Q&A: Subway Chief Chats About Sales Surge

With Starbucks’ store closures gracing the cover of a local New York paper; the CEO of Subway Franchisee Advertising Fund Trust Jeff Moody had a different story to tell while sipping a coffee outside the beleaguered coffee chain. Thanks to Subway’s spot on health positioning and $5 subs, the world’s largest fast food chain is experiencing double-digit growth. Moody, who has held the post for a year, has successfully helmed the chain’s advertising arm while burger sales have gone flat and pizza sales are cold. In an extensive in-person Q&A with Brandweek News Editor Kenneth Hein, Moody proclaimed his loyalty to Jared Fogle, his gut feeling that breakfast at Subway will go national and his disdain for the TV Upfronts. Here is what he said:

Brandweek: What’s your marketing strategy these days?
Jeff Moody: We have three strategic platforms. The first two revolve around health. We have our “What you’re really getting” ads which positions our food against burger guys and other options. The ad “Receipt” was really well received. The guy in the ad didn’t have his receipt from his lunch so he just photocopied his butt after eating [an unhealthy meal elsewhere]. The second part is Jared. The big news is this is the 10th anniversary of Jared losing the weight. Losing weight is hard and keeping it off can be even more difficult so we’re doing a program called “Tour de Pants” which kicked off in Times Square right after the Super Bowl. The pants he used to wear that he’s used as a prop will be retired this year and put in a museum for advertising icons. We did some advertising. We called it “Jared’s Peeps.” It was Jared with all of the famous people he has appeared with over the years and put it into a montage scene where they congratulated him on his 10 years. Then there’s value. Value is a huge factor for people in today’s economy. We’re in a category that has experienced explosive growth for years and has basically flattened out so it’s a share battle. We addressed it with the $5 foot-long subs. We kicked it off in March with eight of subs for $5 and some stores have elected to keep them all at $5. That has done exceptionally well for us.

BW: One criticism I’ve heard is that you rely too much on Jared and need to get rid of him.
JM: There is no reason to move away from Jared. Now you need to broaden it so he doesn’t become the only thing we stand for, but it makes no sense [to move away from him]. Every time we do advertising with Jared we get instant recognition. People relate to him. He is such a clear communicator of weight loss. He is as popular as ever. It’s kind of funny you go out with him to these events and he’s like a rock star. The public loves him. He’s approachable. He’s like an everyman who has made good. They all feel like they know him. You go down the street and the cops say, ‘Hey Jared, let’s get a picture taken.’

BW: Will the $5 sub stick around?
JM: There is a ton of cost pressure on this business from the supply side, fuel markups, labor costs are going up, and utilities are going up. Despite that we’re going to try and keep the price point where it is. But, we have good economics and good franchisees. And it turns out there is a lot of price elasticity. The traffic response has been remarkable. That price point is magic. Everyone in the world is copying it now. Not just the sandwich guys but also the burger guys. They are all trying their version of the $5 [item] because it is such a good price point. In this economy you have to have value. Fast casual chains are well positioned when people have money, but now people don’t want to spend $8 for lunch, they want to spend $5. We’re well positioned.

BW: Can I eat the tomatoes now?
JM: I’d go eat them right now. From the beginning we analyzed our supply chain and knew we weren’t part of the issue. But the FDA wanted everyone to pull them out so we took it off the menu. They should be back in every store. We have a very safe supply chain, but if there is any sort of perceived risk we are going to cooperate with the government.

BW: How is the breakfast menu doing?
JM: Where we have breakfast it is doing well. It’s a great egg sandwich. It’s available for franchisees to roll out. We’re constantly looking at does it make sense to roll out nationwide with national advertising? Right now it’s more location specific. Significantly less than half of our locations have breakfast. Pizza is a similar situation. It works better in places where there is no direct competition. Roughly half of our chains serve pizza.

BW: Coffee’s been a hit for McDonald’s. Have you considered it?
JM: We’ve looked at coffee. Until we really do a nationwide breakfast program [coffee won’t be a big part of the plan. Though,] my gut feeling is breakfast will eventually [go nationwide]. But, in the franchise system you really have to prove the economics work. There are plenty of options for breakfast so we have to have a fresh, distinctive one that fits our brand positioning and work through that.

BW: Subway never used to do movie tie-ins, what happened?
JM: We did one with Happy Gilmore and Adam Sandler. Then we didn’t do as much. We recently had integration with Get Smart. We’re working on other things, but nothing that’s a done deal. It’s got be the right fit. For Get Smart, Maxwell Smart had to lose weight to become a field agent so the Subway sandwich diet fit in. The context worked for us . . . We have a great sponsorship of the NFL. We’ll continue to do that. Player wise we have a sponsorship with Chris Long, Howie Long’s kid. He was one of the top draft choices. We’re using him in some advertising . . . Brand building these days is getting more and more interesting. It is going to be a fascinating topic with the media changes. Because of the writer’s strike, it will be interesting to see if people come back next fall versus doing other stuff than watching network TV. How do you get a message up quickly when you get viewership declining as it is? With networks it is very frustrating when you have to pay more for something that’s less valuable. Less people are watching TV, but the demand to reach people has grown. There has to be a tipping point where people will say it’s worth the risk to go into non-proven media because it’s so expensive do TV. It drives us as advertisers crazy. That’s why we’re more willing to do brand integration, movie-tie-ins, and find alternative ways until the networks get their acts together.

Judging by the Upfronts, the networks are doing just fine.
JM: It’s artificial. There are elections and the Olympics. Look at the car industry, which is down. They can’t sustain their advertising budgets so at some point money will be coming out of the market. For this year there was artificially high demand. Hopefully viewership will be back up then we won’t mind paying what they asked for. Last year’s scatter market was very difficult so that scared people and a large percentage of the budgets went to the Upfronts. The networks did well this year…Digital is growing this year. It is growing rapidly as are some other non-traditional tactics like brand integration. We did a lot with Biggest Loser and American Gladiators which was a little different, but it’s still about fitness. We’re always looking for partnerships. [Network buys] are really going to be driven by economic factors. The auto sector will be down. The financial sector I have to believe will be down. Therefore you should see some sort of normalization. Take the flat restaurant category. Fast food marketing budgets will be flat. The [fast food] category is going through, well shake up would be the wrong word, but when the economy gets tough fine dining goes to fast causal and then that goes to quick service restaurants. We benefited at first. We were somewhat insulated. But it’s starting to hit quick service restaurants. We are usually the last ones to be affected. But we are now being affected too. Subway is still opening quite a few new stores. The pace isn’t what it used to be, but we’re at 21,000 which is more than anyone.