Nov 11 - Subway is soon to pass Mcdonalds in Sales, all because of the $5 footlong success story

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 11-11-2009, 11:48 AM         #1
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Motivated 
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Nov 11 - Subway is soon to pass Mcdonalds in Sales, all because of the $5 footlong success story
 

 
Subway's $5 footlong, the brainchild of an obscure Miami franchisee, is the fast-food success story of the recession

Stuart Frankel isn't what you'd call a power player in the world of franchising. Five years ago he owned two small Subway sandwich shops at either end of Miami's Jackson Memorial Hospital. After noticing that sales sagged on weekends, he came up with an idea: He would offer every footlong sandwich (the chain also sells 6-inch versions) on Saturday and Sunday for $5, about a buck less than the usual price. "I like round numbers," says Frankel, a brusque New Yorker who moved to Miami in 1972 and owned a drugstore before opening his first Subway outlet in 1988.


Customers liked his round number, too. Instead of dealing with idle employees and weak sales, Frankel suddenly had lines out the door. Sales rose by double digits. Nobody, least of all Frankel, knew it at the time, but he had stumbled on a concept that has unexpectedly morphed from a short-term gimmick into a national phenomenon that has turbocharged Subway's performance. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, president of restaurant consultancy Sandelman & a.ssociates. "It's huge."


In fact, the $3.8 billion in sales generated nationwide by the $5 footlong alone placed it among the top 10 fast-food brands in the U.S. for the year ended in August, according to NPD Group. That puts the $5 menu's success just a notch behind KFC and ahead of Arby's and Domino's Pizza. It helped privately held Subway, of Milford, Conn., lift U.S. sales 17% last year at a time when most restaurant chains, save for industry leader McDonald's, struggled. Actually, make that soon-to-be-former industry leader McDonald's. Subway's low-cost franchising model and mainstream appeal have allowed it to add 9,500 locations in the past five years, for a total of about 32,000 outlets. At its current growth rate of 40 new stores a week, Subway is poised to surpass McDonald's in worldwide locations sometime early next year. (Measured by total sales, McDonald's $30 billion still dwarfs Subway's $9.6 billion, although Subway has now supplanted both Wendy's and Burger King in market share.)

"A Life of Its Own"

Frankel's $5 footlong idea illustrates how a huge company can wake up and eventually seize on a good idea that's not generated at headquarters. Frankel, along with two other local managers in economically ravaged South Florida, ceaselessly championed the idea to Subway's corporate leadership amid widespread skepticism. Once it was approved, Subway's marketing team quickly generated a memorable campaign that firmly established the $5 footlong nationwide. The promotion's success spawned imitators and created an unprecedented demand for staple ingredients such as turkey, ham, and tuna. "The whole thing took on a life of its own," says Jeff Moody, CEO of Subway's franchise-owned advertising arm, the Subway Franchisee Advertising Fund Trust.



The fact that a sandwich, the quintessential American food, has grabbed the spotlight right now comes as no surprise to some. Its appeal goes beyond the low sticker price—you can share a footlong with a co-worker or a friend (something that's not quite as easy with a Big Mac). "People are not eating out as much anymore, so anything that brings people together through food is much more compelling nowadays," says Michelle Barry of the Hartman Group, a Seattle consultancy that employs anthropologists and sociologists to ferret out consumer perceptions for such companies as Kraft Foods and Wal-Mart Stores.

For Frankel, the biggest surprise from his $5 promotion was that his profit margins didn't decline. Many promotions are so-called loss leaders designed to draw customers in the hope they'll buy higher-margin items alongside the featured special. That's one reason most offers have a time limit. Frankel's food costs did rise as a percentage of sales, but that was offset by the overall boost in volume and the increased productivity of his employees, who had less down time. Even after adding two new staffers, Frankel made money on each $5 sandwich.

Frankel kept the weekend promotion going for more than a year. At the same time, Subway's top brass was growing tired of a national ad campaign that featured spokesman Jared Fogle, who had lost 245 pounds almost a decade earlier by eating Subway six-inch subs for lunch and dinner. Company insiders envied the success of McDonald's dollar menu and wanted a "value" offering of their own. In September 2007, Steve Sager, a Subway development agent who oversaw about 225 franchises across South Florida, heard about the success of Frankel's $5 deal. He decided to try it in a troubled Fort Lauderdale outlet on Commercial Boulevard, a gritty thoroughfare dotted with strip malls. On the first day of the promotion, the store nearly ran out of bread and meat. Sales doubled.

Sager called Subway co-founder Fred DeLuca, who lives in the vicinity, and excitedly shared the news. An intrigued DeLuca came by the shop and, Sager says, "saw the potential instantly." (DeLuca declined to comment.) Charlie Serabian, the owner of 50 South Florida Subways, decided to launch the promotion in some of his stores. To advertise, he slapped crude homemade signs in the windows that spelled out "ALL FOOTLONGS $5." DeLuca joked that they looked like ransom letters. It didn't matter: Sales rose as much as 35%. Some locations, such as those housed inside Wal-Mart stores, did even better.

Moody, the marketing chief, hopped a flight to Fort Lauderdale a month later. He arrived at one store at 11 a.m. to find a line out the door. Frankel and Sager, who accompanied him, jumped behind the counter to help make sandwiches, while Moody talked to customers. Most were buying footlongs, and some were saving half for later.



Clearly, the South Florida crew was onto something. The question was whether it would resonate elsewhere. "Unless it was in your store, you were skeptical," Moody says. At a meeting of the franchisee marketing board that fall, Frankel presented his idea. Many owners thought the promotion would send food and labor costs soaring, erasing any hope of profits. A motion to roll it out nationally failed.

Annoying Jingle

But others picked up on Frankel's idea and tried it in locations ranging from Washington to Chicago. Right before Christmas 2008, the board voted again, and the motion passed. (Franchisees still had the option to not do it.) Moody pushed ahead with a national campaign, despite having no market research to back up the idea. "It violated all our normal processes," says Moody, whose annual ad budget is around $500 million.

Subway soon brought in its ad agency, MMB of Boston. "Let's not overcomplicate this," MMB managing partner Chad Caufield recalls thinking. The idea was to use hand gestures and an irritatingly addictive jingle to convey both the price (five fingers) and the product (hands spread about a foot apart). MMB also shot on a soundstage, giving the commercial a stylized, campy look. "We wanted to create the feeling that this was a movement taking hold," Caufield says.

The campaign was launched on Mar. 23, 2008—the same month that Bear Stearns collapsed into the arms of JPMorgan Chase. "The timing could not have been better," says Dennis Lombardi, executive vice-president at restaurant consultancy WD Partners. Over the first two weeks, franchisees reported that sales shot up 25% on average. Within weeks, 3,600 videos of people performing the jingle appeared on YouTube. Fogle, attending the NCAA Final Four college basketball tournament soon after the launch, was serenaded with the song by students. The $5 footlong was mentioned on ESPN, The Tonight Show, and celebrity gossip site TMZ. The North Carolina State Fair even held a $5 Footlong Song Challenge—an American Idol-style event for the 4-H crowd.

The franchisee marketing board quickly voted to extend the four-week promotion to seven weeks. When that ended, Subway kept it going but limited the number of $5 sandwiches to just eight, removing items with high ingredient costs, such as the Chicken & Bacon Ranch sandwich.

Suddenly Subway needed 50% more food supplies. Bread shortages became a problem, as the ratio of six-inch sandwiches to footlong orders, normally 2 to 1, flipped. Subway's franchise-owned Independent Purchasing Cooperative, or IPC, had to scramble to find new sources of bread. Even mundane items, such as plastic sandwich bags from China, nearly ran out. "I was in a panic," recalls IPC CEO Jan Risi, who furiously worked the phones, cajoling her network of suppliers to run extra shifts.



Even Cheaper

Soon, copycat offers emerged. Boston Market offered 11 meals for $5 each, while Domino's sold sandwiches for $4.99 and KFC launched $5 combo meals. T.G.I. Friday's began selling $5 sandwiches. "Five dollars is the magic number now," says restaurant consultant Malcolm Knapp. "It's become a price point that consumers respond to," says Judy Cantrell, Boston Market's chief brand officer.

The question now is when the campaign will run out of steam. MMB's Caufield admits the issue keeps him up at night: "Are we riding this pony too long?" Tony Pace, a senior executive who works with Subway's marketing arm, replies bluntly: "If you had a brand that represented nearly $4 billion in sales, would you plan an exit strategy for it?"

Pace says the footlong will remain "as long as it makes good economic sense," so a decline in footlong sales could force price hikes, or limits such as $5 after 4 p.m. (Serabian has gone the other way as the South Florida economy has worsened, offering footlongs for $4 in his stores.) There are also concerns that Subway's focus on the footlong could distract it from new growth areas, such as a planned push into breakfast items or international expansion. (Save for some tests in Australia and Canada, the $5 footlong hasn't gone beyond the U.S.)

Meanwhile, Frankel has moved on to a new idea. Now he's pushing for Subway loyalty cards that let purchasers accrue points toward free sandwiches. Driving down Interstate 95 toward Jackson Memorial on a cloudy autumn day, Frankel chronicles the frustrations he's had convincing DeLuca and others that this could be a hit. Maybe now that Frankel is the Father of the $5 Footlong, they'll listen.


Copyrighted, Business Week. All rights reserved.



[pic - click to view]

 the-accidental-hero.html: Personal Finance News from Yahoo! Finance



lol seem like the $5 footlong is a success alright. s**t Im not even going to obstinate about it, I too f**ks with the Idea, there has been many a times this broke college student has ran his a.ss to subway to get that deal....I don't know the jingle to the song though image

smfh at all them years as a child of eating mcdonalds and from going to 76lbs all the way to 125lbs from grade 3 to the 5th......I still can feel the pain of the hottest chick in the class teasing me cus of my weight
:angry12:


Last edited by Motivated; 11-11-2009 at 11:51 AM..

81 comments for "Nov 11 - Subway is soon to pass Mcdonalds in Sales, all because of the $5 footlong success story"

 8 years ago '07        #2
KeithHernandez 7 heat pts
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After taxes it's like $5.37. No drink included.

I go to the deli and pay $6.50 for a real sandwich with a bottle of water.
 11-11-2009, 12:18 PM         #3
Motivated  OP
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 KeithHernandez said:
After taxes it's like $5.37. No drink included.

I go to the deli and pay $6.50 for a real sandwich with a bottle of water.
ETHER
 11-11-2009, 12:19 PM         #4
bigbarcelona  OP
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That's great and all... but I rather take a double cheese burger with some french fries and a coke and I don't even got it break pass $5.

mcdonals>>>>>white castle>>>>popeyes>>>>burger king>>>>>papa johns>>>> any other fast food place>>>> subway.


Last edited by bigbarcelona; 11-11-2009 at 12:21 PM..
 8 years ago '05        #5
Nasty Nate 21 heat pts21
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i'll rather go to kfc and get 2 pieces of chicken, 2 sides, and a drink for $5+tax
 8 years ago '04        #6
Kadroan 103 heat pts103
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dang didn't know that. them footlongs are something serious
 8 years ago '06        #7
Sammyboi22 
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the f**k are you guys talking about wendys dollar menu? There isnt s**t for a dollar on wendy's menu. Subway is decent but im not full after a footlong. I need at least some chips.
 8 years ago '07        #8
KeithHernandez 7 heat pts
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You buggin, Gattsau. You're in NY, right?

I work in Midtown, nearby the UN. Most companies have arrangements with local businesses. I step into the Amish Market across the street from my job, flash my ID, and a $6.75 hero + $1.25 drink drops 15%.

Another Korean spot on the corner does the same. That's where I have my $6.50 arrangement.

I'd pay over $7 for the way they make the sandwiches. My joints stay stacked with cold cuts.

Always better than Subway's fluffy a.ss bread, four pieces of turkey, three slices of swiss, and 1/2 pound of lettuce, lol.
 8 years ago '04        #9
NoLedge18720 5 heat pts
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Quiznos>>>

if you get their daily classic subs you can get a large for the same damn price and actually be full after eating
 11-11-2009, 12:55 PM         #10
Motivated  OP
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everybody screamin all this other s**t but looks who's making boss moves LMFAO
 8 years ago '06        #11
SpeedLimits65 5 heat pts
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god damn there's a bunch of fatasses in boxden
cheapest way to go is still just to make your own mean. healthier, cheaper, and sometimes more delicious (in b4 woman should cook)
i gave up on subway ever since they took tuna off the $5 menu. f**k that s**t.
 8 years ago '04        #12
Venom 29 heat pts29
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 bigbarcelona said:
That's great and all... but I rather take a double cheese burger with some french fries and a coke and I don't even got it break pass $5.

mcdonals>>>>>white castle>>>>popeyes>>>>burger king>>>>>papa johns>>>> any other fast food place>>>> subway.
you fat f**k
 8 years ago '06        #13
Storchaveli 94 heat pts94
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 KeithHernandez said:
After taxes it's like $5.37. No drink included.

I go to the deli and pay $6.50 for a real sandwich with a bottle of water.
:jawdrop: Oh s**t AND a bottle of water? :wow: Are you serious? Where is this deli? I can't get this "water" you speak of anywhere else.
 8 years ago '07        #14
DaKid730 10 heat pts10
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Subway is trash i hate that s**t
Hood Chinese restaurant>>>>>>>> you can dam near get anything chicken wings, beef n broccoli, generel tso with rice for $5
 8 years ago '06        #15
Da Realness 2 heat pts
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That's good. That's a healthier choice anyway. I dont even f**k with McDonalds like that anymore. I f**ks with the breakfast and thats it. I dont like eatin too much fast food anyway. Out here, we got something called Pollo Tropical.... I can f**ks with that on the regular.
 8 years ago '07        #16
KeithHernandez 7 heat pts
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 Storchaveli said:
:jawdrop: Oh s**t AND a bottle of water? :wow: Are you serious? Where is this deli? I can't get this "water" you speak of anywhere else.
LMAO.

I guess I'm an a**hole that way. I don't like water fountains or water purifiers. Usually cop a small bottle of Fiji or Evian.
 8 years ago '09        #17
Ricky Towel 128 heat pts128
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 Sammyboi22 said:
the f**k are you guys talking about wendys dollar menu? There isnt s**t for a dollar on wendy's menu. Subway is decent but im not full after a footlong. I need at least some chips.
jr bacon chee

double stack

crispy chicken sandwich

5 piece chicken nuggets

chicken wraps
 8 years ago '04        #18
JFamis 235 heat pts235
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 Sammyboi22 said:
the f**k are you guys talking about wendys dollar menu? There isnt s**t for a dollar on wendy's menu. Subway is decent but im not full after a footlong. I need at least some chips.
Depends where you live. In Portland there's three different kinds of burgers, chicken sandwich, chili, forsty, pop, french fries, nuggets... all for a buck. I eat fast food twice a week and Wendy's is one of my stops.
 8 years ago '04        #19
marcchrome 42 heat pts42
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 KeithHernandez said:
After taxes it's like $5.37. No drink included.

I go to the deli and pay $6.50 for a real sandwich with a bottle of water.
yeah i hear you on that.....

 bigbarcelona said:
That's great and all... but I rather take a double cheese burger with some french fries and a coke and I don't even got it break pass $5.

mcdonals>>>>>white castle>>>>popeyes>>>>burger king>>>>>papa johns>>>> any other fast food place>>>> subway.
but the only thing is this, subway is not greasy and nasty like all of the other places you mentioned above...

 Venom said:
you fat f**k



Subway is smart they are pumping 5 dollar sandwiches like nickle bags..... they have been cakin' up on a major level like this ever since they first jumped off with the 5 bucks idea...
 8 years ago '09        #20
Akilleez 
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f*ck a $5 footlong, the McRib is back... and tell subway mark pi & my n*gga Mr. Hero said suck d*ck.
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