When it comes to sandwiches, size matters.
At least, that has been the case for the 64-unit Mr. Pickle’s Sandwich Shops, a California-born franchise brand with somewhat of a cult following in the Bay Area. It’s now looking for franchise growth outside California, and CEO Mike Nelson is focusing on unit profitability.
For years, Mr. Pickle’s has offered two sandwich sizes: Whole (nearly 8-inches) and half (nearly 4-inches). Next month, however, the fast-casual chain is rolling out a three-size format: Whole, half (to be called a “Mini”) and a mid-sized sandwich dubbed the Sammie, which will be about 5.5-inches.
Many sandwich competitors already offer multiple sizes (Capriotti’s has four sizes), and Nelson admits Mr. Pickle’s is catching up to an established trend. But in today’s discount-happy competitive environment, Nelson expects the shift to three sizes to give Mr. Pickle’s franchise operators an edge to protect margins.
Nelson would know. He was a Subway franchisee for years in Arizona, though he sold that business after, he said, the model shifted from franchise profitability to opening stores.
In addition, Nelson and his brother are also franchise partners operating 54 Carl’s Jr. units in four states.
In 2020, the two Nelson brothers and other partners acquired Mr. Pickle’s from founders Frank and Michele Fagundes, who started the brand in 1995 in the Bay Area and grew it to 47 units—all franchised—before they decided to retire and sell. Following the acquisition, Nelson moved the chain’s headquarters to Scottsdale, Arizona, where he lives.
And though he and partners own the brand, Nelson is also a franchisee of Mr. Pickle’s, bringing six units to Arizona—the first market outside California—to prove it out as the franchisor looks to expand.
With Subway now offering $6.99 Footlong subs and QSR competitors like McDonald’s and Burger King fanning flames of $5 value-meal wars, Nelson said he had to give his franchise operators a way to compete without asking them to discount.
Mike Nelson and pickle friends. | Photo courtesy of Mr. Pickle's.
In the crowded sandwich world, Mr. Pickle’s is positioned with a more premium product.
With a menu of hot and cold deli sandwiches on various types of bread, Mr. Pickle’s is known primarily for its unique Dutch Crunch rolls, a style of bread defined by a coating of rice flour that makes the crust particularly crisp and crackled.
Dutch Crunch bread can be found around San Francisco, but brands like Mr. Pickle’s (and the Southern California-focused Ike’s Love & Sandwiches) are bringing the crunchy bread option to new markets.
Nelson said about 40% of sandwiches sold at Mr. Pickle’s are on Dutch Crunch rolls. “It’s a sandwich that separates us from other sandwich shops,” he said.
All of Mr. Pickle’s breads are made at a bakery facility in Fresno, California, and par-baked before being shipped to units. Franchisees finish the baking process in stores, so loaves can be fresh from the oven all day.
The new medium Sammie size is a Goldilocks response to guests who found the half size too small and the whole sandwich too expensive.
For years, 90% of guests bought whole sandwiches, which were the size with the highest margin.
But when California’s minimum wage rose in January and then increased to $20 per hour in April as a result of the new fast-food wage, franchisees—who are mostly in California—had to increase pricing. As a result, the number of guests buying whole sandwiches began to erode.
“We couldn’t take that trade down,” Nelson said. “So we said, what do we need to do to deal with it?”
Mr. Pickle’s tested three sizes (a mini at $7.99, Sammie at $9.99 and whole at $13.99) in 12 stores. Guests started trading up from small to the Sammie size, which actually had the lowest food cost. Transactions also increased 5%.
The downside was a check average drop, Nelson said. “But what we hope it will do is take our existing fan base and give them an opportunity to visit more often.”
Mr. Pickle’s was among the top 10 fastest-growing restaurant chains in the U.S. last year, according to the Top 500 Chain Restaurant Report by Technomic. Sales grew more than 27% to $64.6 million, with 62 units, a 7% increase from the prior year.
The average unit volume was $1 million last year, well ahead of much larger competitors like Subway ($490,000), Jimmy Johns ($965,000) or Firehouse Subs ($950,000), but behind Jersey Mike’s ($1.3 million).
Over the past four years, Nelson has reworked the brand’s tech stack, adding digital menu boards—which the franchisor paid for, he adds.
As a franchisee, he’s been on the receiving end of dictates from above that put a strain on profitability. Now he tries to ensure his operators can make it work.
“I fervently believe you have to focus on franchisee profitability,” said Nelson.
UPDATE: This article has been updated to correct a reference to the bakery and AUV.