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Subway is the largest sub sandwich chain by far with the 2nd largest ad spend in all of QSR behind McDonald's with core brand equity in the form of: customization (made-to-order) epitomized by the brand's “Choice Mark” logo; interaction between sandwich artists & guests; sub sandwiches which include lots of veggies; and bread baked in-house. A complete overhaul of senior brand management is most welcome and the chain's current turn-around plan seeks to: optimize assets; modernize existing units; innovate with new flavors & ingredients; and better connect digitally with customers and its target market. Fortunately, the system has finally managed to put development on a much-needed hold while the system continues to benefit from the culling and relocation of its weakest stores. Existing stores benefit from the roll-out of its Fresh Now platform (Flavor Stations, Fresh Pour Beverage Stations & updated menu boards) and more affordable facility upgrade options which suggest that its remodel initiative maybe complete in 5 years. A ramp-up in menu innovation could help Subway distinguish itself among sub-sandwich competitors better known for quality than innovation and 2018 comps improved to flat and are up +3% YTD 9/19 which suggests that its new brand positioning and store culling is beginning to gain traction. However, while Subway is certainly taking steps in the right direction, competition is perhaps the fiercest it has ever been for this iconic chain and it is notable that the brand still has more work to do to find the right value equation that works for consumers as well as its franchisees. Further, years of comp declines leaves a system AUV with little margin for safety and little capability for capex investments at a time when the new brand management could use some breathing room as they must necessarily tweak their turnaround initiative which is in its very early innings. In conclusion, while it is difficult to assess how long it will take the largest sub chain to reignite sustainable sales, Subway continues to move forward in a sensible manner such that its competitors would do well to take note. 


New Store ROI Model

New store ROI continues to trend-down as a result of construction cost increases and a decline in post G&A EBITDA. This has been partially off-set by more generous franchisor development incentives over the last 2 years (76% of franchisors are offering some form of incentive in 2019 versus 70% in 2018).
New Store ROI Model features estimates for: new store AUV; construction costs (excluding land) and EBITDA (post G&A) to calculate New Store ROI for 46 $1B+ Chains in an Excel format which can be modified for different assumptions.


Denny's is uniquely positioned as an admired and loved "local" family chain serving classic American comfort food at a fair price around the clock for unpretentious, everyday occasions. The chain seeks to move its positioning beyond serving breakfast all-day towards an unpretentious diner with trusted burgers, salads, etc. (i.e. more credibility with the other dayparts). Its new "See You at Denny's" messaging is designed to prompt consumers to check out the brand's fresh makeover which includes: remodels at 84% of its stores, creating a more comfortable dining space; a menu overhaul using higher quality ingredients; and a new focus on diversity, equality & inclusion initiatives (we just don't serve you, we see you) to better connect with its diverse customer base. The goal is to convert very high brand awareness into trial & frequency and multimedia marketing efforts include commercials targeting African-American & Hispanic diners across TV, Hulu, YouTube, Vevo, Facebook and Instagram. A simple menu positioning largely reflects the idea that consumers want to indulge when they dine out because they can stay at home for something plain & simple and the menu benefits from well-known signature items including its famous Original Grand Slam platter. A strong everyday value equation comes in the form of its $2468 menu platform, value promotions (including its $5.99 Slam offers), senior discounts and kids eat free deals. Comps have been positive for the last 8 calendar years and outperformed the segment average over the last 5 years with strong 2Q19 results. Going forward sales tailwinds include: off-premise growth that better positions the brand with a younger demo; remodeled stores; improved menu offerings; and a customer demo that benefits from increased employment & wage growth. All-the-same, today's competitive operating environment requires an ongoing value emphasis which is difficult given ongoing labor cost pressures. Also, the chain's challenge remains to drive repeat business beyond an occasional breakfast and to grow other dayparts without diminishing the brand's very important breakfast business. Further, the chain must address its own reality as a 60+ year old system which includes older, underperforming stores. In conclusion, we expect Denny's to continue gaining traction in a difficult operating environment as it focuses on making “America’s Diner" ever more relevant. 


New Unit Investment

  • RR’s New Unit Investment Industry Data Report provides average building cost estimate details (excluding land) for 47 national restaurant chains. 

  • Report highlights: (1) the sales-to-investment ratio for $1B+ chains continues to trend down after peaking in 2013, driven by construction cost increases and a slight decline in new build AUV’s; (2) RR's New Build vs. Buy Ratio rose for the 3rd consecutive year as construction cost inflation and a slight decline in store level acquisition multiples increase appeal of acquiring existing stores; (3) franchisors stepped-up development incentives which include franchise fee reductions to improve new build economics; and (4) 6 chains introduced new or tweaks to existing building designs. 




Arby's strong QSR positioning is based upon a credible NY deli format that bakes beef roasts and freshly slices all other roasts in-house in order to create fast crafted, made-to-order hot deli sandwiches. Its sandwiches are distinguished by generous stacks of quality meat toppings (big, meaty sandwiches) and leading-edge protein variety which extends well beyond Arby's core roast beef heritage. This positioning is unique to the $1B+ QSR segment and contrasts with veggie-heavy foods offered by many fast-casual concepts. Arby's menu also offers a compelling alternative to burger, chicken-only and cold-cut sub concepts. Innovative LTOs drive trial and add variety while a steady layer of price point value LTOs helps competitive positioning in the current operating environment. Further, its selection of LTO gourmet Market Fresh sandwiches & salads expands the concept's appeal to more upscale, health conscious consumers (eliminating the veto vote). Marketing seems to break-through the clutter and its effective “We Have the Meats, For Sandwiches” marketing campaigns have better oriented the brand towards a younger demo. Having said all this, it is not surprising that Arby's sales, while positive, have underperformed over the last couple of years which reflects the challenge of a premium positioned QSR chain in our current operating environment dominated by discounts and value. Also, Arby's sales would probably benefit from a faster remodel and digital cadence as it continues to evolve its image beyond its core roast beef products which still drive the majority of sales. An all-day breakfast offering (bagels made from chicken meat??) probably could help as well. In conclusion, while Arby's is well positioned as a QSR player that can serve as a credible alternative to a NY deli, the brand may require the wrap-up of a few more ongoing upgrade initiatives to complete its evolution sufficient to return to comp outperformance in today's hyper-competitive world.