Canada has more Subway stores per capita than it does in the United States and store traffic in Canada is higher than at U.S. outlets

Subway thrives in Canada while avoiding beverage wars

Hollie Shaw | 13/06/17 | Last Updated: 13/06/17 5:29 PM ET

subway

Peter J. Thompson/National PostFred DeLuca, president and co-founder of Subway at the franchise’s 127 Bremner Boulevard Toronto location. Mr. DeLuca borrowed US$1,000 to start the business with a friend in 1965.

TORONTO • Subway Restaurants keeps growing steadily in Canada even though the fast-food sandwich purveyor has not followed rivals McDonald’s and Tim Hortons in appealing to coffee-loving Canadians.Tim Hortons Inc. reiterated a vow to stay in the United States amid pressure to exit its business in Dunkin Donuts territory, but as company executives hailed the announcement of a new, seasoned CEO, they also took pains to address key concerns about boosting shareholder value voiced last week by activist investors.Continue reading.

Company president and co-founder Fred DeLuca, who ventured north this week from Subway’s Connecticut headquarters for a meeting with Subway’s North American purchasing co-op and for store tours with Canadian franchisees, admits a “beverage strategy” is one thing the restaurant chain has yet to crack.

“When it comes to coffee and beverages, [McDonalds and Tim Hortons] are way ahead of where we are — they have a lot of people going to their restaurants for coffee and a variety of beverages,” said Mr. DeLuca, who borrowed US$1,000 to start the business with a friend in 1965. Now the biggest restaurant chain in units globally, privately held Subway continues to grow at a healthy pace in Canada, where it has 2,930 stores. Sales rose 7% to US$1.6-billion dollars in 2012 and the company will open 145 to 150 new franchised locations again this year.

“Over time we have seen same-store sales increases, some years more than others, even during the recession, so this has been a really good [market] for us,” he said in an interview.

Another piece of luck in recessionary times was the chance creation of the $5 “footlong” sub in 2008, which was started not as a reaction to the dollar-menu craze at competitors like McDonalds, but “to take the jumble of prices that we had on the menu board and simplify it for customers,” Mr. DeLuca said. “Sometimes, you just get lucky and you are doing something in the right place and the right time.”

That same sandwich became the centre of a social media firestorm in January when a customer in Autralia posted a picture of his 11-inch Subway “footlong” on the sandwich chain’s Facebook page. “It has always been the rule that the bread is 12 inches, but some people might not have baked the bread properly,” Mr. DeLuca said. The company now conducts bun measurements in its regular inspection of franchisee’s restaurants, he added.

Keeping away from the trendy beverage space of lattes, smoothies or specialty juices has not seemed to hurt Subway in Canada, where it opened its first outlets in the 1980s.

Canada has more Subway stores per capita than it does in the United States, Mr. Deluca said, and store traffic in Canada is higher than at U.S. outlets.

“I think perhaps that Canadian people appreciate the ability to choose the products they want [on a sandwich] a little bit more and they might have a more discerning sense for eating healthy, and that might be an even bigger deal in Canada than it is in the U.S.,” Mr. DeLuca said.

When it comes to beverages, he said, don’t count Subway out.

“That is an opportunity for us,” Mr. DeLuca said. “It is always good to know you have a future. We haven’t done that well in the beverage space yet, and we have no plans on the immediate horizon to become a big challenger in that space.

“But maybe next year, or the following year, we will hit our stride.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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