The man who made Subway a household name does not want a sandwich.
We are sitting at a table with an incongruous “reserved” sign during the lunchtime rush at a cramped location near the Toronto Harbourfront. But Fred DeLuca’s order – a double chocolate cookie and a large Coke – barely qualifies as lunch at all.
The problem, Mr. DeLuca explains with his immutable grin, is that he’s still full from Subway’s fastest growing “day part” (also known as breakfast). The egg white sandwich on flat bread, which is still making its presence felt, is part of the solution to 20 years spent “wandering lost in the desert, with a horrible breakfast offering,” he says. Finding ways to reach customers at a new time of day is one of the key strategies for the chain’s future growth.
But that does not mean Mr. DeLuca has taken his eye off of lunch. Just a few years ago, Subway was under assault as Quiznos aggressively expanded, with its selection of elaborate toasted subs. While that battle is now over – the recession hit Quiznos hard and last year it narrowly avoided bankruptcy – the war is far from won.
Former coffee-focused giants, including Starbucks and Canada’s No. 1 fast-food chain, Tim Hortons, are launching products all the time in a fight to attract the lunchtime crowd. And in a bid to appear more health-conscious, other fast-food chains have begun adding sandwiches and wraps to their menus. Reports suggest the company has seen its sales slip; its share of the Canadian fast-food market fell just over one percentage point last year to 5.2 per cent, according to market research firm Euromonitor.
“I see the sandwich competition,” he says. “Tims has sandwiches, and lots of them. Then of course McDonald’s has got hamburgers and now wraps and even salads.”
The company Mr. DeLuca created was among the first to present the idea that fast food could be relatively fresh and healthy. Now, it will have to fight to keep its footing as the strategy upon which the brand’s success is built becomes the industry standard.
But none of this seems to particularly worry Mr. DeLuca, who still speaks with a slight New York accent from being born in Brooklyn and raised in the Bronx and later upstate, in Schenectady. His gentle, casual manner makes him seem like somebody’s grandpa who is thoroughly bemused at having created an empire – one that has made him the 194th-richest person in America, according to Forbes, with a fortune of $2.6-billion (U.S.)
“When you think about it logically, this is a bad business model,” he says, pointing to the long lineup of customers, slowly choosing their sandwich ingredients. “Everyone wants to get in, get their food, and get out; so this is inefficient.”
The chain has experimented with premade sandwiches, but Mr. DeLuca says customers would not leave the back of the line to pick them up. “They want their sandwich made their way. Even though it’s the same food! It’s just astounding to me.”
Bad business model or not, Subway has become ubiquitous. In 2010, it surpassed McDonald’s to become the world’s largest fast-food chain by store count. This week, the company opened its 40,000th location, in a gas station in Britain. It’s an unlikely success story, given its humble beginnings.
In 1965 at the age of 17, Mr. DeLuca was looking for a way to pay for college. He asked for advice from a friend of his parents, secretly hoping for a loan. Instead, Pete Buck told him to open a submarine sandwich shop, and offered to be his partner. Mr. Buck put up $1,000, and Pete’s Super Submarines opened in Bridgeport, Conn., as Mr. DeLuca entered university.
The company born out of that agreement seems to hint at the health theme that would later become one of the pillars of Subway’s marketing: It’s called Doctor’s Associates Inc. But it was actually a nod to Pete Buck’s PhD in nuclear physics. “He was the doctor, I was the associate.”
Nine years later, he convinced a friend, Brian Dixon, to become the first franchisee. Mr. DeLuca credits the small format of the stores, and the relatively inexpensive franchise fee, for the pace of expansion since then. (In Canada, the fee to purchase a franchise is between $10,000 and $15,000, while other chains often charge double or more.)
In 1997, the company hit upon what would become a blockbuster marketing strategy. It began advertising “seven subs under six grams of fat.” Meanwhile in Indiana, a college student named Jared Fogle, weighing in at 193 kilograms, decided he wanted to slim down and created a diet for himself based on those lighter sandwiches. He lost more than half his body weight.
The story was picked up by his college newspaper, then by Men’s Health magazine. When the company’s ad agency got wind of it, they enlisted Jared for his first commercial in 2000. “There’s a lot of interest in the Jared story,” Mr. DeLuca says. In the two years following Jared’s commercial debut, sandwich sales at the average store rose roughly 30 per cent. He remains a spokesman more than a decade later.