Thursday, September 30, 2010

How Subway Built a $4B Brand, Five Bucks at a Time

Sept 26, 2010

Since joining Subway as CMO of its Franchisee Advertising Fund Trust in 2006, Tony Pace has been quick to make change, boosting advertising from 52 weeks a year from 33 weeks at the chain that is now America’s second largest, after McDonald’s. He’s created a new digital marketing team and developed branded entertainment opportunities on shows like The Biggest Loser and Chuck. It’s Pace’s first job as a marketer, but the agency veteran is no novice to the QSR business, with experience at McCann on accounts like Burger King, Outback Steakhouse and regional Popeye’s business, and at Young & Rubicam, KFC. Next week (Oct. 4), Subway kicks off a new promotion featuring front man Jared’s training for the ING New York City Marathon. Pace recently talked with Brandweek about Jared, other Subway “famous fans” and the phenomenal success of the chain’s $5 Footlong. Below are some excerpts.

Brandweek: Tell us about the success of $5 Footlong subs.
Tony Pace:
On an annualized sales basis, the $5 Footlong is over a $4 billion brand for us. It was started by a franchisee at a Florida restaurant, and as it got broader appeal, we tested it. We thought it was powerful, but with marketing behind it, it was unbelievable. It has had more than 90 percent awareness with people aged 12 to 64 since about three months into the program. It emphasizes great value on our menu, and that’s something we always needed to address. Right now we’re 130 weeks into the $5 Footlong, which was originally planned as a four-week promotion. We’ve had a lot of scattered pricing, and the $5 Footlong helped us go to tiered menu pricing.

BW: Subway has continued to grow through these tough times. As a private company, Subway doesn’t publicly share numbers, but can you give us an indication?
As recently as 2007, we were the fifth largest QSR [quick-service restaurant]. Now we’re the second largest. [Food service market researcher]  NPD Crest said QSR traffic has been flat for nearly the entire year. We’ve averaged 8 percent growth since March, and in the last three months, we’ve seen double-digit traffic growth. We have 23,000 restaurants in the U.S., and while that number has grown a little bit by adding 855 stores this year, most of our growth is on a same-store basis.

BW: What is your marketing emphasis at this time?
We look at it differently than our competitors. Given the size of our business, we need about 30 million customers a week. Using one message during one particular point of time is not the way we work. We’re selling breakfast, healthy sandwiches, indulgent sandwiches, $5 Footlong sandwiches. We use Jared in advertising, PR and social media, but he isn’t necessarily the focal point in every promotion. Some would say we run the risk of being too diffused in messaging. We look at marketing in layers that run in concert with one another. They obviously have different emphasis but build off the essence of Subway which is fresh and made to order right in front of you. 

BW: How is your new breakfast menu going?
Very well. It’s a legend in our category that it took McDonald’s three years to make any money in breakfast. Fortunately we’re getting there a lot faster than they did.

BW: You’ve recently upgraded your coffee to Seattle Best. Do you have any plans at the moment for espresso-based drinks?
Seattle Best is a good brand, and we needed a good coffee to launch breakfast. But I wouldn’t say espresso-based drinks are a near-term proposition for us although we’re always open to what makes long-term sense.

BW: Do you have any menu expansion details that can you share?
We have such a breadth of ingredients that we can expand the menu just by focusing on ingredients we already have. Right now we’re promoting Firey Footlongs. One of them is a turkey sub with melted cheese and jalapeno; that’s a variation on a theme, but it has a different flavor and taste profile than a standard turkey sub. There are more than 2 million combinations you can make, given the ingredients we have in the restaurant.

BW: Can you tell us a bit about Subway’s use of sports celebrities and its use of  branded entertainment?
We don’t use celebrities; we use people who are already fans of Subway who happen to be famous. Michael Phelps, when he’s not training, likes to order a meatball and jalapeno sub. Projects like (one-hour August special and Web series) Golf Therapy is terrific because NBC was part of that, and we were able to put a lot of our famous fans into the show. The integration of marketing into content is hard to do unless you have the assets to do it. We have both with media outlets and individual personalities. A big advantage with our famous fans is they’re always sending out messaging on our behalf to their fan base whether it’s about a new commercial, event marketing or other PR activities.