Lenny's News and Interviews

Restaurant Insider - Upstart Sub Shops Slice Into Competition

July 10, 2006

Lenny’s Sub Shop, Charley’s Grilled Subs and Duke Sandwich Co. hope to have that extra edge to compete in the growing $16B sandwich segment. Sandwich shops are developing at a rapid pace, and some of the upstarts are taking aim at industry bigwigs Subway and Quiznos. For serious competitors, it’s become crucial to discover ways to distinguish one produce from another through menu and staff, or by just knowing when to take out the garbage.

Unlike other chains that are in the business of opening stores and turning them loose, Lenny’s Sub Shop wants to ensure each unit’s success. While Subway might open one store for every 12,000 people and Quiznos might go one for every 20,000, Lenny’s wants one store per 40,000 people. The average franchisee can then expect to make between $570K and $580K/unit, as opposed to Subway ($360K) and Quiznos ($460K)

Lenny’s concept is more comparable to a Pot Belly Deli, Jason’s Deli or a more gourmet type of sandwich shop. Led by CEO George Alvord, the concept is modeled after a neighborhood deli. Lenny’s slices meat to order instead of using the prepackaged nonsense found in other major sub shops. The bread is baked fresh, too. The seven-inch sandwich weighs about half-a-pound and the 15-inch sub weighs more than a pound, with the Philly Cheesesteak and the Italian Sub being marquee items.

Another noticeable difference at a Lenny’s is the lack of trashcans in the dining room. Nobody likes to eat a cold cut combo next to an overflowing trashcan. So, Lenny’s takes a different approach, with workers that bus tables (which are higher and more comfortable than most fast-casual shops) and offer to get free refills. This extra step in treating a patron as a guest and not a customer could mean the difference in the perception of a sandwich concept.

Lenny’s currently has 90 stores with 700 more sold. The goal is for 6,000 stores by 2012. Ideal markets include metros and second-tier markets near hospitals, offices and a high lunch crowd. Between 60% and 70% of sales come from lunchtime business. The average check is between $7 and $8. Units run between 1,600 s.f. and 1,800 s.f., with an average cost of investment between $174K and $280K, carrying a $15K to $25K franchise fee. Single-unit operators are accepted, but discouraged in favor of multi-unit franchises with substantial capital. Alvord would like to look at some unique spots for locations like its Houston Underground. That unit, which is open from 10 a.m. to 3 p.m., does a bustling business, as does the Memphis Airport unit which pulls in three times the sales of an average store. Some stadiums might make ideal locations, as well, and at some point, there will be a push to put Lenny’s on college campuses.

Charley’s, which is known for its Philadelphia Cheesesteak and other grilled sandwiches, is taking advantage of the toasted sandwich segment, which is hot right now, especially with concepts like Quiznos. The approach Charley’s takes in grilling its steak and chicken sandwiches to order in front of patrons, with an in-line time of around 90 seconds, gives customers a more authentic alternative to Quiznos – which dips its prime rib sandwiches in what appears to be dirty dishwater and then merely runs its sandwiches through a toaster – and Subway – which drops a bag of steak into a microwave and calls it a toasted sandwich.

Charley’s Grilled Subs opens its 300th store this year in the West Side Pavilion in Los Angeles, as it continues to grow towards its goal of 3,000 stores worldwide. The company will open 70 stores this year and will look at 100 to 200 stores in 2007 and 2008. Phoenix is the top target for expansion. Charley’s started as a predominantly mall-based operation in food courts, but now settles nicely into strip center locations. Units are about 1,800 s.f. to 2,000 s.f. with seating for up to 45 people and a cost to develop around $300K. The average store does about 70/30 day-part split between lunch and dinner. Growth plans for Charley’s hinge on franchising. Average store sales will run about $550K thanks to low cannibalization. The company wants to open stores with a 12,000-person population base within one mile. Single-unit operations were preferred to ensure the concept got up and running, but look for some area development in the future. There is some testing of co-branded stores. The philosophy is to test before asking a franchisee to invest. Look for Charley’s stores to continue to test iced coffees and frozen drinks.

Duke Sandwich Co., one of the longest running sub shops dating back to 1917, is in the middle of a five-year expansion, rolling out new locations in the Southeast. The Greeneville, S.C.-based company was founded by Eugenia Duke. Now owned by the Smart family, Duke Sandwich has three company-owned stores and opened four independently owned franchise locations within the last year. The concept features unique sandwiches like Deviled Egg, Pimento Cheese and Minced Barbeque. Led by CEO Andrew Smart, it started selling franchises in 2004. Duke recently inked a franchise agreement in Georgia with William Ledford, Troy Reddick and Paul Mead – an owner and operator of a Dairy Queen franchise. The first franchise opened in April. Duke also would like to develop franchises in North Carolina, Georgia and Florida.

The franchise fee for a Duke Sandwich is $25K for the first unit, and $20K for each subsequent location. The cost to develop runs about $150K to $350K for an inline store; a freestanding pad can cost from $600K to $1M. Each location runs between 2,200 s.f. and 2,600 s.f. Royalties are 6% of gross sales and advertising takes up 4%.

Contact Lenny's Public Relations:

Jenna Duett
Marketing and PR Manager
(901) 753-4002