The start of a new year is a popular time to reflect on the trends that will affect the coming seasons. One trend hitting the restaurant industry is pizza concept franchisees expanding into the sub sandwich segment. This is a recipe for success as sub and pizza makers discover operating efficiencies, which bring the two businesses together as perfectly as lettuce and tomato.
For pizza concept operators, entering the sub sandwich business is generally a diversification strategy. However, in rarer cases, individuals have sold their existing pizza business to become a sub sandwich operator. In either case, these operators cite one important consideration in their decision to enter the segment: As larger, more mature systems, the pizza chains provide less organic growth opportunity for existing franchisees, particularly in home markets.
The impact of this trend on the Jersey Mike’s system, where the vast majority of our nearly 900 restaurants are owned/operated by franchisees, has been profound.
As of the end of 2014, individuals with either ownership or management experience in the pizza industry operate nearly 20% of our system. Additionally, 40% of our Area Directors, our market leadership team, have owned or operated pizza delivery restaurants previously in their career. The vast majority of these individuals have entered the Jersey Mike’s system in the last five years. We were founded in 1956 and have been franchising since 1987, so five years is certainly a recent trend for us.
This trend is not unique to Jersey Mike’s. Several other concepts in the ever-growing sub sandwich segment also count as franchise owners those with ownership experience in brands such as Papa John’s, Pizza Hut, and Marco’s Pizza, to name a few. Nor is the trend unique to pizza delivery concepts, as longtime operators from non-delivery pizza chains such as Little Caesars and Papa Murphy’s have also entered the sub sandwich segment.
There are several reasons why the sub sandwich business could be compelling for a successful pizza operator:
- The operating model of the sandwich segment is familiar to an experienced pizza operator. The start-up models are very similar in terms of site selection (lease based real estate model) and total capital cost. Staffing and supervision models are also generally consistent from segment to segment. While both revenue and Costs of Goods Sold models vary considerably concept to concept within both segments, the two segments are generally closer in this aspect than to other limited service segments.
- That said, there are also significant differences in the operating model. Pizza operators stress the simplicity of the sub sandwich operating platform when compared to their legacy operations. The majority of the revenue generated in the sub sandwich business is done between lunch and dinner, with very little business done after 9pm. With a few notable exceptions, delivery is not a significant part of the sub sandwich operating platform and so execution is largely limited to the four walls of each individual restaurant. Sub sandwich concept menus also tend to be smaller, making inventory management easier.
- And lastly, while the sub sandwich business model, like any other restaurant operation has to deal with COGS pricing and commodity pressure, unlike the pizza segment, this pressure is spread across the menu and not overly focused on a single ingredient.
More and more, the sub sandwich category will welcome to its ranks multi-unit and multi-concept operators like Phil Horn and Bob Middleton, current Jersey Mike’s franchisees and also operators of the Papa John’s and Little Caesars brands, respectively. Seeing the potential with subs, in just three years, Phil and Bob have separately opened 12 Jersey Mike’s and are on pace to open an additional six in 2015.
In the coming year, we’ll see that the combination of subs and pizza continues to deliver.
Brian Sommers, CFE, is Vice President, Franchise Development, at Jersey Mike’s Subs. He is responsible for recruiting and awarding territories to qualified existing franchisees and outside candidates. Started in 1956, Jersey Mike’s now has 1,300 restaurants open and under development nationwide, and has a long history of community involvement and support.
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