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Subway executive: ‘Pent-up demand’ drives global growth

VP of development James Walker discusses U.S. closures and relocations

This is part of NRN’s special coverage of the 2018 NRA Show, being held in Chicago, May 19-22. Visit NRN.com for the latest coverage from the show, plus follow us on Twitter and Facebook.

Subway executive James Walker spoke to Nation’s Restaurant News following a real-estate presentation he gave at the NRA Show, held over the weekend in Chicago.

James Walker
Photo: Subway

In July 2017, Walker became the company’s vice president of development, a new position that reports directly to chief development officer Don Fertman. Walker, who held executive-level positions at Baja Fresh, Cinnabon and Johnny Rockets, delivered a speech titled “Location, Location, Location” during the annual conference.

In a post-session interview, Walker discussed recent buzz over Subway’s plan to close or relocate dozens of restaurants, as well as the chain’s pivot to international growth.

In North America, the Milford, Conn.-based sandwich chain, whose CEO plans to retire in late June, has previously stated that it is implementing an aggressive revitalization plan that calls for closing, consolidating or relocating a few hundred locations in 2018.  

Here’s what Walker had to say during a brief walk-and-talk interview: 

How will unit closures be implemented? Is it based on underperformance?

We work with development agents, as well as our franchisees, to try and determine what the right thing for them is. One of multiple examples I have from this market [Chicago] alone [is] where a location was successful for 40 years, but that market dynamic changed. The franchisee, honestly, would have signed a lease there again. Our development agent said, “No. The right thing to do is to close this location. We're going to move three blocks down. You’ll make more money there.” 

Is that a closure? It’s a closure. It’s also an opening. That’s where we consider it a relocation.

What is that relocation decision based on? 

Really, what we do is we look at what the right thing is for the franchisee. We’re very concerned with our franchise profitability. We want to make sure we’re making wise decisions for them. 

What does Subway think is a good profit margin? Has it changed over the years?

It varies by market. You’re from California, which is generally a high AUV market. The population is so huge. Drive times are terrible. People tend to stay in their neighborhood to eat. So we do really well in that market, but specific to profitability, we have very high labor costs and energy costs. We don’t have one profitability model that works for us. It’s different for every market.

When will Subway decide which locations close or relocate? 

There’s not a date. It’s not “on the X date of X.” Ongoing from the beginning of Subway to 50 years in the future, we’ll still be making decisions every day about what we can do to help our franchisees be more profitable and more successful.

Why is Subway interested in expanding to international markets?

We’re in 110 countries today.

Where else does Subway need to go? 

There’s a lot of pent-up demand for the brand right now in certain [global] markets. I wouldn’t say that we’re necessarily focused on opening in more countries. I would say right now we are trying to address the consumer demand that already exists in markets that we’re not servicing in the level that we want. Right now, we’ve got a lot of markets like China, for example, where we have so much demand and love for the brand that we can grow there exponentially for many, many years to come.

What we really have to look at is what it takes to penetrate those markets. I was just talking to a young lady from Nigeria who would love to have Subway in Nigeria. But when we look at that, it’s a market that requires a fair amount of due diligence because of the importation and setting up supply chain. We look at markets, we look at what the demand is and we look at what the guest face is. And we look at the difficulty in getting into the markets.

Name the top international markets where Subway will focus first. 

China, Saudi Arabi, India, Germany, other European markets and Korea. Korea is a market that has really embraced Subway.

Tell me more about Korea. 

It’s very true to the brand. I think it is very simple: they are very health conscious and they are aware that it’s better than fried food. They like the ability to customize the sandwich the way they want. That better-for-you, fit message is strong in the Korean marketplace. They are looking for high flavor and portability.

You mentioned customization. How will you do a better job of promoting that Subway is a pioneer of personalization?

I think our core guest, and even younger Millennials, know the core of Subway is customization and better-for-you [food]. What we need to do is redefine convenience. People still love Subway. I have five kids. They love Subway. But you know what my daughter says? “I’d really like it if it were brought to me as I walk out of school.”

Subway does some delivery. Will it expand?

We’re certainly looking. But what makes Subway special to me is that interaction between the sandwich artist and the guest. That interaction will remain one of our core strengths.

You’ve been at Subway nearly a year. What have been your main goals? 

It’s to continue to execute a business model that has grown Subway to be one the largest franchise restaurants in the world. To work with our franchisees on a daily basis to try and help them improve their business.

Editor’s note: Walker was a Reader’s Pick in Nation’s Restaurant News’ Power List of notable restaurant executives. In 2016, he was awarded the President’s “E” Award by President Barack Obama for Excellence in Furthering American Business Internationally.

Contact Nancy Luna at [email protected]

Follow her on Twitter: @FastFoodMaven

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