Firehouse Subs pushes past AUV, comps declines

 
June 29, 2010 | by Valerie Killifer

By Valerie Killifer

At 382 locations, Jacksonville, Fla.-based Firehouse Subs is anything but little. But the chain has had to work hard to push itself past an upward climb brought on by several quarters of same-store sales declines and shrinking average unit volumes.

At the company’s June 27-28 franchise conference – dubbed the Firehouse Subs Family Reunion – founders and brothers Chris and Robin Sorensen, along with company executives, revealed to franchisees that the uphill climb, at least for now, has leveled. And instead of overcoming obstacles, the company is now in a position to build upon the progress it has made through the first half of the year.

During the first six months of 2009, AUVs had dropped to $11,003, down from $11,844 in 2008. Through the company’s period 5, AUVs have reached $12,748 and, as of June 27, “smashed” through the $13,000 mark, said director of operations Meg Rose.

While the company reported $209 million in sales in 2009, it is projecting $233 million in sales this year. So far, the company has every indication that number will be met. For the year, AUVs have reached the systemwide mark of $600,000, beating Firehouse Subs' goal of $590,000 AUVs by the end of the year. The company also has seen a same-store sales increase of 6.34 percent for its period five, compared to a decrease of 4.61 percent reported in year-end 2008 and a decline of 3.3 percent reported at the end of FY 2009.

Rose and the Firehouse team have worked hard over the last year to also reduce food and labor costs, going from a food cost of 35.8 percent in 2008 and 34 percent in 2009 to an all-time low of 32.3 percent for the first four weeks of period six. Labor also has been reduced to 22.8 percent, down from 24.9 percent in 2008 and 23.8 percent in 2009.

“As of today, we have put more money on the net income line in the first six periods of 2010 than during the entire year of 2008,” she said. The effort, she said, is to reach the company goal of having 10 percent cash flow.

So how has Firehouse done it?

Marketing mavericks

Last year, the company hired marketing powerhouse Zimmerman Advertising to develop an advertising plan that promised an increase in market share and transaction growth.

“I made promises (to the company and its franchisees) last year when no one was making promises,” said founder Jordan Zimmerman. “(To do that) we had to be confident in the brand we saw and in what Firehouse was.”

To deliver on the promises made, Zimmerman told the audience of franchisees the firm set out to do three things:

  1. Position the company as having a higher quality product than its competitors
  2. Communicate its unique process of steaming sandwich meats
  3. Help Firehouse display courage and fearlessness by going head-to-head with sandwich goliaths Subway and Quiznos

Zimmerman’s marketing plan included print, radio and social media campaigns that featured the Sorensen brothers and their father -- whom they call The Captain -- and the elevation of the chain’s top-selling sandwich, the Hook & Ladder Sub, to “hero” status.

The company needed a sandwich to carry the brand halo, the same way consumers equate the Whopper with Burger King, Zimmerman said.

Sixty percent of the system participated in the marketing program, with a select group of markets seeing same-store sales increases in excess of 15, 16 and 18 percent. Market share in the company’s Orlando and Tampa territories increased 48 percent while sales of The Hook & Ladder Sub rose 33 percent.

“You have built yourself your Whopper,” Zimmerman told conference attendees.

Through 2011, Firehouse will continue to elevate and differentiate the brand in the markets where it operates, and will launch a reimaging strategy the company calls its Brand-A-Palooza. Out of a designated market area of 210 in the United States, the company has locations in 54.

It also will take the Firehouse Subs Public Safety Foundation to the public market for the first time in the foundation's five-year history. The goal is to grow the foundation to $1 million in donations this year – part of an aggressive overall goal to reach $5 million in donations over the next five years.

Robin Peters, the foundation’s executive director, said two years ago the company had more money in donations than requests for equipment. However, due to community budget cuts, the foundation received 57 equipment requests this past quarter and had enough funds to cover only nine.

“Robin and Chris believe in this and they put their money where their mouth is,” she said.

The foundation has been funded through the sale of empty pickle buckets for $2 each. This year, and through an exclusive agreement with the Firehouse Subs pickle supplier, the buckets will feature the Firehouse Subs Public Safety Foundation logo, something company executives view as a huge win for franchisees and their customers. 

Brand promise

Each of these efforts is designed to deliver on a company promise made to franchisees to increase profitability.

New menu boards, a larger drink size and the addition of a double meat pricing strategy will further drive that deliverable.

The new menu boards have been designed to reflect several new company menu items, such as a double meat option, and the addition of a larger cup. To date, drinks have been available in either 22-ounce or 32-ounce servings. However, Firehouse is now adding a 42-ounce size that will enable the company to charge an extra 20 cents for combo purchases.

The menu board also has been changed to allow variable pricing on menu items, something the chain did away with six years ago in order to streamline the price points of its menu items.

Firehouse CEO Don Fox said the company’s Smokehouse Beef & Cheddar Brisket reopened the door for individual pricing and that the company will now allow its franchisees to establish their own pricing structure for sandwich items – but Firehouse will place a cap on the maximum amount franchisees can charge.

Overall, the double meat add-on, new variable pricing and the larger-cup option are designed to pull in an additional $15,000 per store annually. An “adult” grilled cheese sandwich, Spicy Italian Sub sandwich and a Sausage Sub, also are on the horizon as possible menu additions.

And in addition to the rollout of new POP for its Cherry-Limeaid, the No. 3 selling beverage in the Firehouse chain, the company is testing custard in one of its Jacksonville locations.

The custard is served in its own branded area of the restaurant, and if the test is successful, will be used to create another revenue stream for the chain upwards of $100,000.

For franchisees at the event, the strong overall belief is that the chain will deliver on its promises, as it has done in the past. And while Firehouse Subs likely will have more hills to climb, the company seems to have so far gotten itself over this stretch of the road.


Topics: Franchising & Growth , Sandwich


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