John Chidsey has big plans to double the number of restaurants around the world.


Subway CEO wants to bring "craveable food" and "swagger" to the restaurant chain

Leadership

Subway CEO wants to bring "swagger" to the restaurant chain


Subway CEO wants to bring "craveable food" and "swagger" to the restaurant chain


john thank you so much for joining us to talk about Subway. You've been making a lot of big changes since you took over as Ceo three years ago and the most noticeable difference is the menu. Tell us about that. Why it's been popular with your customers and it's been good for business too. Yeah. So like any new team, when you show up in a new company, we went and we did a lot of consumer based research and our consumers told us three things. One, they told us we hadn't had enough menu innovation over the past few years. Uh, they told us they wanted more credible food. They told us they thought some of our ingredients had slipped in terms of quality. Um, and then funnily enough, our franchisees told us the same thing. So when you hear the same message from your guest and your franchisees, it's pretty clear your roadmap where you need to go. And so it's a, it's a multi year journey. And last year we launched something called Eat Fresh Refresh, which was last summer where we introduced new bread, new proteins, new sauces, improved quality and other proteins. So it's really just a whole revamp of the menu if you will. Um, and that really got, I think the brand reignited, got people excited about the brand to see those changes and now add to that. You just announced a new menu change that you're calling the Subway series 12 new sandwiches. And I understand that this is the most significant menu update in Subways, 60 year history. How important is this to your turnaround strategy for Subway. You know, it's very important for many reasons. But before I go to that, I just want to assure people that if you want to customize your sandwich, that's something Subway has been known for forever. You can clearly continue to custom make your sandwich if that's what you want. Um, but these 12 sandwiches, which are all chef inspired subs, not only are they delicious but I think it's important because it hits the crave factor much more so potentially than what you make on your own. But more important even than that is sort of in the world of third party delivery. More and more people ordering digitally. I think it's important that you can literally go onto your app and you can order a number eight or you can call it the boss by name or by number. I just think that's going to become more and more important as the world moves more towards 3rd Party delivery again and digital ordering on the apps. Well, you know, john people are surprised when they hear that Subway has more locations than any restaurant chain in the US 20,000 stores. That's more than Mcdonald's, it's more than burger king and Taco Bell combined. But despite all that big size sales were declining before you came on board. How's it going now, sales have been going great. Um, you know, when we exited 2021, our sales, there are average unit volumes. If you will, we're back to where they were in 2014 And through the first six months of this year, we're actually back to where we were in 2012. So we've picked up a lot of ground, um, in terms of average unit volume through the first six months of the year, our sales are up against 2019, definitely up against 2021. But even if you go back and compare against 2019, um, mid to high single digits and if you look at the top 75% of our system, which would be system larger than Mcdonald's, They're actually up 15% in the first six months of the year. So I would consider sales very robust and most importantly, of all franchisees are very happy about where sales are today? Well, the economy is not being much help, you know, looking at the latest inflation report June, consumer prices surged 9%. Is that going to slow down your momentum? No, I don't think so. If you look at our value for the money ratings vis a vis our competition, other sandwich competitors, we've had a considerably lower average check than they have. I think it's easier for us to pass on food costs than it is for some of our higher price competitors out there. I know that Subway is privately held, but can you give us some idea for our viewers to know how big are the revenues at Subway overall? Yeah, the us there about 9-10 billion globally. They're closer to 16 billion. So you said we're the largest restaurant chain in the us, which is true, but we're also the largest in the world. We have about 17,000 restaurants outside the us and growing. So in total it's about 16 billion. Let's take a look outside the U. S. Because I understand that you have some big expansion plans in the works. Tell us about that. We have about 17,000 restaurants in about 100 countries. If you look at the six really global. QsR s out there were the only one. When I say QsR quick service restaurants, we're the only one that is larger in the US than outside everybody else is larger outside. So we have a tremendous opportunity to grow units outside the US. So just in the last 6 to 12 months we've signed 8 to 9 master Development agreement for about 6000 restaurants in the Middle East and europe in Asia. Next week we expect to sign a restaurant deal in Turkey for another 650 restaurants. Um and we're working on many, many more deals across Asia, europe and the Middle East, how much bigger do you want to get? Well if you just use a proxy of sort of the size of our competitors out there on a global basis. Most of them are anywhere from 2 to 3 to one is the ratio, so if we have 20,000 restaurants in the U. S. I don't know why we couldn't have 40,000 outside the US. So if we're at 17,000 today, I mean I think easily there's room to double Our international footprint over the next decade. So is it possible that the global operations will be much larger than what you have currently in the in the US is that the goal? Yes that is absolutely the goal that happened to be in a previous life where I ran a quick service restaurant that was exactly the same as subway and today it's 2-3 times larger outside the U. S. Than in the US. So I know the playbook and I think it's imminently doable here, john it's interesting that in most of Subway's 60 year history, it was run by its founder, fred Deluca, you are the first leader from outside the Deluca family, tell us what it's like to lead a privately held family owned company. It's been a joy beyond belief as someone who ran a public company, I really never had a desire to run a public company again if I could humanly avoid it. Um And I have to say working for a private company which is willing to invest money um for the long term, not really focused obviously on quarterly results um just wanting to do right by their franchisees and by their guest, it's been a it's been a wonderful experience. Well our viewers ought to know that for many years you were the ceo at burger King and it was out of retirement that you came to join a Subway. Tell us what are some of the differences. You can really spend all of your time really internally focused because you don't have to devote time to be out on the road visiting with shareholders, you're not talking to analysts, you're not doing quarterly earnings calls. Um It just allows you to be, I think more focused on your company and less on external Stakeholders if you will. Um again, not worrying about hitting quarterly numbers and you know, doing the right thing and ensuring the businesses where you want it to be 24-36 months down the road is a wonderful pleasure. Um Subway interestingly enough has no debt. So we don't even really have to worry about bank covenants. Um we're really free to invest in the business. As you know, I believe it's the right thing to do. You've also recruited many of the executives who worked with you at burger King and to come to Subway, the chief financial officer, the head of marketing. Chief legal officer. Chief operating Officer. Why did you bring them in And how is this changing the structure and culture of Subway? I left Burger King 10 11 years ago. So most of them went on to, you know work at places like Dunkin donuts and bloomin brands and you know, yum all over the place, Mcdonald's. Um, so obviously when I took this job, I thought about people that I worked with in the past and that had great skill sets from burger king. But also people have picked up new skills in the decade when I wasn't working with them. And so I just try to think, you know, who are the best members of the band to put the band back together again, so to speak. Um, and I think it's helpful when you're doing a turnaround because obviously Subway had suffered for quite a while, uh, to be with a group of people that, you know, you trust, you know, you work well together, you know what kind of personalities you're gonna get. Um, and so to me that was really key to this whole turnaround that we've been able to pull off here at Subway, given just our familiarity with one another. And what did you have to do to pave the way that Subway employees were comfortable with all the changes? How did you make them feel comfortable and supportive of having this new team of executives coming in? I would describe Subway before we got here, obviously been owned by two families as you said for, You know, 55, years. Um, it was a very paternalistic, um, not a lot of sense of urgency. Um, I'll be honest bloated uh, to a certain extent. And so I think a part of it was helping them realize that, uh, you know, we could go faster with less people and it would be more efficient and it would be a more fun place to work. And uh, you know, truthfully, there were skeptics. I think in the beginning we cut the workforce basically in half. Um, and I think those that are behind now see all the benefits and would tell you it's the best thing that ever happened to the brand, but obviously the first six months to a year, they were very skeptical and you have to prove to people that your model and your culture are going to be an improvement. And I think we've done that and I think the results really speak to that cultural change. So john, what's your goal for Subway? How do you want people to describe Subway? Let's say 345 years from now, 92% of americans live within five miles of the subway. So I want people to come to Subway, not just because it's right there in front of them. They have no other choice. I want people to wake up every day and think I want a great credible sandwich from Subway. So I want to be a destination spot internationally. I want to grow the brand tremendously. And I think with all these new developments and, and developers that we have out there, we can grow, we can grow the brand and I would just like the brand to really reclaim it is the largest, but I think it should have the swagger of the largest quick service restaurant chain in the world. So just getting that confidence back in our franchisees and our employees, I think that in and of itself those those three goals would really put us in a great spot.