How Does Subway Profit From the $5 Foot-Long Deal?
The 38,000-location Subway chain has done an amazing business lately with the enormous success of their $5 foot-long sandwich deal. Heavily advertised, it brings customers in droves, helped boost Subway profits, and make for some very happy franchisees. But how can Subway profit on the $5 deal?
The key is volume and incremental sales of other items. The profit varies on each type of sandwich, but according to restaurant insiders, the average foot-long yields around a $1 total profit. That profit can easily be doubled to $2 when the customer purchases a soft drink, as the profit margin on carbonated beverages is huge.
What does it really cost to make a $5 foot-long sandwich?
Since Subway is privately held and doesn’t share specific numbers, it is difficult to gauge exact costs. Food industry insiders, however, estimate the cost per $5 foot-long, including overhead, to be around $3.92. There are, of course, variable factors such as how much fresh ingredients each customer selects, etc. Subway’s buying power means franchisees are able to purchase all items for their stores at far below even wholesale prices in most cities.
The $5 foot-long idea was originally thought up by a Florida franchisee who noticed drastic sales declines on weekends. So, to boost sales, he offered the $5 deal on weekends only and sales boomed. Although his food costs did rise as a percentage of sales, the franchisee came out ahead because he was able to keep his normally idle staff busy. Incremental sale items like cookies and soft drinks also increased, helping profitability.
Sales of foot-longs are not the only profit center for a Subway store, however. At least two-thirds of all customers select a drink or drink/chip combo. As mentioned above, the profit on these items is very high, and frequently as high as 70%. The profit on a single large drink with free refills could be higher than any other item in the store.
Are the Subway sandwiches really a foot long (12 inches)?
Maybe Subway stores are making money on the foot-long sandwich because they aren’t, ahem, a foot long to begin with. According to some recent bad press and even a lawsuit, the reason Subway can profit from their foot-long sandwiches is because they aren’t technically the size that they say they are. With talk of deception and false advertising, this claim has given Subway the kind of publicity they don’t want, and created some angry
franchisees along the way.
One regular Subway patron tried foot-longs at 17 different Subway locations near his home and every single sandwich was short of the promised measurement. A lawsuit filed in New Jersey claims that the world’s biggest fast-food chain is shortchanging customers everywhere by selling 11-inch to 11.25-inch sandwiches instead of a true foot-long.
The case went viral when someone in a neighboring town experienced the same thing, but videotaped the sub sandwich alongside a ruler and uploaded it to Facebook. The post was eventually deleted after some 83,000 likes and thousands of comments.
Subway, in full defense mode, says the bread can come up short if not prepared according to its exact baking standards. They did admit, however, that a smaller bread product would likely use less fresh ingredients and, therefore, the sandwiches would cost less to produce.
Subway franchisees purchase frozen, pre-made bread rolls or “sticks” that are baked in-store to exact standards from corporate. The parent company claims that, if directions are correctly followed, the foot-long bread rolls will indeed be a foot long. One of the most critical baking elements, according to Subway, is the preheated oven.
But frustrated franchisees complained they were being blamed for the bread shortage issue, when in fact it was a corporate manufacturing variance. Soon after this, a franchisee videotaped himself following exact baking standards using the company-purchased pre-made rolls, and they still came up 11 inches. This time the company response changed.
Subway’s corporate parent said its “foot-long” sandwiches are only a name and not to be used as a form of measurement. Okay, what? It’s called “foot long,” but it’s just a name and shouldn’t be expected to be a foot in length? Sounds like corporate hogwash to us.
What difference does an inch make anyway?
It may only be an inch, but each inch of bread means an inch less of surface to put pricey meats, cheeses, and condiments on. The smaller the sandwich, the fewer goodies go on it. So it only stands to reason that short-changing customers on the size of the bread will in turn reduce costs. It may only be a few pennies here and there, but throughout the course of the day those pennies add up for a franchisee.
However, it doesn’t appear that the shortchanged size of the foot-long isn’t causing customers to stay away, as the $5 foot-long deal is hotter than ever.Source: www.restaurants.com
Category: Personal Finance