Best of Business Wars Daily | Slicing Up the Sandwich King | 6

0:05You know, buying a fast food franchise can be a way to climb the economic ladder in America. but it by no means guarantees success. Factors like the store's location, the cost of labor and supplies, what kind of food is trendy, they all play into whether you can make or break it as a franchisee. Heck, even the popularity of the brand's mascot and the strength of its social media strategy can tip the balance. And as we'll explore in our new series Subway vs. Quiznos, the policies of the parent company are often a deciding factor in whether franchisees win or lose in this cutthroat business. Some analysts have argued that the way Quiznos mismanaged its franchises was a big part of its downfall.

0:45And in more recent years, Subway has also had a rocky road. It's had to close thousands of stores year after year. Franchisees argue that its deals like the famous$5 footlong eat into their profits. Well, here to talk about all that and a whole lot more, journalist Sam Okus and comedian Kyle Kinane. Stick around for the best of Business Wars Daily.

1:10Hi, I'm Lindsey Graham, the host of Wondery's American Scandal. In our latest series, three teenage boys from West Memphis, Arkansas, are accused of a vicious triple homicide. There's no real evidence linking them to the crime except rumor and fear. And that'll be enough to convict them. Listen to American Scandal on the Wondery app or wherever you get your podcasts. In just a few years, Ozempic has gone from a diabetes drug to a global phenomenon. But as demand explodes, squeezing supply, counterfeit versions are flooding the market. I'm David Brown, host of Business Wars, and in our newest season, we dive into the high-stakes race to supply the world's hottest weight loss drug.

1:47Make sure to listen to Business Wars on the Wondery app or wherever you get your podcasts.

1:59From Wondery, I'm David Brown, and this is the best of Business Wars Daily, where we talk about trends, controversies, and how they affect you, the consumer. And we're joined by Sam Okus and Kyle Kinane. Kyle, welcome. Your new comedy special is called Shocks and Struts, and I understand that Vulture named it one of the best comedy albums of 2023 so far. A comedy bloodhound, I think they were calling you, right? Pretty high praise right there. Yeah, I like that they said best so far. It did come out in March, so it was a pretty early estimate. It's not about nine months left on the year. They're hedging their bets, you know.

2:35What's the special about? Tell us. I mean, there's no ongoing theme. I think, if anything, my comedy in general is about trying to be better. I like comedy that's inward, not outward, so it's usually pretty introspective and analyzing my faults in a public forum. You know, here's shocks and struts, though. I immediately think autos, but then I can also think how that can have a lot of doubled meanings, if you would. Yeah, I kind of like the faux arrogance of calling it shocks and struts, and I do neither of those things on stage. Sam, you're the editorial director of two major industry news sites, Nations Restaurant News and Restaurant Hospitality.

3:18How'd you get into this business? Yeah, hey, David. Sheer luck. I just sort of stumbled my way into this. I was a trained business journalist, and I found myself in a position where I was an associate editor of a food magazine and worked my way up to this position. Like I said, I'm a lucky guy. I've never worked in a restaurant, kind of a dirty little secret. But I've been covering this industry now for almost 15 years. And so I kind of feel like I've worked in a restaurant or many restaurants at this point. But it's a blast. This is a people industry. I love being able to cover the restaurant industry.

3:48How much time do you spend at the table versus back in the kitchen now? You know, I do have the ability to... Some companies will invite me back into the kitchen. We'll go through, we'll film some video cooking some food. Most recently, I got to cook some White Castle sliders at White Castle headquarters, which was a lot of fun. Oh, that's awesome. Yeah, and I'm not a food critic, despite what my mom thinks. I'm not a food critic. Everybody thinks so. I'm a very straightforward fast food guy, especially with young kids. You know, we started this episode off talking about Subway's troubles. Back in February, the chain announced it was looking for a buyer, and with a price tag of$10 billion to boot, we covered the potential sale and Subway's recent upswing on Business Wars Daily.

4:28Let's take a listen. And now a new innovation, in-store meat slicers. No more sliced meat being shipped to locations. No, this year, sandwich artists will slice meat right in front of customers, which execs hope could boost sales.

4:47In-store meat slicers. What do you think, Kyle? Will that get you into a subway? I thought, well, they're just stepping up into being an actual deli like everywhere else, slicing the meat. I kind of enjoyed it when it all came in the pre-planned little folder. I'm also trash, by the way. I should let you know that. I liked it when it was like, oh, we're doing a cold cut combo, and they just had like a file folder of different meats that they would just slap right onto the bread. I appreciate the efficiency. Are you a Subway fan? Are you a real customer of Subway or not so much? No. No, back in the day I used to be, I think with the options that have come out now, I usually align myself with a pot bellies.

5:34No affiliation here. I just say if I'm going to enjoy a sandwich, it's usually a pot bellies. So you're not so impressed by the whole meat slicer business? No, I mean, that's just kind of what you should be doing at a deli. It's like we're washing our hands now. Like, oh, yeah, you were supposed to be doing that this whole time. Sam, what can you tell us about the latest in terms of this potential sale? Well, first I want to say, Kyle, I think file folder of meats has got to be a new menu item at some restaurant chain somewhere. That's golden. Yeah, I mean, look, Subway, they're trying to clean up their image.

6:11Their slogan was eat fresh, right? Like slicing your meat in front of the customer. That's something that competitors like Jersey Mike's do. There's a theater to it. I think Subway recognizes they are no longer the king of sandwiches. they have got to clean up their act. And a part of that is for this sale, as you mentioned, David. They're looking for a$10 billion plus, hopefully, for them acquisition. That's what they want. It's currently been estimated between$8 and$10 billion. But I think it's very much in their interest to try to get their house in order, which is what they're doing now, so that they can go over $10 billion to really maximize the return that they're going to get on this.

6:49Kyle, you mentioned that, well, I'm not going to repeat what you just said about yourself because it wouldn't sound very kind. But I'm curious if you think that this sort of, I don't know, musical chairs in the sub business, if that really affects your decision making when it comes to getting a sub sandwich. I mean, how picky are you in the first place when it comes to eating fresh? well i i've gone uh vegetarian in recent years so that kind of cuts down on my deli trips but if i'm going to subway i knew what i wanted from subway i did not only did i want a meatball sub i wanted them to have to fish around in the sauce to find the meatball that's been in there for good on about six or seven months that's the meatball i want the one that's just been in there hiding from everybody.

7:46That's the stuff that excited me. Subway really lost me when they stopped canoeing the bread. They used to cut out the top and then slap the stuff in there and then put the hood back on it. I remember. Yeah. Once they stopped doing that, I liked that. That was their little touch. It wasn't like it was fresh or it was good. It would just do a weird thing with the bread. I liked that. You need to open a restaurant, Kyle. The terms that you use for food. I paint with words, Sam. I paint with words. But, you know, Sam, I think what Kyle's saying here, it kind of cuts to something and no pun intended.

8:19And I think that that's the idea that a lot of people are looking more for convenience than they are necessarily for freshness. And I know it's it's been, you know, part of the part of food journalism to say that people are looking for more wholesome choices. cases. I wonder, what do you think? Yeah, I mean, there's been a turn toward that recently, right? Which I think in the 2010 to 2020, there was a real concerted effort to do high quality. That was where you saw the surge of Chipotle because their message was on quality. But in the last three years, with everything we've been through and the revolution of technology, mobile ordering, things like that, suddenly we want everything at just one press of a button on our phone.

9:06We want everything conveniently delivered to us. And so that is the name of the game. And I think one way Subway is doing that is, you know, they rolled out a new menu with, you know, numbers. This was famously Subway was not that kind of restaurant. Famously, you go in and you customize, you point and say, I want that, I want that, I want that. They did a new menu where they said, okay, I want the number three, I want the number eight. I think they had 12 options when they rolled this out. And to have signature options like that is about convenience because you can just press one button on your phone and it's delivered to you.

9:38You don't have to busy yourself with tomatoes and lettuce and onions and all of that stuff. Yeah. Well, having said that then, why does Subway find itself looking for a buyer? I mean, it's tried a lot of different recipes over the years to come up with something that's going to be a winner. And clearly they're under siege like never before in the past, what, 20 years perhaps. And I'm curious, how do you see it? Why are they looking for a buyer? They're kind of in big trouble. I mean, not big trouble. Maybe it's overstating it, but they've closed something like 6 ,000, 7 ,000 restaurants in the last five, six, seven years.

10:14At their height, they had 27 ,000 locations in the United States. For context, there are about 14 ,000 McDonald's in the United States. And now they're down to about 21 ,000. And they're closing a bunch because there's too many subways. It's a joke that Subway is basically on every corner. There's a subway across the street from a subway. They were in the business of selling franchises to basically anybody who wanted to buy one. You got$25 ,000,$30 ,000, hey, you get a subway. And that's not a good model for growth because a lot of these people are not qualified to run a subway. Or if you are across the street from another subway, you're not going to be able to make the kind of money that you need to stay open.

10:52And so now that they have faltered in this way where they're closing so many restaurants, they need a refreshment. They need a renaissance of Subway in order to get back to a point where they're going to be at peak strength. Someone like Kyle. They need someone with a vision, Kyle. So how much pocket change do you have laying around? I heard that$30 ,000 number. I'm like, ooh, I could just be sitting in there. That's a franchise. Fishing for my own meatballs? All right. Would you be interested? I mean, do you think that this is a good business to get in, Kyle? Well, I mean, more to the business sense of it, how many competitors, like now you can get Jimmy John's in a lot of locations, a Potbelly's, a New Jersey Michael's.

11:33I like to go by formal names. Yes, of course. I like to call him a nice James Jonathan's, a New Jersey Michael's. But there's so, yeah, there's just so many more out there. And Subway is kind of, I don't know if it's just old hat, you know, like, oh, we can go to Subway. Or we just go to one of these others or the convenience thing doesn't fall on me so much. I do like to go in and see it being made. Maybe it's a trust issue. That's larger, more deep-seated psychological issues. But yeah, Subway just, where's the razzle-dazzle? Did they have to change things up, Sam? What do you think? I mean, do they need something completely new?

12:11Are they going to be able to get this sale done? Oh, I think so. I mean, they've got private equity firms kind of salivating at the thought of acquiring. But if it tells you anything, Goldman Sachs, Bain Capital, these are the names that have been thrown out as potential buyers, which we'll just want to get in there, really retool Subway, set it up for a bigger sale, of course. But yeah, I mean, David, to your question, they need something. Because like Kyle was saying, when you have all these competitors, Subway doesn't seem like the go-to option anymore. The other thing, too, I think you have to remember is about 10 years ago, Subway was considered healthy fast food.

12:46Whenever they would do these surveys, customers would say, oh, that's the healthy fast food option. I mean, I certainly had that mentality. It was a health halo, whereas they're not that healthy, of course. They were just healthier than a lot of the options. And ever since then, you've gotten sweet green, kava, lots of salad places. I mean, there's a lot more options out there for healthy food. So I think Subway has lost some of its identity. I don't think they really know. And they're a little bit rudderless, quite frankly, since their founder died several years ago. Fred DeLuca was in charge of this thing for 50 years, and then he passed away, and they've been rudderless.

13:21They need an identity. Well, everybody stay tuned because we're going to be talking about more changes in the fast food industry and the way Subway is borrowing from McDonald's playbook as the best of Business Wars Daily continues.

13:38In just a few years, Ozempic has gone from a diabetes drug to a global phenomenon. But behind the miracle claims, another battle is raging. Demand is exploding, supply can't keep up, and as drugmaker Novo Nordisk scrambles to produce more, its rival Eli Lilly is racing to take the crown. Meanwhile, a darker market is emerging. Shady online sellers are offering cheap, unregulated knockoffs. Now millions are injecting mystery vials with no FDA oversight. I'm David Brown, host of Business Wars. In our latest season, we're diving into the race to Ozempic and the billion-dollar showdown between Big Pharma's biggest players.

14:17Can they close the supply gap before one bad vial destroys everything? Make sure to follow Business Wars on the Wondery app or wherever you get your podcasts. You can binge all episodes of Business Wars early and ad-free right now on Wondery+. I'm Indra Varma, and in the latest season of The Spy Who, we open the file on Oleg Gordievsky, the spy who outran the KGB. A rising star in the heart of Soviet power, Gordievsky is secretly feeding MI6, the Kremlin's deadliest secrets. For 11 years, he walked a razor's edge, exposing KGB threats that hastened the Cold War's end and helped prevent nuclear annihilation.

15:03But the KGB have a mole of their own. When they discover the truth, Gordievsky's world collapses. MI6 hatch a desperate, high-stakes plan to smuggle him out of Moscow. An escape that could rewrite history. Follow The Spy Who on the Wondery app or wherever you listen to podcasts. Or you can binge the full season of The Spy Who outran the KGB early and ad-free with Wondery Plus.

15:43Hey, welcome back to the best of Business Wars Daily. We're talking with restaurant industry journalist Sam Okus and comedian Kyle Kinane. Let's take a walk down memory lane, shall we? Back to the 1970s, when McDonald's originated the first fast food playground. By the 90s, those were indoor padded playgrounds, of course. And these days, they're rather hard to find. As Eater reported, playground equipment is difficult to maintain, the real estate to house them, expensive, they're a liability, and, well, you know, people feel a little bit differently about these shared spaces post-pandemic. But Subway's bringing back a version of the fast food playground.

16:21Let's hear a little bit more about those plans with a clip from Business Wars Daily. The new concept is the, quote, Subway Oasis that will be unveiled possibly later this year at select U.S. restaurants. The Oasis locations will include fast-charging EV canopies along with Wi-Fi, restrooms, picnic tables, and even playgrounds, insider reports. And while a firm date has not been set for the first Oasis to open, the concept drawings feature Subway's green and yellow branding, a nod to the times when you could recognize a fast food location by its distinctly shaped roof or towering neon logo signs.

16:58The move makes Subway one of the first companies to plan a network of EV charging stations, and here's another advantage Subway's concept will have over McDonald's playgrounds, revenue. The company's working with two EV tech startups to open these parks. Insider reports that a 17-minute charge will cost about$20. bucks. Meanwhile, the kids can choose to play on the playground or on their phones while they wait, with their parents' permission, of course. And that may well be a concept with staying power. Well, Sam, maybe that's it. Maybe it's not so much a subway and sub sandwiches, but more charging up your EV and getting to play on that playground while you're waiting for it.

17:44Is that going to work? It might. I mean, I think this is a play toward younger generations for sure, right? Going back to what we were saying before, Subway's kind of lost its identity. It used to really rule as this kind of healthy, perceived healthy option. It was one of the only sandwich players in many communities across America. For the longest time, it really owned this category. now that it has this competition and now that younger diners are looking for something else, you've got to do something else. And so this is an effort to do that. You think about millennials, they have families now, they have kids.

18:21To appeal to them, you have to appeal to their sensibilities. So an EV charging station, as electric vehicles become more popular and that trajectory is not slowing down, right? And so you see the younger generations will probably fuel a lot of those sales, then you're going to want to provide for them. You want to have a playground for their kids. You want to be a destination for activity and really serve their needs, because that's one of the ways to stand out as a differentiator. PopElly, to my knowledge, does not have any playgrounds, right? So Subway, if they have those, you could be the option.

18:54Kyle, you strike me as something of a progressive sort. I mean, you decided to forego meat now. Have you gone the EV route or no? Haven't done that yet. I still will. My tentpole in this argument is canoeing of the bread. They need to return to the canoeing of the bread. But besides that point, yeah, I guess maybe because they have so many locations, having charging stations put into those locations is convenient. I haven't done electric. I still buy gas. I still also eat food from gas stations. So there's something to be said that if you're going to power up an electric car, you're probably going to go into Subway and eat there.

19:36It might work. Yeah. I mean, after all, it takes about, what, roughly 30 minutes to get a decent size charge on most EVs, I guess. So you're going to be sitting around, may as well have a sandwich. You think it's a good idea, Kyle? Well, is that now my conspiracy brain is going to, like, are they going to make the sandwiches slower? so you got to spend more money charging your car to try and keep you in the business more. I didn't go to business school, but I'm thinking like, hey, slow down. That's why they're putting the deli slicers in. It takes longer to prepare the sandwich. Now you got them sitting there in the parking lot, spending money on charging the car.

20:12It's all coming together now. These ideas are free, right, Kyle? I mean, you're just giving these to people. It's incredible. For right now, maybe I shouldn't be just talking willy-nilly on podcasts about these plans. Well, and I will say, Tam, when you think about it, if you go for a road trip on highways, you know, I used to live six hours from my parents' house. I'd be on the highways a lot. And, you know, your options are McDonald's, Wendy's, Taco Bell, Burger King, Subway, right? Like, those are your options. And so it actually does make a lot of sense if you think of some of these travel plazas as electric vehicles become more popular.

20:45If you can stop in front of Subway, get your meal, charge up, your one-stop shop, like Kyle was saying, like a gas station has been for eternity. Sam, you left out Sbarro's, but I guess you're not from the East Coast, right? Oh, I know some good Sbarro's. Right in the middle of West Virginia, there's a Sbarro that I have frequented. Yeah, that's another one of those food travel plaza standbys. Sam, wasn't Subway also trying out something like AI-powered refrigerators, or am I misremembering that? Yeah, essentially vending machines. Yeah, they were. All of this falls in line with where a lot of the restaurant industry has been going, particularly starting in 2020.

21:25And, you know, bigger picture, starting in 2020, by necessity but then by choice, consumers really started to do more off-premises dining. So they want to take it to go. They want to go through the drive-thru. They want to have it delivered. Less and less are they actually sitting in a dining room. And so what you saw a lot of particularly fast food and fast casual restaurants do is shrink the footprint of their restaurant. because all of a sudden you can be more efficient. You can have a smaller operation with the same size kitchen, smaller dining room, pay less on your space, on your rent, but you're sending out the same amount of food out the door.

22:01And a lot of these ideas are kind of falling into that mindset, which is if I shrink my footprint, if I use technology, if I have mobile ordering drive-through lanes, I can really send out a lot more food even. It's more efficient of a business model, but save money on the real estate at the end of the day. So that's where Subway's mindset is at. So the vending machines are just one part of that. It all comes down to access of food. It's not about brick and mortar, main and main. It's about how do I get food from there to here in the fastest amount of time? And a vending machine is one solution.

22:35You know, it strikes me that we got into this conversation talking about Subway borrowing from McDonald's and the playground thing. But we all kind of got excited about the whole EV concept, you know, being able to charge your car while you get some food. And, of course, the AI-powered refrigerators are a way to kind of tickle that tech funny bone, I guess you could say. And I think a lot of places are sort of looking to tech as the future. But this whole playground idea, maybe we shouldn't dismiss that too quickly because I wonder if that sort of hints at good ideas from the past that have been abandoned or maybe outlived their lifespan once upon a time.

23:16But maybe it's time for a return. And one of the reasons I say that, I have always liked the idea that – I don't know if you've ever been to a place like Sonic, for example. But I've always dug the idea of that drive up, you know, someone comes out and brings your order to you. I miss the roller skates, you know, the whole Mel's drive-in thing. Wouldn't that be – I mean, is there something out there, some retro thing that could be stylized maybe in a more contemporary way but offer a kind of convenience and a kind of service signature that could be the start of something big? I mean, either of you have any thoughts on that?

23:55Let's do it. Can I just give you a million dollar idea right now? Yeah. Kyle, you've been doing it all show long, so come on. I'm surprised I'm not. I haven't amassed more wealth as an individual because I'm giving these ideas to you for free. Don't hold back. I'm about to hire Kyle, by the way. You take, okay, a Subway sandwich is already like a cylinder. You make them like old banks. you can serve four people on each side make the sandwich shoot it through the thing like the drive-thru bank and the tube pops out right by your door you're not leaving your car it's a drive-thru but it's serving four cars at a time and it's fun to watch your sandwich fly through the tubes and it's already it's contained so it's not getting all messed up like a burger or fries or something there you go there you go we laugh about this but they are honest to god They are testing this.