In 2003, Stuart Frankel operated a Subway location on a medical campus that did brisk business during the week but not enough on weekends. So he priced foot-long subs at $5 on Saturdays and Sundays. Business quickly surged on those days.
Subway eventually latched onto the idea, and “$5 Footlong” became a $30 billion brand in and of itself, helping establish the chain as the largest restaurant concept in the world by units while forcing out competitors like Quiznos.
Yet Frankel is a vocal critic of Subway’s upcoming discount strategy—the $4.99 Footlong. He believes the chain kept the $5 deal in too long, and bringing it back risks damaging consumers’ willingness to pay full price for the subs.
“Our sandwiches are worth more than $5,” Frankel said. “They’re worth more than $6. We have a great product. Great bread, all the fixings you want put in the sandwiches while they’re standing there looking at you. We have six sauces.
“But once you keep pushing a low price point in the minds of the consumer, it’s hard to sell sandwiches for what they’re really worth.”
Subway is planning to go national with a $4.99 Footlong offer in January. The company believes that a diminished value perception is at the heart of declining traffic in the years since the $5 Footlong largely dropped from its menu in 2012.
The company’s shareholders, including the family of late founder Fred DeLuca and his business partner, Peter Buck, have committed to investing $25 million in the brand to get operators on board.
For Subway, the strategy would keep the company competitive with other quick-service chains that have been aggressive in offering deals. McDonald’s, Wendy’s, Hardee’s and Carl’s Jr., as well as chicken chains like KFC, have been pushing value to lure more customers.
Subway’s traffic has fallen nearly 25% over the past five years. And discounts are one way to bring in customers.
Operators, however, have come out strongly against the plan to price five Footlong subs at $4.99. Hundreds of franchisees representing thousands of locations have signed a petition asking the company to hold off on the offer.
To the operators, whose unit volumes average $420,000 a year, higher costs and diminished profits make discounting more of a challenge. Commodity costs are far higher than they were in 2012, for instance. So are labor costs. And rent has skyrocketed.
In addition, “there are 40% more stores than there were in 2003, 2004,” Frankel said. “With the prosperity that came with the $5 Footlong, they used that money to open stores and buy stores. A lot of stores opened or bought are not doing well now.”
Frankel owned a retail building 29 years ago and had a 400-square-foot space. He and his wife had been sharing BMTs from a local Subway for years and thought the chain would have made a good concept for that spot. So they became operators.
At one point, Frankel operated 10 locations, but he has since sold nine of them and now operates one location in Miami.
Still, he is proof that a single franchisee can have a major impact on a brand—along with operators like Jim Delligatti, the inventor of the Big Mac, and Herb Peterson, inventor of the Egg McMuffin. The $5 Footlong not only propelled Subway, it also established $5 as an important price point in the restaurant business—one mimicked by chains like Little Caesars and KFC.
And Frankel isn’t completely opposed to discounts. One of his biggest problems with the $4.99 offer, for instance, is that it’s only a small selection of sandwiches, rather than all of them. “When you have people coming in to look for a $4.99 Footlong and see they can’t get turkey, a BMT or a tuna, I’m not sure from a customer’s point of view it’s a good thing,” he said. “We’re going to have to say no a lot.”
Yet he believes Subway needed to make a quicker exit from the $5 Footlong than it did when the original deal was being advertised. For instance, he believes the chain could have made the offer for four to six weeks once a year as an incentive.
Instead, the chain ran the promotion for a long time, changing consumer perception of the brand. “Because we ran it for 10 straight years, it became a problem,” he said.
Despite his issues with the offer, Frankel remains a big fan of Subway and the brand.
“Subway’s a phenomenal system,” Frankel said. “I wouldn’t have been in it 30 years otherwise. It has phenomenal people.”
“We’ll get through it,” he added of the current challenges. “But it’s painful.”