Article

Penn Station charters new growth territory

As the sub-sandwich chain celebrates 25 years, its founder and president keep their eyes focused on the future.

November 7, 2010 by Valerie Killifer — senior editor, NetWorld Alliance

It's taken 25 years for Penn Station East Coast Subs to reach 221 locations. Now that it has, the concept, launched by Jeff Osterfeld in 1983, shows no signs of slowing.

This year, the company is projecting revenue of $119 million, a relatively large increase over the $114 million Penn Station reported in 2009. Same-store sales have increased month-over-month since January and, to celebrate its 25th anniversary, the company is offering its 8-inch signature Philadelphia Cheesesteak for $2.99 through November 14.

"I didn't do this with the thought that someday I'd be a 1,000-unit chain," Osterfeld said. "But I was allured by the idea of growth as a potential. My nature is extremely conservative so we've grown very cautiously. There's no reason why we can't be national, and my gut is we will be someday."

Between Osterfeld and Penn Station president Craig Dunaway, there's a lot of talk about the company's "circle," the 250-mile area surrounding its Cincinnati headquarters. The circle runs North to mid-Detroit, South to Murfreesboro, Tenn., East to Richmond, Va., and West to St. Louis. By and large, this circle is the one Penn Station plans to fill in before company executives set their sights on other markets.

"You don't have to jump outside that circle to have a huge jump in restaurants," Dunaway said. "Although there's not as much glamour as there is going into a new market, it will make the brand stronger."

By the end of the year, Milford, Ohio-based Penn Station will have 225 units with another 25 on the books to open in 2011. The goal is then to open 35 in 2012 and another 40 in 2013.

So far, the company has been able to grow units without closing stores (only two have shuttered in the company's 25-year history), something Osterfeld and Dunaway both contribute to the conservative approach both men bring to the business.

Dunaway joined the firm when Penn Station had between 50 and 60 units, and has been able to carry on the vision originally laid out by the concept's founder.

Osterfeld wasn't looking to create the next sub-sandwich empire when he founded Penn Station. Rather, he was looking for a way to continue his family lineage of entrepreneurship.

He started a painting business in high school that he continued to operate while studying at Miami University of Ohio until, finally, an opportunity presented itself in the form of Oxford Bagel Deli.

The bagel craze had just started to sweep across the Midwest from New York and Osterfeld had planned to take the bagel concept to college campuses across the country. But as he added sub sandwiches to the menu, their popularity with guests increased and Osterfeld changed the model.

Things started to go so well with his sub-focused sandwich shop that Osterfeld opened a second, third and fourth location. After the opening of his fourth, he started to franchise. In 1988, he sold some stores to one of men who worked for him as a painter. With 17 units, that man is now one of the two largest franchisees in the Penn Station system (with Osterfeld's brother being the second).

New markets and existing ones

Penn Station has been able to commit to its growth by focusing on the markets where it already exists.

"We tried to put not as much focus on growing those markets, but taking care of what we had that was there," Dunaway said.

That included taking a look at franchise operations and offering help when needed.

"It's making sure that the franchisees understand all of the minute details of operations that end up taking them to the next level of success," Dunaway said. "What we're trying to do is teach them the nuances that get them above and beyond average ... the little things that can help them grow faster."

The company's expansion focus also has included the hiring of a public relations firm to help tell the brand's story, which has been aided overall by the modest but continued improvement in economic conditions.

Moving forward, Penn Station will prepare for continued unit development throughout Tennessee, Northern Kentucky and Illinois, in addition to the chain's entry into North and South Carolina, Michigan and possibly Northern Virginia.

In order to hit the 325-location mark by 2013, the organizational structure put in place by Osterfeld and Dunaway have to completely connect.

"I think the biggest issue will be what's going on in the economy," Dunaway said. "I'm really excited for the growth potential that we have. I think we have most of the pieces of the puzzle in place."