We recently interviewed Jersey Mike’s CEO Peter Cancro for a story on the chain’s growth. After he said the company could one day have 10,000 locations, it was hard to get my head away from the sandwich chain curse: Any sandwich chain that experiences rapid growth will one day lose much of it.
Don’t believe me? Just consider the following concepts:
Subway, which still has more locations in the U.S. and globally than any other restaurant chain, has closed about 20% of its locations domestically since it peaked at 27,000 in 2015. Last year it closed more restaurants than any other single chain in restaurant industry history. It likely has many more to go.
Quiznos at one point was fixing to become Subway’s biggest rival. It grew to nearly 5,000 locations in 2006 and earned its owners a massive payday. It has fewer than 300 domestic units today in what restaurant consultant John Gordon said is the biggest collapse in restaurant industry history.
Blimpie seemed poised to rival Subway at one point, too, but it has quietly declined as well. It had 1,600 locations in 2005, according to Restaurant Business sister company Technomic. Today it operates 164.
These are just the biggest. Many other sandwich chains grew rapidly, ran into problems and then hit a significant fall. That includes chains like Togo’s and Potbelly.
Sandwich chains in decline
Source: Technomic
Why are sub chains so prone to problems? “First of all, they continue to remain basically a one daypart operation,” Gordon said. “In my opinion, you have to have two working, viable dayparts to make it in our business—breakfast-lunch; lunch-dinner; dinner-late night. Lunch is just not enough.”
The pandemic, by the way, did this sector no favors. So many of these sandwich chains are based near business centers that depend heavily on the lunch crowd. Those centers emptied out during the pandemic and have been slow to recover.
With so much of their business coming at lunch, many of these sandwich chains end up with low unit volumes. But for one reason or another they remain open for much of the day, meaning the crew is at work and getting paid and not serving enough customers. Also, the lights are on and so are the heat or air conditioning.
Subway, Quiznos and Blimpie all have one thing in common: They have low average unit volumes. Subway’s volumes were $420,000 before the pandemic, about the same as Quiznos—whose unit volumes were $425,000 in 2010, according to Technomic, when it was in mid-collapse. Blimpie’s is below $300,000 now.
“When you are operating at $300,000 to $400,000 AUV, you are barely covering your rent,” Gordon said. “There’s just not enough variable profit to cover the fixed expenses, particularly if you have debt service or you’re trying to pay a manager.”
Subway's declining unit count
Source: Technomic
Not helping matters is the chains’ real estate strategy, which targets low-cost sites in strip malls without much auto access. Over the past decade, more of the restaurant business shifted toward locations with drive-thrus, prompting even chains that had eschewed them for years to start developing the lanes. Even Chipotle. That only intensified during the pandemic when drive-thrus became king.
“Sandwich is tough because it is so heavily skewed toward strip malls,” Gordon said.
“Sandwiches are always going to be difficult,” he added, noting that sandwich chains are “over-represented” on the list of biggest default rates among franchises that receive loans backed by the U.S. Small Business Administration. “That tells you something.”
To be sure, each of these chains has their own unique issues that have contributed to their demise and it’s worth noting that Subway became awful big before meeting the same fate as the other two.
In addition, the crop of growing sandwich chains appears, at least for now, to have better economics than their predecessors and thus a better chance to avoid the fates of Quiznos and Blimpie, at the very least. Jimmy John’s volumes were near $700,000—though it struggled last year, too—while Firehouse Subs’ volumes last year were $741,000 and Jersey Mike’s $900,000, according to Technomic. “You can make a pretty good living with just one location,” Cancro said.
The chains, in other words, are getting people to order their sandwiches at other times of the day and not just lunch. Keeping that up will help them avoid the sandwich chain curse.