores, most do not. Most are focused on price and serving the disappearing middle class.
Yet success in the future will depend on differentiation as well as focusing on target markets and offering the right product for the consumer demographics the store wishes to serve. Combine this focus with appropriate technology and a path to victory emerges.
Ignore these things and very soon a 15-year-old in your town might be saying, “Aren’t supermarket subs mostly for poor people?”