It's hard to imagine a cultural icon with greater ubiquity than McDonald's (MCD). After all, it seems the Golden Arches are present in every town, no matter how small, and at every exit off an interstate highway. But while you'll never have trouble finding a Big Mac, change is on the horizon: The sandwich shop Subway is close to exceeding the number of McDonald's restaurants worldwide.
When exactly will Subway overtake MickyD's? "My guess is it's going to be before the end of the year," says Tony Pace, chief marketing officer of the Subway Franchise Advertising Fund Trust. He says consumers are always surprised to learn that Subway has more than 32,000 outlets. "We're not as visible as McDonald's because we can put a Subway restaurant into a relatively small footprint. We can be in a strip mall and don't need to be a big stand-alone restaurant."
It may seem incredible that such venerable American icon as McDonald's could be surpassed by a sandwich shop that began in 1965. Yet the company, which is owned by closely held Doctor's Associates Inc., seems to have hit upon a branding strategy that's stimulated the public's appetite for its subs. Its message is that by eating at Subway, anyone might become healthier. Just look at Jared Fogle, the man who lost 245 pounds by incorporating Subway sandwiches into his diet and subsequently became the public face of the fast-food chain.
That message has struck a chord with many consumers at a time when obesity rates are up and many people feel they lack the time to prepare home-cooked meals. McDonald's, on the other hand, was hurt by the 2004 documentary Super Size Me, which tracked filmmaker Morgan Spurlock as he ate only McDonald's food for 30 days. The result? He gained 24 pounds and his cholesterol skyrocketed.
Yet McDonald's is hardly slacking off. The company said on Sept. 9 that sales at stores open more than a year rose 2.2 percent in August, boosted by new products including the McCafe coffee drinks and the Angus Third Pounder burgers. And even though Subway's locations will soon outpace McDonald's, it's sales are a still a fraction of the burger behemoth's. According to Advertising Age, which cited data from Technomic, the average Subway store made about $445,000 last year, compared with $2.3 million for the average U.S. McDonald's.
That smaller size can be seen as a strategic benefit for competing with McDonald's, says Subway's Pace. "Maybe we'll sneak up on them," he says.
Investing in Startups
The lucrative and risky world of startups.View Course »