Being concentrated in different parts of the country, with different-sized chains and following different franchising philosophies, Lenny’s Sub Shops, Firehouse Subs and Silver Mine Subs don’t have to worry about each other when it comes to head-to-head competition.
What the three segment rivals do have to worry about is that their burgeoning brands are in a category home to the fastest-growing franchised chain concepts in food-service, according to FRANdata.
Forty-six first-time and veteran chain operators began franchising sub sandwich concepts between 2000 and 2006, almost seven a year, according to FRANdata’s “Top 10 Food Sectors by New Concepts.”
Pizza came in second with 40 new franchised vehicles between 2000 and 2006, and the frozen-dessert category was third, with 31, FRANdata found.
“I think it just shows that consumers have come to identify this segment as a healthy alternative, and I think we all have Subway to thank for that,” said Don Fox, chief executive of the 314-unit Firehouse Subs chain, based in Jacksonville, Fla. There’s certainly been a ton of new entrants in this business.
“But I think it’s not so interesting that the numbers are going up as much as it is the underlying real estate issues behind it. That is, you have got a lot of small operators with successful, in-line units who over time have created some good unit economics that can entice people to franchise.”
Determined to remain an operator so he can experience the same market and economic forces his franchisees do, Fox said the company operates 30 of the units in the system.
Interested franchise candidates need $200,000 to $366,000 to develop a unit, and there are no net-worth requirements, Fox explained, because such iron-clad clauses often discourage people who believe they are undercapitalized when, in fact, they may not be.
But based on chain history, he estimated that $70,000 liquid is a good foundation.
Aggressively franchising since 2001, Firehouse recently changed its franchising requirements to disqualify multiconcept operators who cannot devote 100 percent of their attention to the brand without a 50-percent equity partner in each unit who will be on site daily.
While not necessarily a new franchisor, Lenny’s Subs, a 10-year-old Memphis, Tenn.-based chain with 150 units—all but one company-owned and used as a training center—resumed franchising in 2004 after new owners revived the concept and met their franchisees to discuss the brand’s resurgence.
George Alvord, Lenny’s chief executive, said the company is now poised for growth and has kept company founder, Lenny Moore, in their embrace as an advisory board member and master franchisee in the Southwest.
Alvord said just six years ago, there were only four Lenny’s Subs outlets.
He does not want to open more company stores because he does not want to compete with his franchisees, who need to have a net worth of at least $250,000 to qualify for a franchise.
With two corporate stores in his 24-unit chain, Keith Dudek, president and chief executive of Silver Mine Subs in Fort Collins, Colo., is looking to accelerate franchising of its higher-end sandwich concept through a combination of both veteran players and financially sound industry newcomers.
He says even with the gloomy economic forecasts daunting investment, there are so few franchised concepts in the higher end of the sandwich segment and they are so widely dispersed, that he does not worry about saturation anytime soon.