Three Sandwich Rivals Trying to Shave a Few Inches Off Subway's Footlong Empire

BusinessWeek
** COMMERCIAL IMAGE ** In this photograph taken by AP Images for Subway, Subway Restaurants is offering free Footlong sandwiches to all NFL labor negotiators at a local Washington, DC store on Friday, March 11, 2011, which happens to be across the street from the federal mediator’s office, in an attempt to fuel discussions and prevent the lockout.   (Kevin Wolf/AP Images for Subway)
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** COMMERCIAL IMAGE ** In this photograph taken by AP Images for Subway, Subway Restaurants is offering free Footlong sandwiches to all NFL labor negotiators at a local Washington, DC store on Friday, March 11, 2011, which happens to be across the street from the federal mediator’s office, in an attempt to fuel discussions and prevent the lockout. (Kevin Wolf/AP Images for Subway)

Who knew the hoagie would take Subway so far—40,000-stores-far, to be exact? As the $5 Footlong vendor relishes its recent boom and plans the addition of 10,000 locations in the next four years, other sandwich chains are elbowing their way into the American lunch break.

One of them is Potbelly Sandwich Shop, which filed for a $75 million IPO last week. The Chicago-based chain of 286 U.S. restaurants saw its revenue jump 15.5, percent to $274.9 million, last year, according to the filing, and the company intends to increase the number of shops by at least 10 percent annually. With an  average check of $7 at Potbelly, the restaurant considers Subway, as well as fast-casual chains such as Panera (PNRA), to be its competitors.

But Potbelly’s not even the largest of the would-be Subway competitors hoping to win over a piece of its sandwich empire. A recent ranking by Nation’s Restaurant News identified Firehouse Subs and Jimmy John’s Gourmet Sandwiches as the country’s two fastest-growing restaurant chains, based on 2012 sales growth. Sales at Firehouse Subs, a Jacksonville (Fla.) chain of more than 630 restaurants, grew about 34 percent last year, according to the report, and the company expects to expand to 715 locations this year. Sales at Jimmy John’s, a chain of more than 1,500 stores headquartered in Champaign, Ill., rose by 25 percent.

For all these chains, a large part of competing will be securing the right locations. “We consider the location of a shop to be a critical variable in its long-term success, and as such, we devote significant effort to the investigation and evaluation of potential locations,” Potbelly notes in its SEC filing.

Subway executives don’t seem too concerned yet—their company is still the leader by far with more than 26,000 U.S. locations. “If we go back five years, we added about 4,200 units. All the other sandwich chains together lost 1,800 stores,” says Don Fertman, Subway’s chief development officer. “We’re happy to have others advertise sub sandwiches, and we all benefit from that.”

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