Larry Feldman was living a double life. As assistant minority counsel of the House Banking Committee, his day job was dealing with Capitol Hill’s most pressing issues: the Chrysler bailout, alternative fuel sources and cradle-to-grave health insurance. But come lunchtime, he headed across the street to oversee an operation pretty much as critical to Washington’s well-being. Feldman, you see, managed the local Subway.
“I would do congressional hearings in the morning, run across the street, take off my jacket, put on my apron and stand behind the counter to make sure the operation was going well,” says Feldman, CEO of Subway of South Florida and Subway Development Corp. in Washington, D.C. “These lobbyists would look at my face and say, ‘You look very familiar.’ And then after lunch, I would run back, take off my jacket and do hearings.”
Since opening up his first Subway location 35 years ago, Feldman has grown his territory of restaurants to approximately 1,500 locations and 1,600 employees throughout Washington, D.C., Maryland, Virginia, Delaware and, most recently, South Florida. But his success hasn’t just earned him respect in the franchise world — it was Feldman who helped pioneer Subway’s development agent growth model in 1979 — it has also earned him a nickname: Mr. Subway.
By eliminating company-owned stores and empowering entrepreneurs to grow territories through franchised locations, Subway has become the largest fast-food chain in the world, surpassing the iconic McDonald’s with more than 37,000 locations worldwide. Here’s why the growth model is still viable and successful decades later.
As a business with locations worldwide, maintaining consistency across its many stores is critical to Subway’s reputation. So it’s important for owners like Feldman to have the proper controls in place to keep operations consistent and maintain quality throughout their territories.
One way the company does this by maintaining high standards of compliance for its store owners.
“We’re very, very strict in our requirements for compliance,” Feldman says. “Part of the support is 80 percent of my staff is made up of operations analysts. They go into the field and are in their stores at least once a month. They do full evaluations that start with cleanliness in the front window and go right on through the store, including marketing recommendations, attitude of employees — all of these things.”
Driving consistency internally is also why Subway doesn’t sell to professional chefs — who are tempted to try to “improve” on the business model.
“Chefs always are looking to create a better way,” Feldman says. “And while we’re always looking at our corporate offices to do that, and have a tremendous amount of success from franchisees who give us recommendations, it basically is that when you go into a Subway regardless of where it is around the world, that you know that you’re getting a consistent product. The look is consistent.”
For Subway, the food part of it and the product part of it can be learned and trained. The real work of the owners is growing the business in the community, from “the outside in,” whether it’s sponsoring local Little League games or working with not-for-profits.
“It’s understanding how to take those tools and get out there and market your business,” Feldman says. “We look more for people who will participate in marketing and bringing customers in, because we can teach you everything that needs to be done in the store itself.”
When the goal is consistency, you want store owners who are entrepreneurs, not industry professionals.
“They would come back after two weeks of training thinking they knew how to grow their business their way,” Feldman says. “But this doesn’t work as a large-scale concept. At the franchisee level — success is about following the model.”
Keep it simple
Subway’s simple operation — with no fryers, no grease traps, and a simple menu — makes it easy to run, and gives the company the control to easily manage food and labor costs. But how do you promote new ideas when you’re worried about overcomplicating your brand? At Subway, it’s by practicing “controlled innovation.” At the national level, the company sets aside an innovation fund specifically for testing ideas for the restaurants that are submitted to the company from customers or franchises. Every new idea goes through a thorough and carefully controlled approval and testing process.
“We can’t have everybody out there saying my grandma has a great recipe,” Feldman says. We need to go out there and try it.”
Recommendations are made through the franchisee development office. Approved ideas will go through a strict testing procedure starting with 100 stores, then 1,000, then 2,000 stores — which are checked for compliance — until the idea is reviewed for the entire system. Stores also must report daily and weekly through the computer on how many of the product are sold, what hours and so on. This info is sent to the home office in Connecticut where analysts examine the idea before sending their suggestions to corporate. The controlled process ensures ideas are only rolled out to the entire company that can be consistently executed and that complement its bigger health and price-value messages.
“So it’s not just an off-end product that’s left out there,” Feldman says. “It’s not just somebody that wants to test something on their own. There’s a very specific testing program.”
That’s not to say the company hasn’t adapted. A key reason that Subway has been able to stay relevant in the crowded fast food space is by proactively expanding its product mix to appeal to a wider range of consumers. As home of the $5 foot long, the brand has been able to capture a larger market share of people who see it as an affordable option. It was also one of the first to respond to the growing trend of health and wellness.
In the past five years Subway’s variety of products has increased dramatically, all tied to the health offerings. But the company has also carried out these changes in a very conscious way, Feldman says. The company has been successful at adding the healthier options because they are just that — options.
While it now provides things like calorie counts, reduced sodium options, and diabetic menus and healthier menu items such as salads, flatbreads and lean meats, Subway has also kept its indulgent subs like its BMT, meatball and steak and cheese. Diners can still add mayo or a bag of chips.
“Choices should be there,” Feldman says.
“That has been a tremendous part of our growth; but the fact that I can also come in and get that indulgent sub as well and I’m not a health food franchise — I’m here for everyone.”
The importance of keeping it simple has only been verified by the company’s testing of newer concepts like Subway cafés, designed by Feldman’s office for national in response to landlord’s looking for a more upscale Subway. In addition to the regular menu items, Subway cafes include offerings such as paninis and gelato.
“What we found was that the landlords thought that these big fancy law firms and investment firms that the people would demand all these fancy things,” Feldman says. “But when we opened these restaurants, more than 80 percent of the purchases are still our traditional Subway fare. So people are still coming down and getting their tuna sub or cold cut combo.”
Feldman points to four areas that have been critical to Subway’s success: product, control, simplicity, and support. The brand’s ability to adapt and grow while maintaining simple and consistent operations has helped make it ubiquitously appealing while allowing it to go places other fast food chains can’t, for example, YMCA’s, school systems, colleges, universities, and hospitals.
“If you’re a food service director in a hospital, you’d say, ‘Why would I bring a McDonald’s into the lobby when our whole message is about health?’ Feldman says. “And then when you look at other competitors and they’re still back in the 80’s as a sandwich concept with some increasing regard for things like calorie count and health message because they have to be, because the public demands it.”
But Feldman says that it’s the last pillar — support — that’s played the biggest role in the company’s success.
Before the company’s development agent model, support for restaurant locations typically came from corporate employees. Now that’s changed to where franchisees have a local team to back their success anywhere in the world.
“When you live the community you have someone that’s a phone call away,” Feldman says. “It’s not calling the corporate office and saying ‘Hey, I need help when can you send somebody down?’…as opposed to somebody who could be there that day. And that’s why Subway has been so successful. We have boots on the ground in every single city in the U.S. and now in 102 countries around the world. So if I have a problem, I am there and being supported.”
The company also has one of the lowest franchise fees in the country, which Feldman says points to the profitability of the concept. Rather than making the money on the sale of franchises, the company makes money off of the profitability of the stores that it helps succeed. Having all four pieces — product, control, simplicity and support — is really what’s allowed Subway to “build a better mousetrap” than competitors in the marketplace, Feldman says. During the worst economy, Subway’s numbers are staggering. It’s achieved continual upward increases in customer base, marketing and advertising and average unit volume.
“These are all things that are basics, but I think over the years we’ve really forgotten those basics,” Feldman says. “Now more than ever, now that people are really concerned about their dollar and where that goes — you need to show them that you are the best, that you bring the best value to them, and you are there for them if there are issues.
“For us it really is a Cinderella story, in that we were very different then than we are now. When I went to college the only choice was a foot long sub. The menu was very limited. There probably were about eight sandwiches. Now, Subway has become more of the healthy alternative. We have morphed into the concept where everyone can go to get their lunch, their dinner and now their breakfast.”
The Feldman File:
Name: Larry Feldman
Title/Company: CEO, Subway of South Florida
Title/Company: CEO, Subway Development Corporation in Washington, D.C.
Born: Brooklyn, New York
Education: B.A., University of Bridgeport, J.D., Brooklyn Law School
What would you do if you weren’t doing your current job?
Be a lobbyist in Washington, D.C.
What would your friends be surprised to find out about you?
I cry at sappy TV commercials and movies.
If you could have dinner with one person you’ve never met, who would it be and why?
President Clinton. His caring and concern for the world and its people is admirable.
What do you to regroup on a tough day?
I watch a great action movie.
What do you do when you’re not working?
I spend time doing anything with my family.