Milling & Baking News - May 22, 2018 - 7

Editorial

Rebound still appears within grasp for Subway

he cascade of difficulties gripping the Sub- company's 2016 U.S. sales were about $14 billion,
way sandwich chain reached a new peak versus $36 billion for McDonald's, well ahead of
over the last few weeks. The announce- Yum! Brands, at $8.9 billion.
ments of additional store closings and a leadership
Mr. DeLuca died of leukemia in September 2015,
change raised concerns not only about prospects for but not before setting a new target - 100,000 stores
the once high-flying chain but whether the days of globally by 2030.
heady growth for sandwich concepts have run their
To the degree the Subway business enjoyed a
course.
charmed existence for its first 50 years, the last sevRestaurant chains built on flour-based products eral have in many respects been hellish. In 2013 the
have provided a critical tailwind for the flour mill- company was sued because its footlong subs, when
ing industry for more than 70 years. While pizza baked, were only 11 inches long. Around the same
was introduced into the United States in the 19th time the company was publicly shamed for its use
century, it was not until the return of servicemen of the Food and Drug Administration-approved
from World War II that pizza parlors began pop- ingredient azodicarbonamide in its rolls as a flourping up across the American landscape. The fast- bleaching agent. The commonly used ingredient was
food revolution in the 1960s and 1970s was dubbed phased out by Subway in 2014. In July 2015, the Fedthe "bun revolution" by this joureral Bureau of Investigation raided
To the degree the Subway
nal, for the extraordinary growth
the home of Jared Fogle, a tremenof bun demand that resulted.
business enjoyed a
dously successful spokesperson for
Against this backdrop, the SubSubway. He later pled guilty to two
charmed existence for
way sandwich chain has a remarkfelony counts - distribution and
its first 50 years, the last
able track record of steady growth
receipt of child pornography and
several have in many
over the past 35 years. A great
traveling to engage in illicit sexual
respects been hellish.
entrepreneurial success story, the
conduct with a minor.
business was established in 1965 by Fred DeLuca,
In the nearly three years since Mr. DeLuca's
a 17-year-old aspiring doctor, and Dr. Peter Buck, a death and Mr. Fogle's arrest, the company's growth
family friend who loaned young Mr. DeLuca $1,000 has come to a standstill. Global store count rose to
to start a sandwich shop to pay for his college ed- 43,000 in 2014 from 36,000 three years earlier, but
ucation. By 1974, the company operated 16 stores has hovered around 44,000 ever since. After closbut was not yet profitable and began franchising to ing hundreds of stores in 2016 and 2017, the comspur growth. The move was successful, prompting pany disclosed in an April interview that 500 will
the ambitious Mr. DeLuca in 1981 to establish a goal be closed this year. A few days later, the company
of 5,000 stores by 1994 - at the time, Subway had announced Mr. DeLuca's sister Suzanne Greco was
yet to open even 200 stores. To the amazement of stepping aside as chief executive officer.
perhaps everyone except Mr. DeLuca, the 5,000th
The news is not all bad for the sandwich categostore was opened in 1990. The 10,000th opened in ry. Other submarine sandwich shops have contin1994. The impressive rate of openings (fueled by ued growing, perhaps most notably Jimmy John's
the popular introduction in 1983 of sub rolls freshly (now majority owned by Roark Capital Group).
baked from the oven in each store) continued near- Sandwiches have only a 10 per cent share of the
ly unimpeded until the mid-2010s, by which time quick-service restaurant market, versus 30 per cent
Subway easily was the largest quick-service restau- for burgers. While the formula that gave Subway
rant in the United States as measured by units - success for so long clearly needs to be tweaked, a
26,700, versus just over 14,000 for McDonald's. The highly lucrative market continues to beckon. MBN

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7 / January 2, 2018
Milling & Baking News
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