Sandwich chains head west to tap Southern Calif. market

Nation's Restaurant News, Oct 13, 2003 by Amy Spector

LOS ANGELES -- Chain competitors Jimmy John's Gourmet Sandwich Shops, based in Elgin, Ill., and Cousins Subs, based in Milwaukee, are preparing to cross the country and cut the mustard in Southern California against its entrenched sandwich chains.

But some California operators are questioning how many more sandwich concepts could slice into the seemingly packed markets of Greater Los Angeles and San Diego, comprising some seven counties.

Veteran San Diego-area restaurateur Jeff Warfield, president and chief executive of the 50-unit Submarina franchise chain, said he has found faster growth in Riverside County, east of Los Angeles, where national brands do not yet have the same foothold as in more densely populated metropolitan areas.

While Jimmy John's and Cousins Subs prepare their local debuts and sandwich specialist Panera Bread gauges early results of its brand's recent debut in the Los Angeles area, both Subway and Quiznos Sub have been among the rival chains filling out Southern California.

Subway now lists more than 900 sites in operation or under development in Los Angeles, Orange and San Diego counties alone, spokesman Les Winograd said. That number dwarfs the entire systems of most other sub sandwich brands, including 220-unit Jimmy John's, which operates in 20 states, and 177-unit Cousins Subs, which does business in 10 states.

Submarina's Warfield said his brand competes effectively in its home San Diego market because of its tenure there. The first Submarina, created by his parents, Les and Lynn Warfield, and partners Ron and Maureen Vickers, opened in the San Diego County town of Poway in 1977, before Subways and Quiznos moved into the area, he claimed. Submarina began franchising in 1988, and today all but a single training store is franchised. Several of the Warfield and Vickers family members are franchisees, he said, adding that "a lot of franchisees are ex-employees and customers."

The Submarina shops sell six-inch and 12-inch sandwiches, $4 to $8, and ring up average transactions of about $7.50 to $8.50, he said. About 70 percent of sales are for takeout. Annual per-store sales range from around $430,000 to $750,000, he estimated.

Warfield expressed concern over how many higher-volume sandwich shop sites remain available in the region because "the market is getting saturated," he said. "I always use my father's store as an example," he explained. "Two Quiznos, a Togo's, Panera and a Subway are already in the mall. There's a Port-A-Subs across the street."

Still, he said he was optimistic because even with the Panera Bread opening in early September, "there has been no impact" on Submarina's sales. Of more concern economically was the ongoing war in the Middle East and the deployment there of military personnel from San Diego County, Warfield said.

"We started January off with a bang--a 20-percent gain," he said. "Then the war hit in February, and it's been a decline ever since."

To compete with what he said was 28 new Quiznos Sub outlets in his market, Warfield recently introduced baked submarine sandwiches. In an obvious nod to Subway's marketing success, Warfield also said he plans to roll out next month a new center panel on his menu boards that will list sandwiches with 6 or fewer grams of fat as well as selections for customers on low-carbohydrate diets. "Jarred [Fogel] and the Subway group have really put [low-fat sandwiches] on the map," he conceded.

Like many of Jimmy John's Gourmet Sandwiches' customers, franchisee Cliff Lunney first became familiar with the brand as a college student. His company, CWL Investments, has 12 Jimmy John's shops in the Detroit area and now plans to build restaurants in Orange and San Diego counties, with three San Diego sites already tapped, he said.

"The demographics of metropolitan Detroit are similar to San Diego," Lunney asserted. Store No. 1 should open near the San Diego State University campus in mid-2004, he said.

Lunney expects California wages to drive his labor costs about 2 percent higher than the 24-percent-of-sales mark for his operations in Michigan, he said. In addition, he anticipates food costs to head north by about 2 percentage points, to 27 percent, until he establishes the brand in Southern California.

Currently, the only Jimmy John's store in California is a separately franchised outlet in Clovis, near Fresno, Lunney said.

Jimmy John's featured delivery service should help his business gain a foothold in its new market, Lunney said, explaining that he plans to move to California and leave his Michigan operation in the hands of "a minor partner."

The 8-inch and 16-inch sandwiches of Jimmy John's range from $2.75 for a "Plain Slim" to $4.75 for the "Giant Gourmet Club." Sales transactions average between $5 and $5.50, and his average store in Michigan produces $725,000 in annual sales, he said. The stores range in size from 1,200 square feet to 1,800 square feet.

Jimmy John's prides itself on its bread and bakes loaves every four hours, Lunney said. But his business, like that of Submarina, has experienced demand for low-carbohydrate options and, consequently, has developed the "unwich," he said. Wrapped in lettuce leaves, the "unwich" contains everything but the bread roll. Not listed on the menu, the breadless option instead is promoted through in-store brochures and already represents about 10 percent of sales, Lunney said.