Subway's Impossible Dream: Catching Up with McDonald's in China

Fred DeLuca, the founder of Subway, may have spent too much time in the sun. He says he hopes that in 10 years, the number of his Subway outlets in China, currently 150, can match the number of McDonald's (MCD) restaurants, now 2,000. The fast-food sandwich chain has set a target of 500 new stores in five years.In the event that Subway can reach the 500 store level by 2016, DeLuca thinks the stage will be set for an assault on McDonald's. "If we accomplish that, then maybe in another five years we may be able to match McDonald's store count," DeLuca toldReuters. He also told the news service that his firm's advantage is that it has smaller stores and can open them in more places. He hopes that a franchise model, instead of one where stores are company-owned, will help him reach his goal.

DeLuca must be betting the McDonald's won't increase its own store count. China has been one of the fastest-growing markets for the world's largest fast-food chain. In January, McDonald's said it would increase its capital investment in the most populous country on earth by 25% in 2010 and add 150 to 175 stores. That would make its outlet growth rate as fast, if not faster, than Subway's.

China has become a Holy Grail for retailers of every sort. Its 1.4 billion population is a temptation that many American companies cannot resist. But how many Chinese customers will want sandwiches on long buns with fresh meat and a wide variety of toppings? Big Macs have been selling better, in China as well as the U.S.
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