Breakfast on the Subway

Published in CSP Daily News

Another QSR jumps on the morning train as c-stores lose a.m. foodservice share

MILFORD, Conn. -- Even as convenience stores lose their share of the morning foodservice market, another quick-service restaurant in entering the breakfast fray. Subway is joining the increasingly crowded breakfast scramble in a move that the sandwich chain hopes will help add customers and sales.

After years of testing, almost all of Subway's 23,000 U.S. restaurants will begin selling the meal April 5, according to a report from the Associated Press. When they do, the nation's largest restaurant chain by number of outlets will be a big player in the breakfast game, which [image-nocss] can be handsomely profitable if done right.

"There are a number of other competitors of ours that are trying to suss out the breakfast opportunity, and I'd rather be in the market before they get there," Tony Pace, chief marketing officer at the Subway Franchisee Advertising Fund Trust, the chain's consumer marketing division, told AP. "Is there going to be competition now? Of course. And it's going to be fierce."

The move comes as recent data shows c-stores lost 2.5 percentage points of its 17% share of the morning meal market between 2001 and 2009, according to an NPD Group/CREST report. Over the same timeframe, McDonald's share of morning meals grow from 17.1% to 19.8%; Burger King grow from 8.6% to 10.9%; and Starbucks grow from 3.5% to 10.3%. (For more on the NPD Group/CREST report, see the story "A.M. Opportunities" in the April issue of CSP magazine.)

And as reported in early March in CSP Daily News, the Quiznos sandwich chainwhich is making a big push to reach c-store patronswill begin serving breakfast, including cinnamon rolls and biscuit-and-egg sandwiches, among other items, at its c-store locations this month.

Subway's new menu, already being served in some U.S. cities and throughout Canada, sticks with Subway's sandwich specialty. Featuring customizable "omelet sandwiches," the options include a combination of eggs or egg whites, cheese, ham, bacon, steak, sausage, peppers and onions in addition Subway's other toppings, according to AP.

Sandwiches will be served on English muffins, flatbread or the restaurant company's traditional sub rolls.

While franchise ownerswho operate all of the company's 25,000 North American locationsdetermine the prices of the breakfast items, suggested prices will range from $1.75 to $6. A combo meal featuring an English muffin sandwich and coffee would be $2.50. Advertising for the new menu will begin next week.

Breakfast has become a popular addition to fast-food chains in recent years as companies clamor for diners. Since coffee, eggs and other breakfast ingredients often come cheap, the meals typically can rake in big profits for restaurants. While heavyweight McDonald's promotes its new dollar breakfast menu, other competitors are getting into the mix. Among them: Taco Bell and Wendy's, which are both testing out breakfast menus.

It's not a sure thing. As the economy soured, so did breakfast sales as customers cut back on spending and unemployed workers stopped visiting restaurants on their way to work.

According to research firm NPD Group, the number of customers buying breakfast at fast-food restaurants slipped 2% in 2009. Even so, that's better than the 5% decline recorded at dinner.
But that's not keeping restaurant chains from trying. Restaurants added more than 460 new breakfast items to menus in 2009, according to market researcher Mintel. That's more than in 2008 and 2007.

"It is a very competitive landscape," Morningstar analyst R.J. Hottovy told AP. "They're going in at a time when everyone's done a renovation on their breakfast menu in the past year or so. But I think if they do it right, they're probably positioned to profit from it."

Some franchisees began serving the meal years ago, and by last year, nearly 40% of the company's locations had some sort of breakfast item on the menu, Pace said. As the popularity of the meal grew, the company inked a deal with Starbucks Corp. in November to sell its Seattle's Best Coffee in stores and began completing its nationwide breakfast push.

The chain recommends locations begin serving the meal at 7 a.m., although some will offer the menu earlier. Pace said breakfast items will remain available to order after the traditional morning meal period.

Subway is owned by privately held Doctor's Associates Inc., based in Milford, Conn.