Subway CEO on future: More growth for global, digital orders, and snacks
After years of struggles, Subway is building on its turnaround story under CEO John Chidsey.
The sandwich chain is ramping up its efforts on international expansions, digital sales, and snack offerings while refining its real estate portfolio. The new pillars of growth come as Subway awaits the close of its nearly $9.6 billion sale to Roark Capital.
Speaking at the Yahoo Finance Invest conference on Tuesday, Chidsey called the deal a "win-win-win," given Roark Capital's extensive history in franchising.
If completed at that price tag, it would be the third-biggest restaurant deal ever after Restaurant Brands' (QSR) $11.4 billion purchase of Tim Hortons in 2014 and Inspire Brands' (also owned by Roark Capital) $11.3 billion deal for Dunkin' in 2020.
Subway can 'play in a sweet spot globally': CEO
The 58-year-old brand may be back in expansion mode after seven years of declining revenue and ongoing store closures.
In the US, Subway expects the rate of store closures to slow down. It shuttered more than 500 locations last year, which Chidsey framed as a "good year" compared to other years when the brand closed thousands of shops.
The chain is also looking to reverse course in some cases; Chidsey is expecting 300-400 store closures next year but may add 200-300 locations in other areas of the country.
In the first half of 2023, North America same-store sales increased 9.3% from a year ago while global same-store sales grew 9.8%. And going worldwide is Subway's new focus. Since 2021, the chain has signed 15 international franchise agreements, resulting in 9,000 stores in the pipeline. Its business model is competitive compared to other fast food chains, said Chidsey.
"A Subway [is] obviously much less expensive to build. It takes a lot less labor than a McDonald's or Burger King," he said.
China is a big target — as is the case with other large chains like Starbucks (SBUX) — with plans to open 4,000 new restaurants in the country with local operators.
The team is currently negotiating deals in Italy, Japan, Vietnam, and the Baltics, among others. "We just need to make sure that we get them all done before our domestic competitors start to focus internationally," said Chidsey.
That competition includes Jersey Mike's, Firehouse Subs, and Jimmy John's (also owned by Roark Capital).
"There remains tremendous expansion potential for Subway — internationally. But the US market is still midway through a complete reset and over-stored with Subway units," Alicia Miller, founder of Emergent Growth Advisors, wrote in an email to Yahoo Finance.
While Subway is trying to recruit more multi-unit operators for its franchises, it'll have to up its average store sales to attract the big operators, who are currently looking at other brands, Miller added.
"Expansion-minded proven [multi-unit operators] are highly sought after both by brands and PE firms wanting to back them," said Miller. "These groups have so many choices. Subway has a lot to prove. And frankly, so does Roark."
Subway "massively underinvested in technology" in the past, said Chidsey. While there are no plans to implement automation like Chipotle's robotic burrito assembly line or Sweetgreen's salad dispensing machines, there is plenty of room to grow via digital sales.
Under Chidsey, digital sales have jumped from roughly 3.5% to 17% of all sales, but it is still a far cry from Chipotle's 37%. The category tends to have higher profit and lower costs for franchisees.
Other potential growth drivers: snacking, late-night orders, and catering.
In Q1 of 2024, Subway plans to roll out "snackable items" that tie people over between lunch and dinner. Bringing back late-night offerings is also in the works, as others like Wendy's and Taco Bell have looked to cash in on the cravings of night owls.
Developing Subway's catering business could also be a growth driver, but it's an effort that will likely take five or more years, Chidsey mentioned.
See the latest coverage from Yahoo Finance's Invest event:
Meredith Whitney: Housing prices are due for a fall starting in 2024
'Democracy is on the line': Former CNN boss on 2024 election
Bob Iger 'has his hands full' amid stock price decline, activist fight: Ex-Disney exec
Anthony Scaramucci on clawing back FTX's 30% stake in his firm
Consumers will pay up for new ESPN streaming service, former Disney exec says
Consumers 'starting to cut back' on discretionary spending, Klarna CEO says
—
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
