While the restaurant industry overall is struggling to stay profitable during the recession, the quick-service sandwich segment is finding strength in its customization ability, value positioning and better-for-you profile.
Fourth quarter 2008 sales were down even in the sandwich segment, but sandwich's flexibility and, more recently, the value positioning of leading brands are helping the segment stay profitable, said Darren Tristano, executive vice president of foodservice consultants Technomic.
The sandwich category in general — which excludes burgers and burritos — is popular with consumers because the product is portable and sometimes a healthy option, Tristano said.
Subway, the segment leader, saw $8.2 billion in U.S. sales in 2007, making up 38.6 percent of the limited-service sandwich segment's total sales of $21.2 billion, according to a recent Technomic report.
Although specific 2008 sales numbers are not available, Subway did open its 30,000th unit late last year. And the company is only about 3,000 locations from becoming the largest QSR franchise in the world, said Kevin Kane, Subway spokesman.
Kane credits the brand's versatile menu for the company's success.
"Our strength is that we are a proven leader in providing options for consumers, both in the low fat and indulgent areas," he said.
For example, Subway offers more than 2 million combinations of sandwiches due to its selections of breads, cheese, meats, vegetables and sauces.
"You can really do anything as far as incorporating favorite foods or flavor profiles with a sandwich," Kane said.
Tristano said the number of Subway stores — more than 21,000 in the United States — and their moving into a growing number of nontraditional locations make the brand top in the segment.
"Just the availability of the product has pushed them to be No. 1," he said. "Their marketing has pushed them to be top of mind for the consumer from a healthy standpoint, but they've got a great brand, loyal customers, good product and great value."
Arby's, the No. 2 sandwich chain in the Technomic report, expanded its reach with the introduction of its Market Fresh deli-style sandwiches in 2001, playing into the better-for-you perception. And the introduction of its Toasted Subs line in 2007 built on that growth and the popularity of toasted sandwiches sparked by fast casual chain Quiznos.
"While I cannot share specific data on sales, I can say that last year the Arby's Toasted Subs line sold as well as our Market Fresh Deli line," said Ed Gleich, senior vice president, concept innovation, Arby's Restaurant Group Inc.
The popularity of the Market Fresh line gave the brand "immediate credibility when we entered the hot sub segment," Gleich said. "It was like, 'Hot toasted subs at Arby's. Of course Arby's could do a great job with that. I am going to give it a try.'"
The Toasted Sub line, Arby's mid-priced offering at $3.79 to $4.29, also has held up as the industry overall has been affected by the economy, he said, allowing the company to offer four combo meals for about $5.
Overall, Arby's had an estimated $3.3 billion in U.S. sales in 2007, according to the Technomic report. Wendy's/Arby's Group recently reported that 2008 sales at company-owned stores increased 1.6 percent to $1.1 billion; franchise revenues were down 1.3 percent to $85.9 million.
Other segments have been attracted to the success of hot sandwiches, with Dairy Queen introducing its Iron Grilled line last fall and Domino's Pizza adding Toasted Subs to its delivery offerings. Despite TV commercials pitting Domino's and Subway's toasted offerings, Tristano said Domino's foray into sandwich is more likely the brand's attempt to increase check averages than to break into the sandwich segment.
"It's difficult to compete with having somebody on the other side of the counter at Quiznos or Subway putting something together for you and handing it to you," he said.
Value is key
In recent months, value offerings have been pushing the sandwich segment through the downturn. Subway took the lead last year with its $5 footlong sub deals, and other brands have followed suit.
While the $5 price point may not be very profitable, it's a smart move because it attracts value seekers and improves incremental sales, Tristano said.
Arby's, for example, has resisted adding a value menu because of the "quality and cost of our oven-roasted roast beef," Gleich said.
Roland Smith, president and CEO of Wendy's/Arby's Group said in the company's fourth quarter 2008 results release that Arby's sales were impacted by competitors' continuing "to discount at unprecedented levels." Plans for 2009 include a test of "value-priced products."
Kate Unger, vice president of marketing for Blimpie Sub Sandwiches, said that the brand's introduction of its $5 12-inch subs last summer was an immediate success.
"We've seen our sales of the 12-inch go through the roof," she said. "We saw a 12-point swing" from the start of the promotion.
Blimpie — and Subway — relaunched the $5 value offerings at the first of the year. Blimpie's values include seven 12-inch subs for $5, or the same subs in 6-inch sandwich combo meals for $5.
Blimpie, No. 8 in the Technomic report with $269.6 million in U.S. sales in 2007, is playing up the brand's longevity and focusing on its fresh-cut meats. The company's new tag line, America's Sub Shop, celebrates its 45th anniversary, but value remains an important marketing tool.
"If a chain does not have some sort of value when they're in our industry, they're going to feel the pinch," Unger said. "For us, we have to offer value to our consumers in this economy, and we will continue to do so."