Armed with a £7m adspend, US sandwich chain Subway is certainly setting its sights high. Within the next four years, it aims to overtake McDonald's to become the most ubiquitous fast-food presence on the UK high street.
Having already opened 500 outlets here since its launch in 1996, and buoyed by a burgeoning lunchtime food market, there is no reason to believe it cannot achieve its goal.
With traditional fast-food retailers such as McDonald's and Burger King experiencing long-term decline, Mintel estimates that the UK sandwich market is worth £3.5bn a year and is set to continue growing by 7%-8% a year. Though perhaps not expanding at the same rate as Subway, other lunchtime food retailers such as Benjys, Pret A Manger and Greggs are also on the rise.
Subway last week centralised its £7m planning and buying business into MediaCom and is in the process of hiring a UK marketing chief to spearhead its strategy (Marketing, June 29). Deirdre Anderson, chairman of Subway's franchisee advertising board for UK and Ireland at Subway, sees the appointments as a milestone for the group. 'Five years ago, our marketing consisted of people on the street handing out coupons. Now we are a national mass-market brand.'
Franchise growth
In addition to its 500 UK stores, Subway has already sold a further 350 franchises, 150 of which are expected to be operational by the end of the year. Looking to the future, the group aims to have more than 2000 shops by 2010.
Two years ago, Subway overtook McDonald's by number of branches in the US, and it has gone on to repeat this in Northern Ireland, where it surpassed McDonald's in March 2004.
The group's adspend is stumped up by the franchisees, represented by the Subway Franchise Advertising Trust (SFAT), with each franchise handing over 3.5% of its annual turnover toward the ad budget. This figure is expected to rise to 4.5% by January 2008.
Subway's UK marketing strategy will mirror its activity in the US. The UK marketing director will report to Tom Sneddon, the US chief executive of SFAT. McCarthy, Mambro and Bertino, Subway's US ad agency, will rework campaigns for the UK.
The UK operation already promotes the '7 under 6' menu - seven sandwiches with six grams of fat or less - that was developed in the US. The UK outlets also offer a virtually identical menu, the same personalised deli style and a similarly aggressive pricing policy to their US counterparts.
Competitive threat
Subway faces extensive competition from its sandwich shop and fast-food rivals, several of which have their own expansion plans. At the upper end of the market, Pret A Manger, which has 150 UK outlets, is developing steadily and plans to open a further 18-20 branches over the next year.
But while Subway lists Pret as a rival, Pret's commercial manager, Simon Hargraves, does not see Subway as a threat. He thinks its in-store presentation, such as its bright lighting, places it more in line with the traditional fast-food outlets.
Another rival, Benjys, has a low-price, low-carb offer, which has proven popular with consumers. The chain, which has 66 UK stores, aims to open a further 40 this year. Traditional bakery Greggs, which has twice as many outlets as Subway, is pursuing its own expansion strategy, and continues to increase its market share in the face of competition. And supermarkets such as Sainsbury's Local, Tesco Metro and Marks & Spencer also have a significant stake in this sector.
Eating patterns
All these companies serve pre-packaged sandwiches that fit in with the average UK worker's 'lunch hour', which lasts just 27 minutes. 'In the UK, lunch is very focused and, although people want choice, convenience is key,' explains Ian Rickwood, chief executive of Benjys.
Traditional fast-food outlets have been trying to catch up. All the major names now have a sandwich offering, but still appear to be suffering from a long-established association with high-fat, greasy food.
Despite their efforts to include healthier options, some experts believe they will not be able to shed their negative image. 'People will never see McDonald's as a healthy option, regardless of how many salads it introduces,' says Richard Buchanan, head of corporate branding at Corporate Edge.
However, competition for Subway, fuelled by the low cost of entry for sandwich shops, could challenge its expansion plans. Although Benjys' Rickwood believes plenty of properties are coming onto the rental market, he admits there is great competition for prime retail space. 'In central London there has been a decline in independent sandwich shops, which have been pushed out by high rents making room for bigger brands,' he says.
Subway has already scooped a substantial share of the market with very little noise. But with the appointment of MediaCom and a new marketing director in the offing, this looks set to change. Consumer concerns over health, coupled with Subway's aggressive expansion and pricing plans, should place the chain on course for rapid growth.
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