Richer Fillings

For sandwich sellers, more is better as premium products rule

By Jonathan Maze
As published in: Franchise Times – June-July 2012

Like many sandwich chains, Wisconsin-based Cousins discounted its way through the recession—a year ago, its restaurants were selling sandwiches for $2.99. This year, the company stopped discounting, and started making its sandwiches better, adding 50 percent more steak to its Cheesesteak line.

The result: Same-store sales are up 5 percent this year, and customers are switching from the cheaper sandwiches to the bigger ones. “Instead of discounting, we increased the product in our sandwiches, made it more premium,” said Joe Ferguson, vice president of development for Cousins. “They’re trading off to more premium products.”

Cousins isn’t the only chain beefing things up right now. In the midst of a highly competitive sandwich market, concepts are improving their menus, redesigning their restaurants and developing new financing options in an effort to break through the crowded field.

Thanks to their portability and flexibility, sandwiches are perhaps the most popular menu item in the restaurant industry. According to market-research firm NPD Group, the number of sandwich-chain units—a number that includes burger concepts—has grown 26 percent since 2011, an annual growth rate of about 2.4 percent.

Yet that growth has slowed since the onset of the recession, to less than 1 percent in each of the past two years. Some prominent sandwich concepts have struggled more recently, such as Denver-based Quiznos and Scottsdale, Arizona-based Blimpie.

Meanwhile, concept leader Subway keeps finding places for new restaurants—it had 24,449 U.S. restaurants at the end of 2011. St. Louis-based Panera Bread, the leader of the bakery-café sub-sector, also keeps growing, with 1,541 restaurants. Chains such as Champaign, Illinois-based Jimmy John’s and Jacksonville, Florida-based Firehouse Subs have also been adding units at a nice clip.

As they try to play catch-up, smaller and mid-sized concepts such as Cousins, McAlister’s Deli, Schlotzsky’s and DeSoto, Kansas-based Mr. Goodcents Deli Fresh Subs are making improvements to get more customers in the door. Some are even experimenting with drive-thrus, which aren’t common outside of burger chains and Arby’s. Based on their sales results, the efforts appear to be working thus far.

Remake for Schlotzsky’s Deli

Reimages are a challenge in the restaurant industry, because in many cases operators are being asked to spend tens of thousands of dollars to remodel a restaurant that is financially weak after years of falling sales. Last year, Schlotzsky’s found a solution—using franchisees’ ad dollars.

Eager to update its stores, the Austin, Texas-based chain handled the full remodeling for more than 300 restaurants. The company went market to market, giving each restaurant a facelift, with new signs, menu boards and paint. The entire-market approach cut the per-store cost of a reimage to roughly $18,000 to $25,000 per unit. “When you paint 300 stores at one time, you get a much better deal on paint,” said Kelly Roddy, president.

When all the stores within a market completed the remodel, the company used ad fund dollars from that market to pay the vendor. The lack of marketing did bring down sales for a time, but Roddy said a post-remodel sales bump more than made up for the loss. “We felt that really helped us drive sales without advertising,” Roddy said. The company is back on the airwaves this year, and same-store sales are up 7 percent.

Schlotzsky’s is also working to add sales to restaurants in two other ways: through multi-branding and a drive-thru.

The concept is part of Focus Brands’ portfolio, the Atlanta-based franchise company owned by the private equity group Roark Capital. Fellow Focus-owned concepts Cinnabon and Carvel are being added to many of its locations. The company’s ultimate goal is to add at least a Cinnabon to each of its locations, while new units will have all three.

Multi-branding has been a hit-or-miss franchising plan, but Roddy said the addition of dessert concepts works in Schlotzsky’s case because Cinnabon and Carvel are snack concepts that don’t compete with Schlotzsky’s sandwiches. “From what I’ve seen in cobranding, in most cases you’re selling the same share of stomachs,” Roddy said. “You’re competing lunch against lunch. For us, it’s other dayparts. The same person who orders a Cinnabon may not come in to get a sandwich.”

The other improvement is a drive-thru. Schlotzsky’s developed a new prototype with all three brands, plus a drive-thru, and early tests have been strong. A company test saw a 45 percent sales increase, with the biggest share coming from young women. It is attracting more 18- to 32-year-olds, and women represent 52 percent of the customers at new stores, versus 42 percent in the old ones.

The 360-unit chain is opening 35 restaurants this year. Next year, it expects to open 60 units “on the low side,” Roddy said. “We’re going crazy. We’re growing. Things are changing. Things are rolling.”

Source: Franchise Times

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