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Tuesday, October 13, 2009

Subway Strives to Keep Strategy Fresh

Oct 8, 2009

From Domino’s sandwich launch and in-your-face ad campaign to Quiznos attacking at every price point, Subway has had more than its share of competition this year. However, the chain continues to see gains on top of the double-digit growth it experienced last year. Sales may be coming in $5 at a time, but that’s the way Subway wants it. The $5 footlong has given the chain a weapon to battle the recession—one that competitors continue to search for an answer to combat. CEO of the Subway Franchisee Advertising Fund Trust Jeff Moody sat down with Brandweek to discuss the competition, the economy and the chain’s plans for future growth.


Brandweek: Business is strong. What’s your secret?
Jeff Moody:
Subway continues to do well despite the economy being down and the fast-food business being down as well. The secret is value, health and a great product. The $5 footlong product is doing very well for us. Since we launched it in March of 2008, it has become a multibillion dollar brand in and of itself. Now the challenge is how do you keep it relevant. The answer is with new advertising, new things like the $5 buffalo footlong sandwich. There’s a constant stream of new ads [from MMB, Boston]. We tend to rotate in new programs every couple of months. Pretty much every month there will be something new coming from us on television. Buffalo chicken just started last week. We did the Tuscan chicken sandwich earlier in the year. We did a Scrabble promotion recently that lasted about seven weeks. We have health messages that continue on an ongoing basis. We use Jared in different ways. We just launched a new partnership with NBC. We’ve branded Sunday night as being Subway night in addition to being football night. There is POP in the stores that promotes NBC and Subway. We’ll have ads during other major sporting events including the President’s Cup, figure skating and hockey.

BW: Can you ever abandon the $5 footlong now?
JM:
There are a lot of things we can do. It depends on the economy and what happens with commodity costs and so forth. We can definitely do $6 and $7 versions keeping a baseline of $5 offerings. If things get too expensive, you ultimately have to come off. One of things I look at is the dollar menu. It’s changed, but it’s still there. When it first came out over a decade ago, people said this will never last. They found a way to keep things fresh. We will look to keep things fresh at $5, but there won’t be the same items on the menu forever, obviously.

BW: What about going lower like Quiznos' $4 and $3 sandwiches?
JM:
Other people are struggling to find their answer to it. That’s why they’re trying on thing and it doesn’t work. They try something else and all of a sudden it becomes confusing to consumers. I’m not saying we wouldn’t do something like that. We’re not compelled to do it. We will do thing under our terms that make sense to our brand.

BW: What are your feelings about Domino’s after your legal spat?
JM:
Dominos introduced sandwiches and named us in some advertising that wasn’t completely factual. They didn’t do particularly well. The pizza category itself has been struggling this year with as much as double-digit declines. It’s not one brand it’s a category phenomenon. They’ve come back recently and they’ve got more sandwiches they are introducing. What they did before didn’t hurt us, so I wouldn’t expect that what they’re doing now would hurt us either. They have the challenge of trying to grow in their non-core daypart [lunch], while trying to focus on their core daypart [dinner]. We’re watching them. We’re not overly concerned that it will take directly from us, because it didn’t last time. Everybody in this down economy is trying to find ways to move into other dayparts and segments they are not competing in. It’s tough to do it if doesn’t stick with you core proposition. 



BW: Speaking of…Subway has pizza and breakfast.
JM:
The stores that have pizza are happy with it. Not something that we look at as a national opportunity right now. At the stores that have it, it sells well. It’s customizable, so it fits with the brand personality. But it’s not something right now that’s a big incremental driver for expansion. Breakfast; again, stores that have it do well with it. It’s less than half [of the system], but more than most people would expect have breakfast. It’s an opportunity on paper to get into a new segment, but we have to make sure it is profitable for the franchisees before we do a national program.

BW: How do the new FTC guidelines affect the Jared campaign?
JM:
We’re digesting those results right now. Most recently we haven’t done a lot with him losing the weight. We’ve been coupling him with athletes talking about low-fat sandwiches. He’s the fit, eat healthy side of the equation. Those ads really don’t make claims. We want to make sure we understand the rules and that if we come back to those sorts of things that we are in compliance. For any advertisement we have to look at through this new screen. We don’t have anything on air or on the horizon that would be problematic.

BW: What kind of stuff are you doing on the Web?
JM:
We have a Twitter account with Subway Fresh Buzz. We’re on Facebook. We did roadblocks for our Scrabble game to get the word out. It worked. We signed up a million new people who wanted to have us market and communicate with them.  They want to be a part of the brand if you will. We’re always looking at different ways to get the message out. We’re looking at apps. We don’t have any in place currently because there are a bunch of different options we are evaluating. When we do it, we do it over 20,000 restaurants strong, so we want too make sure we’ve got it right.

BW: Are you putting more money online?
JM:
TV remains the big driver because we’ve got such a wide audience to reach. The mix is changing. We won’t take it all out of TV to put into digital, but we will put more into digital because that’s where consumers are going to consume media.

BW: Will you increase your marketing budget in 2010?
JM:
Our marketing spend is tied to sales; it’s a percentage as are most in the restaurant business. As our sales go up and we are able to open more stores, the budget will continue to grow. As opposed to some concepts that are closing stores, we haven’t grown explosively, but we’ve still been adding an our sales are growing, so I expect our budget will be up next year. [In 2008, Subway spent $421 million on media, per The Nielsen Company. For the first seven months of this year, it spent $259 million.]

BW: Will your strategy stay the same in the coming year?
JM:
While the competition hasn’t hurt us, we still have to compete with the economy itself. So doing nothing and not providing news is not going to change things. We have to keep coming up with news.