Subway remains the most ubiquitous restaurant chain in the U.S., but there is one market it has yet to truly tap: vending machines.
Until now, that is. The Milford, Conn.-based sandwich chain is testing a vending machine concept in some airports in the U.S., such as the Cincinnati/Northern Kentucky International Airport. And it’s going well enough that the company wants more of them.
“Consumers come out there, they’re buying them,” Trevor Haynes, Subway’s president of North America, said on an upcoming episode of the Restaurant Business podcast A Deeper Dive. “They’re buying them.”
The vending machine concept is part of a broad effort by the company to expand rapidly into nontraditional locations while thinking differently about how it gets its sandwiches into the hands of consumers. Subway is looking to move aggressively into places like airports, hospitals, offices and convenience stores, for instance.
But it may not open full restaurants in many of these locations. It is opening kiosks. And it is testing “grab and go” locations, where it sells sandwiches in coolers at gas stations, casinos and other places. The company has a test with Love’s Truck Stops, for instance, where its pre-made sandwiches are sold overnight, when the station is open but the restaurant is closed. This results in extra sales for the operator.
“There is business to be had there,” Haynes said.
Finding new locations to put Subways has always been a goal for the chain, and likely to a fault, particularly given its struggles over the past decade after years of aggressive growth.
Subway’s unit count
Source: Technomic Top 500 Chain Restaurant Report
Subway’s domestic unit count has declined by about 6,000 locations since its peak in 2014, including about 4,000 locations in the past three years. The closures continued in 2021—numbering about 1,000—despite what was otherwise considered a strong overall sales year. The company currently has 21,000 U.S. restaurants, all of which are owned by franchisees.
Haynes acknowledged that there would continue to be closures. “I still think there’s some workout to take place,” he said, noting that there are “locations that could have been great 20 to 30 years ago” but have declined, either because it was the wrong location to begin with or the market dynamics shifted, or perhaps the mall itself died.
He could not estimate the number of Subway locations that need to close, though franchisees have indicated that at least another 2,000 locations should shut, given the years of overbuilding. Subway same-store sales numbers indicate that about a quarter of its restaurants have yet to recover from the pandemic despite strong growth a year ago.
In addition, many operators continue to struggle with high costs for labor and food, which could lead to more closures, particularly given that the average Subway franchisee owns just two locations.
But Haynes believes that the company could offset some of these closures in the coming years with new, different locations. And he said the closures in the past eight years has provided the company with “white space” to add new restaurants. “There is absolute white space for us to go back in,” he said.
But the type of restaurants the company wants is different. That could mean more drive-thrus, something Subway has been quietly building more of in recent years, either through freestanding locations or end-caps—though the market for such locations is competitive and not always that available in every market. Haynes said Subway wants to build more brick-and-mortar units.
Yet the company is eager for its nontraditional development. This brings us back to the vending machines.
The company is aggressively looking broadly at “grab and go” as a strategy to build sales within units. Building unit volumes is key to ensure that locations don’t close, so Subway is looking not only at improving its menu but has upgraded its catering program, which it believes can help build sales at locations with heavy concentrations of office workers.
The company’s unit volumes were just $434,000 in 2021, according to Restaurant Business sister company Technomic, among the lowest volumes in the data firm’s annual Top 500 ranking of the largest restaurant chains.
Grab and go locations, including the vending machines, would work in a manner similar to chains like Krispy Kreme, which makes its doughnuts in one location and sells them in other places like kiosks or smaller stores nearby. The additional sales channels leverage the store to sell more sandwiches.
Franchisees make their sandwiches at their “base location” and then deliver them to a grab-and-go cooler, kiosk or a vending machine, which Subway calls “unattended retail,” several times during the course of the day. Subway currently operates about 400 “grab and go” locations.
Subway is working with a company that provides a “smart fridge” that features a contactless and cashless transaction. Haynes said the company is looking at putting vending machines in more types of locations, such as office buildings and manufacturing plants.
These locations, Haynes said, help the company reach more people from existing units. For instance, he said the operator at the Toronto airport, where there are three locations, wants three vending machines to reach parts of the facility where his stores don’t otherwise access travelers.
“Bricks and mortar, we’ll keep doing more of that,” Haynes said. “But there is huge upside in nontraditional channels.”