Companies

Subway eyes further China expansion

By Ben Yue (China Daily)
Updated: 2011-07-04 09:40

Number of sandwich-maker outlets now higher than McDonald's

BEIJING - After overtaking McDonald's Corporation in the number of its outlets globally, US fast food giant Subway now aims to more than double the figure in China over the next five years.

A Subway restaurant and take-away in Shanghai. The US fast food giant is opening 80 new outlets across China this year to compete with other fast food chains. [Photo/China Daily]

It also wants to become more localized, capitalizing on China's huge urbanization program and the fast-growing catering industry.

The sandwich maker currently has 220 stores in China and 73 in Beijing. "By the end of this year, we expect to have more than 90 stores in Beijing and nearly 300 in China. By 2015 there will be 180 stores in Beijing and well over 600 stores in China," said Alexander Moody-Stuart, Subway franchise's general agent in Beijing.

"The total sales revenue for Subway in Beijing grew more than 40 percent year-on-year in 2010 and we expect to see similar rates of growth continue over the next two years," said Moody-Stuart.

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According to the agent, Subway's sales in Beijing increased by an average of 25 percent over the last five years.

The US-based franchise brand started its business in China in 1995 with a few stores targeting areas with lots of foreigners. The brand began to grow more quickly from 2004, said Moody-Stuart, who was an accountant in London before becoming a Subway agent for Beijing in 2006.

Subway has become very popular among many Beijing office staff. According to Luo Tian, a saleswoman in Beijing's Yinghua Dongjie store, she usually sells 200 sandwiches every Wednesday lunchtime, when the shop offers a "buy one, get one free" service. "People queue several meters outside the doors," she said.

The outlets, which make sandwiches to order, attract many people who like to see their meal prepared in front of them from a diversity of ingredients and who can choose to eat in or take it away.

Its biggest sales occur at lunchtime, according to Moody-Stuart. As a result, most Subway stores in Beijing are located near office buildings. However, he said the company also has some profitable loctions in shopping malls, outlet concessions, near universities, at travel depots and tourist spots such as the Great Wall.

"We also plan to open our first drive-through locations," Moody-Stuart added.

Data from Subway shows that the most favored sandwich in China is tuna. Moody-Stuart said the franchise is going to launch more local flavors this year but the core menu will stay the same.

The price for a Subway sandwich with several fillings in China is 30 yuan ($4.62), and 15 yuan for a daily special chosen from the regular menu.

"The average selling price for each sandwich was a little over 19 yuan for March," said Moody-Stuart, adding that 15 yuan is a price that a lot of people in Beijing can afford.

"We are not competing to provide the cheapest food in Beijing," he said, noting that the franchise has not raised its prices for more than two years and has no current plans for any price increases, even though there is high inflation in China.

At present, people who want to own a Subway franchise need to pay $9,000 for a franchise number. They get a 50 percent discount if they open a second outlet. Subway's general agent in Beijing takes 8 percent of the store's weekly sales and checks every store each month to see if they are maintaining prescribed standards.

Moody-Stuart said the total cost to open a Subway, which includes the franchise number, equipment and remodeling expenses, is around 750,000 yuan to 1 million yuan, depending on location.

Subway has entered 16 Chinese major cities. Moody-Stuart said the company has no clear plans to enter small cities or the countryside on account of cost considerations.

China has become a competitive market for fast food brands because of the huge city populations brought about by rapid urbanization in recent years.

YUM! Stores (China) Investment Company, which owns more than 3,000 KFCs and 500 Pizza Huts, received $4.1 billion in sales revenue in 2010, which was about 36.5 percent of the group's global sales last year.

"Fast food has become the first choice for 85 percent of Chinese city dwellers when they want to eat out," said Bian Jiang, vice-general-secretary of the China Cuisine Association, who is responsible for the fast food department of the organization.

According to him, the size of China's fast food market is about 540 billion yuan and has been growing at a speed of 18 percent year-on-year. "I believe the next five years will be a crucial time for China's fast food industry because the urbanization progress is accelerating and more people have come to live in cities. They are often in a hurry but demand good hygiene standards," said Bian.