Sub Wars Heat Up, Domino's Pizza Takes on Subway
ANN ARBOR, Mich. (Blue MauMau) – Domino's Pizza has come out on top of a national taste test by a 2-to-1 margin against Subway sandwiches. As quick service restaurants increasingly offer sub sandwiches, Domino's announced it will tout that consumers prefer its oven-toasted subs against Subway, the world's largest sub sandwich chain.
Domino's (NYSE:DPZ) will vaunt the taste-test results nationwide through a series of television, print and Internet advertising that starts today. Television advertising, from Crispin Porter + Bogusky, will feature a series of vignettes with experts in their fields demonstrating just how big a 2-to-1 margin is.
Specifics of the taste test survey were not available prior to publishing.
"When we set out to create a menu option that would appeal to our customers at lunch time and during late evening hours, we knew we would benchmark ourselves against the best, or at least, the company recognized as the industry leader in sandwiches," said David A. Brandon, chairman and CEO of Domino's Pizza. "Our oven baked sandwiches are not just a limited-time-only gimmick," he said. "They have become a permanent part of our menu strategy."
One Domino's store in Lexington, Kentucky said that it required a minimum order of $8 with no delivery fee mentioned. A spokesperson for Domino's Pizza elaborated that minimum order or delivery charges were at the discretion of its franchise owners. An $8 minimum order was typical. Toasted sandwiches are $4.99 and up, and are available for home delivery.
Domino's Pizza has some 8,726 franchise and company stores throughout the world, with network sales of some $5.4 billion in 2007.
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Related Reading:
Advertising Age: Domino's Goes on Taste-Test Attack Against Subway
Note: Article includes a video of the ad
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This is a logic error pervasive among franchisees, and has led to such debacles as Coldstone, Quiznos, and SoupMan. The theory goes like this:
- This is a great product.
- People will buy a lot of it.
- Our company will make lots of money.
- If we make lots of money, that's the same as making lots of profit. (Isn't it?)
To this we add the "Kozmo.com Memorial Business Plan":I have a bit of personal experience in this area, as well as a lot of clients in this area. There is a reason why pizza is booming as a delivery product but sandwiches are normally carry-out.
This has nothing to do with the quality of the product, it has to do with the quality of the business model.
There are delivery system packages (integrated software/hardware) for sandwich shops and in fact such systems were available to Subway franchisees a decade ago, and which are indeed used by a limited number of Subway franchisees today--in cases where the delivery model makes economic sense.
There are delivery marketers such as SeamlessWeb which provide turnkey access to a targeted delivery demographic (businesses and high-density residential).
All of this does not change the fact that pizza is a high-ticket ($21 natl avg) product. Sandwiches are not. A sound delivery strategy is one which seeks to gain incremental profit, not simply incremental gross. As such, the sandwich franchisees I know who profit from delivery target catering orders and/or high-density urban deliveries.
While it is true that many states will allow tip credits, you still need to provide attractive compensation for your deliverypersons. If someone can deliver to 5 homes in an hour, they have 2 choices:
This ain't rocket science, it is basic math.
Not only are there issues of franchisee profitability and liability, there are issues of productive use of finite employee hours. Moreover, existing delivery drivers will go where they can make the most money--and that ain't delivering a $4.99 sandwich.
While current oil prices are down, that won't last, and insurance rates are likely to increase. Last year, customers resisted the $1 delivery charges imposed on their $21 pizza orders--imagine a $1 delivery charge on their $8 sandwich order.
To the extent that sandwiches are an add-on item and/or overcome the "veto" member of the group who doesn't want pizza, then the product line extension makes sense. But let's not perpetuate the classic franchisee illogic holding that increasing gross is the same as increasing profit.
Increasing gross will by definition benefit the franchisor which gets a flat percentage of the gross. Increasing gross may actually harm the franchisee unless some of that money drops to the bottom line.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
As a former Quiznos owner I know delivering subs is a loser - at full price. The only hope that Domino's franchisees have is that the sandwiches will increase overall tickets rather than cannabalize current pizza sales. I do find it ironic that Domino's is toasting subs and in its advertising it doesn't even mention the Q. My how the mighty have fallen.
Paul, the reluctant businessman turned lawyer but who doesn't give business advice, writes: "To the extent that sandwiches are an add-on item and/or overcome the "veto" member of the group who doesn't want pizza, then the product line extension makes sense. But let's not perpetuate the classic franchisee illogic holding that increasing gross is the same as increasing profit."
I think that is right, which is why I never understood the unique selling proposition behind Quiznos toasted sub. If you could sell a toasted sub at $7-8, make money, then the Pizza shops would simply have it as an add-on.
As a Q owner, you would have to do all the work to establish the market, only to have it slip away from you as soon as you were succesful.
Odd strategy.
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Paul Writes: "Increasing gross will by definition benefit the franchisor which gets a flat percentage of the gross. Increasing gross may actually harm the franchisee unless some of that money drops to the bottom line."
I've been involved with the sales of businesses for many years and the bottom line is that you go into business to grow the business to sell the business. The resale value of a business is mostly calculated from 'bottom line' profit. If you have massive gross revenue and minimal profit your business is worth very little. In franchising when this is the case, then your business will probably be less attractive to a prospective buyer where royalty is high and you've been earning a crappy wage.
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