First Move’s Julia Chatterley spoke to Chidsey Thursday.
Explain what differences consumers are going to see.
Chidsey: When our new team came as a group in the last year and a half or so, we obviously did a lot of consumer research. We went out and talked to lots of our franchisees. And the one thing both groups really were looking for was food innovation — the brand hasn’t had a lot of food innovation in the last five or six years — also looking for food that was a little more craveable. We went to work over the last 15, 16 months, really working on our core ingredients — upgrading our turkey, upgrading our ham, our new bread products, smashed avocado, lots of different core ingredients. Between new sandwiches and upgrades to core products, there’s about 20 new things that we’re going to expose to our guests or consumers, so it’s really the biggest refresh in the 56-year brand history.
It’s a very innovative industry and you constantly need to refresh to stay fresh, so to speak, and what we really want to do is demonstrate to our guests and consumers that Subway is back on top of its innovation game.
So it’s better quality ingredients we’re talking about. Is that going to translate to higher prices?
Chidsey: Given our footprint and how big our scale is, we’ve been working on this for 15 to 16 months, and we work very hard to offset all these costs by changes in packaging and other things we did, so we were able to do this on a cost-neutral basis — so we thought. As you point out with inflation rising, obviously the entire quick-service restaurant industry is facing price pressure. And while we don’t yet know how transitory it is or how permanent it will be, obviously if it continues at a sustained level and it’s consistent, you will see some of that inevitably being passed through to the consumer.
Can you give us a sense of how much?
Chidsey: No. At this point, it’s way too early. It is challenging, but we’re a little insulated, at least in the short run, because of this big brand refresh. As an example, we’re giving away 1 million free six-inch subs today in the US. Knowing how big this relaunch was, we pre-ordered as much food and protein as possible, so we’re somewhat insulated. But obviously we will run through that, and again over time, we’ll figure out how permanent a lot of these cost increases are.
There was a report that went around like wildfire, that suggests that your tuna products don’t contain tuna. I believe the suit has now been amended to say it’s not made 100% with tuna because it doesn’t always use skipjack or yellowfin tuna. What’s the deal with Subway tuna? Can you just clarify for us?
Chidsey: I’m really glad you asked that question. The amended complaint to be corrected now does say it is 100% tuna. They question what kind of tuna it is. But they acknowledge it is 100% tuna. That’s not the real issue. I say follow the science, and if you follow the science, once tuna is cooked, its DNA becomes denatured, which means when you go to test it, you can’t tell one way or the other. We have a website out there called subwaytunafacts.com. It will take you through all the science. You can see every bit of the story there, and I think that will obviously put the facts out there and clarify all these misconceptions. The last thing I would point out, is again, we’ve been working on this refresh for 15 to 16 months and the one thing we did not touch was our tuna. We worked on turkey. We worked on ham. We worked on chicken. We worked on steak. People love our tuna. We’re very proud of our tuna, so I think that’s really the end of the story.
What are you hearing from franchisees about some of the challenges they are facing?
Chidsey: Contactless pickup and delivery were more important to us because we don’t have drive-throughs like Burger King or McDonald’s. Despite that we’ve had a 217% increase in digital sales since 2019. Our third-party delivery sales are up 260%, so we’ve been improving our digital experience and really trying to drive consumers that way. So I would argue Covid was actually an accelerant in pushing the business where it was already headed. So franchisees are very happy and thinking of the investments that we’re making in that space. The other thing I would say — not just true in the US but in Europe and Asia and other parts of the world — in the first six months of the year, the entire brand has been positive. If you look — positive not just against 2020 but against 2019. The brand has started to move nicely over the last six months so I’m encouraged by what we’ve seen in the US and more importantly globally.
Any challenges in hiring for your franchisees?
Chidsey: Yes. It’s a struggle in the US, for sure. It’s a struggle globally, as you know, as well. The one advantage we have on our restaurant footprint though is we’re a much smaller footprint so we need less labor than other people. And one of the things we did knowing we had this refresh was coming: We got out in front of it in May on our digital app and pushed heavy for hiring, and we were able to hire about 40,000 people in that timeframe so that helped. Labor has always been a big issue and this is one of the times when we have to fight our way through.
Do you eat your tuna?
Chidsey: I absolutely do. It’s one of my two favorite sandwiches.
What’s the other one?
Chidsey: The Turkey Cali Fresh. I know it sounds like a shameless plug but it’s one of my favorites.