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Once again a franchisee’s innovation comes to save the day. Subway’s $5 footlong is the brainchild of Subway’s franchisee Stuart Frankel and an untold success story of this recession. Miami-based Frankel, who five years ago owned two small Subway sandwich shops, decided to pick up his sagging weekend sales by charging a buck less. That was the birth of the $5 footlong.
Frankel suddenly had lines out the door. Sales rose by double digits. Nobody, least of all Frankel, knew it at the time, but he had stumbled on a concept that has unexpectedly morphed from a short-term gimmick into a national phenomenon that has turbocharged Subway's performance. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, president of restaurant consultancy Sandelman & Associates. "It's huge." In fact, the $3.8 billion in sales generated nationwide by the $5 footlong alone placed it among the top 10 fast-food brands in the U.S. for the year ended in August, according to NPD Group. - BusinessWeek
The BusinessWeek article goes on to say, “Frankel's $5 footlong idea illustrates how a huge company can wake up and eventually seize on a good idea that's not generated at headquarters.”
But it isn't just Frankel who has hit the $5 footlong out of the ball park. What isn’t brought out in the article is that Subway is an unusual chain. Its franchisees pay their ad funds not to the franchisor but into their own cooperative company, where they determine the marketing efforts and drive the ad campaigns. The Cooperative decides and controls what ad agencies to use and marketing campaigns to launch rather than the franchisor staff at company headquarters, although the Cooperative does try to have the franchisor, Doctor’s Associates, Inc., come on board with their campaigns. Remember those hula dancers dancing to the $5 footlong song (see video above)? It was the franchisee's cooperative firm that decided that. As the article points out, the ad campaigns initiated by the franchisees have been extraordinarily successful in shaping the whole fast-food industry around the $5 price point.