'Sub' contracted: Little Caesars, Subway try 1-unit marriage

Nation's Restaurant News, April 10, 2000 by Amy Zuber

DETROIT -- In the ongoing string of co-branding arrangements between national restaurant chains, Little Caesars Pizza and Subway are hoping to find wedded bliss through a marriage based on such benefits as long-term cost efficiencies and day-part compatibility.

The two brands coupled off for the first time last month with the opening of a 2,500-square-foot co-branded unit located in the Detroit suburb of Warren, Mich., near the pizza chain's headquarters.

"From Little Caesars' perspective, it is a good partnership because Subway is more oriented toward a business lunch crowd, "said Dave Scrivano, Little Caesars' senior vice president of administration. "We [Little Caesars] do more of our sales during the dinner hour, and we are more family-oriented. We thought there would be good synergies."

Scrivano declined to discuss terms of the deal, which was brokered by chairman Michael Ilitch and Subway president Fred DeLuca.

Featuring pizza from Little Caesars and Subway sandwiches, the new restaurant is the first of several test units scheduled to open in the Detroit market this year. The initial co-branded store is located inside a former Little Caesars' "Pizza Station" concept, which, unlike the chain's traditional carryout unit, has seating. Scrivano did not provide sales figures, but he said in the first two weeks since the unit was converted into a co-branded location, its sales have doubled. He added that the sales mix is running about 60-percent pizza.

In 1998 average unit volumes for Little Caesars were $303,000, compared with $273,100 for Subway, according to Nation's Restaurant News' most recent Top 100 special report.

From Subway's perspective the co-branded location is performing "better than expected" and generating sales about 20 percent above a typical store, according to Dielli Husen, a development agent for the Milford, Conn.-based sandwich concept. Husen added that he expects sales to increase steadily over the next few weeks because of the restaurant's location next to a community college.

"The students were on spring break when the store first opened," he explained. "We haven't marketed to the college yet, and I think sales will strengthen once we do, especially with the warm weather coming."

In addition to Little Caesars' home base here, Subway has a strong presence in Detroit as well, with more than 200 units, according to Husen.

The co-branded unit, which is about twice the size of a typical Little Caesars or Subway, is located inside a freestanding building with 50 seats and a drive-thru. The restaurant was remodeled with new exterior signage and awnings as well as interior modifications, including, the addition of a separate counter, cash register and full menu board for Subway that includes hot and cold subs, salads, sandwich wraps and cookies. The offerings from Little Caesars include whole pies, pizza by the slice, chicken wings, spaghetti and salads.

Scrivano declined to disclose the remodeling price tag but said it was significantly lower than the cost of opening a new store.

"The conversion process from start to finish took about four months," Scrivano said. "We remodeled the exterior and changed the signage so that from the outside customers can clearly tell the restaurant has both brands. On the inside we added a Subway counter that is at a 90-degree angle from the Little Caesars counter.

The store has a crew of about 20 people, all of whom previously were Little Caesars' employees who have been trained to make Subway sandwiches. Scrivano said two managing supervisors attended a two-week program at Subway's training center to learn how the sandwich chain operates, and then they returned to Detroit to lead a local training program for the remainder of the restaurant's staff.

Husen added that dual training is one of the biggest challenges related to the co-branded restaurant.

"Little Caesars has its way of doing business, and we [Subway] have ours," he said. "We are training their [Little Caesars] people to understand the Subway operation. Pizza tends to be all backroom preparation, whereas Subway is a front-room operation that involves making sandwiches in front of the customer."

Little Caesars and Subway are looking to test the co-branded concept in Detroit this year with a plan to open some five to 10 units, according to Scrivano.

"If it is successful, we may fit it into our overall growth strategy," he said. "But our current strategy is to grow through our traditional carryout units."

He added that Little Caesars expects to open 10 new traditional stores in Detroit this year. As previously reported, the pizza chain also is pursuing international growth with recent development deals in Japan and Mexico.

Meanwhile, Little Caesars' major chainwide renovation program -- aimed at incorporating a new store design dubbed "Image 2000" -- continues for the 300 domestic stores that were closed on one day last July. The process is expected to take three to five years with 100 stores on tap to reopen this year. Currently, most of the 300 restaurants remain shuttered.