Late last week, reports emerged that Jersey Mike’s has considered a sale to the private-equity firm Blackstone for $8 billion.
It’s a substantial valuation that, if true, would be awfully close to the reported valuation of the sandwich market’s long-dominant player, Subway. But that’s the going rate for a well-established restaurant chain with strong underlying unit economics and plenty of growth runway in the forefront.
And it runs in stark contrast to another Subway competitor, Quiznos.
Indeed, the difference between the success Jersey Mike’s has had and the flameout at Quiznos offers all kinds of lessons: Franchises operate better when the franchisor focuses on unit economics. Over the long term, the franchise is far better for it, and more valuable.
To understand these two chains, let’s go back 20 years.
In 2003, Jersey Mike’s was a regional curiosity. It operated fewer than 300 locations. It was growing, sure. But it paled in comparison to Quiznos, which at the time operated more than 4,000 locations and generated more than $1.8 billion in system sales.
Quiznos at the time was believed to be a clear rival to Subway. Its toasted subs, and creative advertising, attracted franchisees in droves, and the company signed as many as they could. And it quickly spread and became a legitimate threat to the dominant Subway.
By 2006, Quiznos operated nearly 5,000 U.S. locations and was popular enough that its owners, led by Rick Schaden, were able to sell a 49% stake in the brand for about $600 million.
But, alas, it was not to be. Subway added toasters to its locations, taking away a premium marketing component from Quiznos. It also started selling footlong subs for $5 apiece.
Quiznos’ biggest problem, however, was in its stores. The chain’s ultra-aggressive growth, coupled with a supply chain set up to generate profits for the franchisor, meant individual locations did not generate a lot of money.
Thus, when the recession began and consumers limited spending at restaurants, stores closed in droves. And they’ve kept closing ever since.
Today, according to Technomic, Quiznos operates 141 restaurants in the U.S., having closed 15% of its locations in 2023. That means it only operates 3% of the units it operated at its peak. The chain has 250 locations outside the U.S., but that number is declining, too.
Jersey Mike’s, on the other hand, still does not operate close to the number Quiznos operated at its peak. The chain finished 2023 with 2,700 locations.
But Jersey Mike’s has focused on ensuring franchisees could make money. A typical Quiznos location generates $425,000 in sales per year. Jersey Mike’s, on the other hand, generates $1.3 million, according to Technomic.
While Jersey Mike’s is generating plenty of unit growth right now, with location count growing 12% last year, it continues to increase sales at a healthy clip. Those unit volumes increased 11% last year. In short, demand for Jersey Mike’s subs continues to increase strongly enough to warrant that growth—something Quiznos could never argue.
Maybe the best indication of this focus on profitability came in 2020, when Jersey Mike’s paid for franchisees’ remodels. The remodels cost $75,000 per store, or about $175 million for the company. But the brand expected a return on that investment from increases in operators’ sales.
Franchisors simply do not do that.
A healthy store base with strong unit economics and franchisees focused on operations does wonders for a franchise. And as a result, Jersey Mike’s has become the Subway competitor that Quiznos never could be.
And in the end, the company itself will benefit. While Quiznos’ founders were able take hundreds of millions out of the business, had they followed the Jersey Mike’s example they might be billionaires right now.
Strong unit economics isn’t just a good thing for franchisees. It’s good for franchisors, too. Just ask Jersey Mike’s founder Peter Cancro.