Subway’s U.S. sales fell 4.4% in 2017, and for the first time in the company’s 50-plus-year history, the chain closed more stores than it opened in 2016.
The chain’s recent struggles can be attributed to a number of factors – tensions with franchisees, the arrest of ubiquitous spokesperson Jared Fogle, oversaturation and growing competition among them. However, Subway has made aggressive efforts to rectify its issues from the past two years. The chain is currently undergoing comprehensive store makeovers, it has jumped into delivery, and it has launched a number of digital initiatives, for example.
It’s been about nine months since Subway launched its MyWay loyalty program, one of Carissa Ganelli’s first initiatives after being named chief digital officer in October 2017. She said the program’s objective is quite simple: “I want to make it as easy as possible for customers to get our food.”
Having the right loyalty program in place is critical now in the intensely competitive quick-service space. New research from AlixPartners shows that 63% of millennials believe a loyalty program is important. However, there are also indications that loyalty programs aren’t giving millennials what they want; 70% said they engage with less than half of the loyalty programs to which they belong.
Conversely, Subway is seeing plenty of engagement so far.
“It is blowing away our expectations. We have 10 times the number of enrollments compared to the old loyalty program with zero advertising,” Ganelli said.
Moreover, Subway is seeing a “material” lift in frequency and ticket for loyalty members.
Ganelli attributes the program’s success to its three elements:
- Cash value reward – customers earn $2 for every $50 spent
- Frequency rewards – customers receive “surprise and delight” rewards if they’re frequent customers
- Personalization – Subway will encourage and remind customers to redeem their rewards
Because of quickly-changing consumer expectations, the company took a page from a number of loyalty programs, including CVS, Panera and Sephora.
“If you purchase something online, you expect a simple, one-click checkout. You expect simple technology that is intuitive,” she said. “Why would we create something different when the mental model that customers have has been ingrained by other best-in-class players in the marketplace?”
Importantly, customers aren’t the only ones responding. After much-publicized tensions with its franchisees earlier this year, Ganelli said there is buy-in for this and other recent programs from Subway’s franchise base. About 20 franchisees are represented on a loyalty advisory panel, for example.
“We shared every step of the way with them – the reporting, what value we were getting, the average ticket compared to regular customers. We co-created this with the franchise community,” she said. “Plus, this drives top-line revenue growth in an incremental business with no accretive fixed cost. Having a loyalty program is table stakes and our franchisees know that.”
Other initiatives underway
One of the major grievances from Subway franchisees throughout the past few years was that the company was slow to innovate. But programs that have recently launched, projects in the pipeline and whiteboard ideas seem to indicate things may be changing.
For instance, last year Subway launched ordering on Facebook Messenger, about two years after it jumped into remote ordering capabilities. Ganelli said mobile ordering has experienced 100% year-over-year growth, “again with no paid advertising.” Some part of that growth was supported by the loyalty program, while some was also due to an update to the app.
“We’re just trying to make it as easy as possible, and as frictionless as possible. Why do you need 27 steps to order a sandwich? We have a whole team of people trying to reduce the clicks a customer needs to order and pay,” she said.
Like nearly every other restaurant company, Subway is also expanding its delivery footprint, partnering with Uber Eats, Grubhub, DoorDash and Postmates. The service is now available at nearly 9,000 restaurants. Michael Lang, Subway's senior director of Global Convenience, said the company chose to go with four delivery partners versus one because it offers a broader choice for customers.
“By partnering with the four largest delivery providers, we are able to leverage their expansive geographic networks to deliver customized meals to our guests wherever and whenever they want them. We have also seen that each of the providers attracts a different – and loyal – consumer following,” he said.
Plus, Lang said that being available in more places drives an additional revenue opportunity for Subway’s franchise owners.
Subway also continues to roll out its Fresh Forward restaurant redesign, which features a number of digital elements including self-order kiosks, digital menu boards and a designated pick-up area for off-premise orders. The company is still testing kiosks, but Lang said the goal is to provide solutions that create a great dining experience and support franchisees.
Like the loyalty program launch, these solutions have been developed in conjunction with franchisees.
“Our goal is to offer options to our guests to make it as easy as possible for them to purchase our food, as well as offer options to our franchise partners to enable them to engage with guests in a variety of ways,” he said.
So far, Subway has noticed that guests who order via kiosks versus the counter tend to order more 6-inch subs versus footlongs, add toppings such as bacon, and make their order a meal, with a drink and chips or a cookie. In other words, the company is noticing upselling opportunities early on in the pilot.
Whiteboarding the future
According to Ganelli, these initiatives are just the tip of the iceberg. Though no plans have been solidified, she talks of how innovations like augmented reality, virtual reality and voice ordering could feasibly fit into the Subway system.
“What if Google Glass had taken off, or Snapchat Spectacles, and you could blink to place an order? What could we do for our loyalty members to make it as easy as possible to get extra features or benefits? Glasses or contacts? I have no idea,” she said. “But the point is we’re constantly evolving and iterating and looking outside of our industry and we have a lot of fun whiteboarding it.”
More practically in the near term is a tiered loyalty program. Ganelli said she doesn’t know what that looks like yet, but she likes the idea of offering more value to guests who come in more frequently.
“We should have more benefits for our most loyal customers. Consumers are fickle, they’re eating at home more and we have to do what we can to make sure we’re there – that we’re top of mind and in their path. That means we have be where they are and that is in the digital space now,” she said. “I’m very excited we’re dabbling in some of these new technologies. We’re not sure about the commercial applications or the revenue generating possibilities, but they excite me.”
