Limited-Service Sandwich Chains Bucking Downtrend

sandwichEven as the overall restaurant industry's outlook grows more grim, limited-service sandwich (LSS) chains such as Subway, Arby's and Quiznos continue to perform strongly, according to food service consultancy Technomic.

The just-released "2008 Technomic Top 100 Limited-Service Sandwich Chains Restaurant Report" shows this restaurant sector pulling in $21.2 billion in sales in 2007. The top 100 accounted for 89% of that total--or $18.8 billion--and saw 6.4% growth compared to 5.7% growth for the overall sandwich industry. Units for the top 100 rose 1.8% (to 38,790) to represent 70% of total LSS units (which were up 1.6% to 55,610).

Subway led the category with over $8 billion in sales, representing 43.5% of total top-100 sales. Arby's and Quiznos ranked second and third, with $3.3 billion and $1.9 billion in estimated sales (representing 17.6% and 10% of top-100 total sales, respectively).



Top 100 chains below the three leaders are much smaller: The median-size chain had sales of $23.1 million.

Within the LSS segment, the sub, deli and sandwich subcategories dominate. Sub and roast beef restaurants had the largest subcategory dollar sales in '07 ($12.2 billion and $3.4 billion, respectively). However, the sandwich and deli subcategories logged the largest growth percentages: 19% and 11%.

But how have LSS chains been faring in light of the accelerated economic woes that commenced last year?

According to Technomic EVP Darren Tristano, while the chains' growth appears to be slowing to some degree, their outlook continues to be quite bullish for several reasons.

Attractively low price points and high perceived value obviously play a role. Cases in point include Subway's hugely successful $5 foot-long subs and Quiznos' small-portioned flatbread Sammies, priced at under $2 (and packing only about 200 to 300 calories), Tristano notes.

But LSS chains' ability to innovate and customize their offerings may represent their biggest advantage.

"Sandwich components--everything from the proteins and cheeses to the breads and toppings--are extremely customizable," points out Tristano. Breads, for example, are now customized not just by varieties, but through steaming and toasting options. Six-inch subs are one of the numerous new trends popping up, and healthier offerings are proliferating.

LSS chains have also focused on making ordering easier: 27 of the top 100 have implemented online ordering at all or select store locations, and 24 offer delivery from some or all stores.

Furthermore, at a time when other types of restaurant formats are increasingly moving to smaller footprints to improve economics, LSS chains are already there. Building, franchise and overhead costs for LSS units are a fraction of those required for bigger formats, Tristano notes. "One person can run one of these restaurants and make a pretty decent living," he says.

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