No. 1 with everything: Make it a combo, subway is going home with its 10th No. 1 franchise title

Entrepreneur, Jan, 2002 by Michelle Prather

IT'S GOTTA BE PRETTY hard to hold your tongue when you find out that the company you co-founded at 17 made it all the way to the top of the Franchise 500 (R) list once again. You have to somehow force the perma-smile into a normal, 180-degree position, and keep the random skipping around the office to a minimum until the January issue hits newsstands. But 53-year-old president and cofounder of Subway Fred DeLuca has had practice, you see. This is Subway's 10th time in the Franchise 500 (R) throne. And, no, the 10th time might not be as exciting as the first time (in 1988). But in a year that hasn't been great for the majority in business, Subway and its franchisees have worked hard for their rewards.

At the time of the interview, DeLuca hadn't even gotten around to reading the most recent good news to hit his desk: Subway's "Eat Fresh" campaign won the Brandweek Marketers of the Year award for 2001. DeLuca rates advertising improvements right alongside food improvements in getting Subway back to the apex of the franchising world. That's why you'll continue to see more of that diet success story Jared Fogle this year, along with more Subway fans who followed in his footsteps. "We keep hearing about more of these people," says DeLuca. "Actually, some great spots have been produced that focus more on friends of Jared. Two of them should be previewing [this month]."

Around springtime, you can expect to see some new products on the menu as well. (That's the same menu that won Subway Nation's Restaurant News' 2001 MenuMasters Award for its Subway Selects gourmet sandwiches, by the by.) It seems that trial runs of new breads, sauces and sandwiches are definitely a hit. "We're sort of embarrassed by a wealth of good news," says DeLuca. "[At press time,] three new breads ranked higher than our best bread in the store, and four new sandwiches ranked better than our best ones."

From all the action over at Subway, it's evident the sour economy hasn't squelched any of the company's aspirations for 2002; DeLuca doesn't even see it as an obstacle. "Maybe we just haven't been affected very much," he says. "We watch our sales closely every week to see if we're on trend, and we see the exact same sales trend after September u as before. That maintains franchisee confidence, so our current people are probably going to follow through [with opening new] stores they've had on the drawing board." With 15,594 stores in 73 countries at press time, DeLuca expects to add 5,000 stores to Subway's press-time domestic count of 12,946 units over the next four to five years.

Finding locations for newly purchased franchises is always a challenge, according to DeLuca, but saturation isn't necessarily the culprit. "There are huge opportunities," he says. "Almost the entire state of California and the entire Northeast are red, (representing low-density markets on Subway's growth chart]. Then there are large amounts of red throughout the country"

DeLuca says international markets are also strong, despite scattered anti-American sentiment following the bombing campaign on Afghanistan last fall. "I don't think being an American company is going to have a big impact [on Subway]," he says. "In fact, I'm not even sure that, in some parts of the world, people even know we're an American company."

As for international expansion--that's always a tough job, for anyone, anytime. International locations are "really hard to get off the ground," says DeLuca. "The United States is a huge market, and once you get rolling, you can replicate that model over and over pretty easily. But as soon as you get into a new country, you've got to organize your supply line and equipment leasing, and when you open the store, you've got to start getting customers." That didn't stop Subway franchisees from entering new markets like France, the Republic of Croatia, the Republic of Finland and the Republic of Poland last year, though.

All in all, DeLuca doesn't feel the foundation of franchising has been rattled by the combination of the slow economy and the war on terrorism, citing industry research at press time indicating sales in the fast-food industry as a whole were off 15 percent at most. And higher unemployment "generally bodes well for franchising," says DeLuca. "People are looking for a new opportunity, and people who have jobs are a little less confident they'll always have a job. So just a small change in how the work force thinks makes a big impact on franchising."

MICHELLE PRATHER is a freelance writer in Grand Terrace, California.

RELATED ARTICLE: 25% of all franchisees of U.S.-based franchise companies are located outside the United States.