Subway vs Quiznos | Anywhere and Everywhere | 2

0:00A note to listeners, the material in this episode covers weight loss and dieting, which some people could find upsetting.

0:14It's a sleepy Sunday afternoon in 1982 in Wilmington, North Carolina. Subway CEO Fred DeLuca and one of his regional franchise agents walk into a nearly empty subway. It's located in a strip mall on the outskirts of town. DeLuca's in his usual colorful weekend wear, a rainbow-striped button-down shirt and khakis. The company now has 300 locations in 20 states. DeLuca's touring the South to get a sense of how franchisees are doing. He gives the teenager at the counter a big smile. Hey, is your manager available? I'm from headquarters back in Connecticut, just checking in. The kid quickly slides a Sports Illustrated swimsuit edition out of sight behind the cash register.

1:01Actually, my manager's not here. He's out picking up the bread at the bus stop. DeLuca and the agent exchange a look. DeLuca points at the hidden mag. That's a good issue, son. Just keep it out of sight of customers, okay? Anyway, what's the deal with this bread run? Rolls usually get delivered to our stores. The manager picks them up at the bus terminal in town. He should be back in like 20 minutes. DeLuca lifts up his hands in exasperation. He's from a big Italian family, and they all talk with their hands. Are you pulling my leg? He has to drive 20 minutes to pick up bread? The regional manager grabs a bag of potato chips from a display rack and tosses it on the counter.

1:42Ring that up for me, will you, and I'll take a Coke, too. Bread, I can fill you in on what's going on here while we drive to our next stop. Back in the car, the manager takes a swig of his drink and pulls out of the parking lot. So here's the story. The bakers here don't make sub rolls like the ones back east. It's not worth their while to make special orders for just a couple of stores. That manager told me he busted his butt trying to find a baker who'd do it. And he finally found one 40 miles away who agreed to send the rolls in twice a week by bus. DeLuca shakes his head in frustration. But that means he only gets fresh bread twice a week.

2:22So he's serving stale rolls? The manager nods. And he's not the only one who's had trouble with this. It's a real time suck for franchisees to find bread locally. And when they finally do, they tell me the bread's expensive and inconsistent. Sometimes it's rounder or sweeter or saltier. These bakers are really unreliable. For the rest of the tour, DeLuca can't stop thinking about the bread problem. He's well aware from their market research that people love Quiznos bread, toasted or not. If he can't crack the bread conundrum, newcomer Quiznos will corner the market on homemade oven-baked goodness and knock Subway off its fast track to sub-sovereignty.

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4:58From Wondery, I'm David Brown, and this is Business Wars.

5:24On the last episode, a teenage Fred DeLuca grew Subway from a single shop into a 200-location franchise. Meanwhile, an experienced Italian chef in Denver perfected a quick method for toasted sandwiches and built a small Italian specialty restaurant chain, one with a quirky name, Quiznos. Now, a newly minted MBA in Colorado is considering buying Quiznos, and he is not satisfied with staying local for long. This is Episode 2, Anywhere and Everywhere.

6:05It's a bright spring day in 1987 in downtown Boulder, Colorado. 22-year-old Rick Shodden sits at a table in a busy Quiznos. He's eavesdropping on customers around him, mostly business people from nearby office buildings. He's got a brand new MBA degree, and he's dressed in the requisite pinstripe suit befitting his job as a stockbroker. The scent of toasted mozzarella and herb-roasted turkey fills the air. It reminds him of his college days, when he used to eat at Quiznos whenever the dining hall was closed. He shifts a little in his seat to eavesdrop on a woman talking with her friend at a neighboring table.

6:44Hmm. I usually get the tuna melt, but I'm really glad I tried the spicy turkey today. I don't even like spicy food, but this is seasoned so well, and the cheese is perfectly melted. Can I have a bite? My salad's okay. At least it's fresh. But honestly, I'm not that hungry. I think I'm going to break up with Jeremy. My spidey sense is telling me he's cheating on me. Shaden takes a pen out of his suit pocket. He writes the women's food-related comments in a notebook and scans the room for other helpful customers. He's using his lunch hour to research restaurant chains. He and his father, a wealthy attorney, recently had a stock market windfall, and Shaden plans on using the money to pivot to what he always wanted to do, build his own fast food franchise.

7:35eyes. But he's still not entirely sure Quiznos is the right company to buy into. Chardon notices two men at another table. Hmm, you know, I don't know what the hell they put in this thing, but I think it's the best sub I've ever eaten. His friend reaches into a bag of potato chips. Yeah, I bring people in here all the time. The bread's so much better than Subway's. I even brought a client here once because he was short on time. He said it didn't taste or feel like a fast food place. Chauden scans the restaurant, taking in the high-top tables with their cheery red bar stools, the open kitchen with shelves holding olive oil tins and canned tomatoes.

8:16It does look nicer than Subway. The roast turkey in his Italian sub tastes like it actually saw the inside of an oven, not like the rubbery deli meat he had at Jersey Mike's. Later that day, Chauden calls his father. Hi, Rick. How's the research going? I've decided which chain to go with. It's my old favorite, Quiznos. The food is the best of them all, so I figure, what am I waiting for? You know, if you go in with me, I'll have enough to buy my own store, and I can get loans to cover the startup costs. And, you know, if it doesn't work out, I can always go back to selling stocks. Chodden pulls nervously at a loose thread on his shirt cuff.

8:59His father supports his franchising idea, but he's never explicitly said he'd invest all of their recent earnings into the scheme. Well, you're the NBA. If you're sure, I'm all in. A few months later, he and his father buy a Quiznos franchise for$140 ,000. Shaden does so well with his first location in Boulder that he opens three more in Colorado in the next four years. Only 26 years old, he's Quizno's biggest franchisee. Convinced by his son's track record, Shaden's father decides to partner with him to buy out the entire company. Now 18 stores. They have an outlandish dream. To take Quizno's national and steal the title of fastest-growing sandwich franchise from Subway.

9:54DeLuca's met his astounding goal of 5 ,000 stores by 1994, two years early no less. And he's also come up with a brilliant solution for the bread issue. Fresh rolls baked daily in every store. It's a huge customer draw. The smell alone is worth two years of headaches redesigning ovens and recipes, as well as rewriting rental leases and navigating zoning regulations. Nevertheless, Rick Shotton isn't daunted by his rival's success. From his perspective, Subway's doing his work for him, luring Americans away from their beloved burgers and getting them hooked on subs instead. But he doesn't know Subway is about to discover a mascot that will rocket it into the stratosphere.

10:49An evening in March 1998 in Bloomington, Indiana. 20-year-old Jared Fogle gets off the bus at the corner in front of his apartment building. He's a student at the University of Indiana, and he's so depressed about his weight that he's not going anywhere for spring break. He weighs 425 pounds, and he's too self-conscious to go anywhere near a beach. And anyway, he can't get on a plane. He doesn't fit in the seats. He notices the girls who live on the floor above him packing up a red VW Beetle parked at the curb. He really doesn't want to walk past them to go home for dinner. Last semester, he overheard one of them making fun of him.

11:32So instead, he ducks into the subway that's conveniently in the corner of his building. It's a busy Friday night. Seven people stand in line ahead of him. Vogel looks around for the free campus newspaper he usually reads while waiting. But instead of papers, the rack by the door is filled with pamphlets with an odd title, Subway Nutritional and Dietary Guide, Seven Under Six. He walks to the rack, takes a pamphlet, and gets back in line. He reads that Subway has seven sandwiches that contain six grams of fat or less. Vogel never thought of subs as healthy. He's intrigued. Vogel does some quick math and realizes if he eats half a turkey sub for lunch, has a 12-inch veggie sub for dinner, and drinks black coffee for breakfast, it would only add up to about a thousand calories for the whole day.

12:25And it's food he really likes and eats already. This may just be the solution he's been looking for after years of unsuccessful crash diets and heartbreak. The girl behind the counter interrupts his reverie. Next. Next. Sir, can I help you? Fogle hesitates. He's failed so many times before. What he really wants is a 12-inch steak and cheese sandwich with extra meat, cheese, and plenty of mayo. But he knows he's at a crossroads. He grips the pamphlet so tightly his hand shakes. Uh, I'm sorry. Um, okay. I want a six-inch turkey sub on whole wheat with no cheese and no mayo, just spicy mustard. The girl reaches for the whole wheat rolls on the shelf behind her.

13:15You got it. Day after day, Vogel keeps to the same two-sub diet regimen. His goal weight is 200 pounds. Some days, he's so hungry he can barely make it until lunch. but the subs never let him down. They always taste good and fill him up. By Christmas, he's astonished to see how his clothes hang on him. He invests in a whole new wardrobe. When he goes home for the holiday, his mother takes one look at him and bursts into tears of joy and relief. Back at college for spring semester, he walks everywhere, something that was barely possible for him before. Eventually, he even takes up tennis. But he fights the urge to weigh himself.

14:03He's afraid he'll be bitterly disappointed.

14:111999, a sparkling spring day one year later in Bloomington. Fogle walks past the student center on the way to class. He spots a guy he remembers from his freshman year dorm walking toward him. Hey, Ryan, how's it going, man? The kid looks at Jared, puzzled. Fogle can tell. He doesn't recognize him. It's Jared Fogle. We lived on the same floor in Reed Hall, remember? Ryan's eyes widen. He looks Jared up and down. Jared? I can't believe it's you. Wow, how did you do it? Did you get your stomach stapled or something? By now, Fogle's used to people asking him about his new look. Nah, nothing like that.

14:52I came up with a diet of just two low-fat Subway subs a day. believe it or not. Pretty straightforward, really. Ryan's jaw drops at the idea of a fast food weight loss regimen. You lost all that weight eating Subway? Dude, that's incredible. I gotta write a story about you for the campus paper. I'll get them to run before and after photos. Hey, by the way, exactly how much did you lose? Jared shrugs. I don't know. I'm not sure. Ryan turns to go and yells over his shoulder. Well, find out. I need that for the article. That evening, Vogel goes to the college gym to weigh himself. He stands in front of the old-fashioned white enamel doctor's scale and breaks out in a cold sweat.

15:36He takes a deep breath and steps onto the steel platform. He slides the counterweights to zero and then moves the big weight all the way to 200 pounds. But something weird happens. The steel needle on the far right of the scale points down. He's in shock. It's not possible. He's at 180, 20 pounds below his goal. A few weeks later, Ryan's story runs in the school paper. Fogle has 15 minutes of campus fame. A few weeks after that, Men's Health Magazine features Fogle's story in an article headlined, Stupid Diets That Work. A Subway franchisee in Chicago reads it and tells corporate, they could make a great commercial out of the kid who lost 245 pounds eating Subway.

16:24Fred DeLuca agrees. Jared, the Subway guy, is born.

16:38A Friday evening in December 1999 in Subway's Milford, Connecticut headquarters. CEO Fred DeLuca leans against his desk in his dimly lit office. He's bare-chested, a blue towel draped over his shoulder as if he's just come from a locker room. He holds a large black portfolio labeled Executive Office with one hand. With the other, he lifts a full champagne flute as if he's about to give a toast. A few feet away, a photographer bends over a camera on a tripod and looks through the viewfinder. Looking good, Mr. DeLuca. Now, can you slide the portfolio over to your left? That way it hides your pants, makes it look like you're maybe not wearing any at all.

17:19DeLuca follows the instructions and grins. Ha ha, that's the idea. I like how you're getting into the spirit of this. The photo shoot is for a sexy Men of Subway novelty calendar, meant for in-house circulation only. DeLuca is Mr. January. Other months feature the company's chief development officer shirtless in a conference room and a marketing exec, also half naked, posing suggestively. and a little self-consciously, in the shower. The tone is tongue-in-cheek, but some employees find it highly inappropriate. They take it as a sign that things have gotten out of control in the company's top management.

17:59It's an open secret among them that DeLuca, now fabulously wealthy, has a mistress in Florida. There's also chatter that he makes passes at franchisees' wives at subway conferences, but everyone looks the other way because they think of him as a business demigod. And the results from the first commercials featuring Jared the Subway Guy only confirm the DeLuca myth. Sales climbed 30 % in one year to more than$4.5 billion. With nearly 13 ,000 locations, Subway is now the second largest sandwich franchise in the country within reach of the big burger kahuna, McDonald's. It's giddy times in the Subway C-suite.

18:47But as stores open anywhere and everywhere, Subway franchisees begin to grumble. They argue that management allows locations to open too close together, creating competition with each other. And if Mr. January and the other men of Subway don't train their focus back on Subway's rank and file, Well, underdog Quiznos will sneak up from behind, ravage their divided fleet, and leave them dashed on the rocks.

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21:24A steamy day in August 2001 in Denver, Colorado. Quiznos executives sit at a table in a sleek conference room with a refreshingly cool view of the rink at the Pepsi Center, home to the Colorado Avalanche hockey team. Red and green Quiznos ads cover the boards around the ice. The company's marketing targets men ages 25 to 54. It airs commercials on ESPN and sponsors an NHL All-Star game. In part due to smart promotions like this, Quiznos surpassed all growth projections and now has more than 1 ,000 locations. The brand has quietly sailed into third place in the submarine sandwich chain rankings, behind Subway and Blimpy.

22:10Its rise is fueled by CEO Rick Shadden's savvy targeting of the business lunch market, solid quality control, and low franchise startup and training costs. Shadden has also taken the company public in an IPO that raises$4.4 million, enough to buy an army of regional franchise agents who aggressively sign anyone and everyone to open a Quiznos wherever they can. But research shows it still suffers from poor name recognition. That's why the brand is planning an upcoming six-week ad blitz on cable TV. Chodden, an avid cyclist and pro sports fan himself, still looks boyish at 36. He leans forward in his chair and launches the strategy session.

23:01We all agree that we want to distinguish ourselves from Subway by promoting that our sandwiches are toasted. That's all well and good, but I don't think that's ambitious enough. Quiznos' VP of Marketing leans his elbows on the table. He feels ambushed. They've been planning the cable campaign for months. Oh, what do you have in mind, Rick? Why don't we kick off the campaign with a Super Bowl lad? Ooh, that's a good idea. I like that. That's a good idea. The VP in accounting jumps into the fray. Are you serious, Rick? A 30-second spot on the Super Bowl would break us. It'd cost a million easy. It'd blow our whole advertising budget.

23:41A senior marketing exec raises his hands to the sky like a true believer at a revival meeting. Thank you, Lord! Ignore Craig, everybody. This is a fantastic idea. Finally, we'll get ourselves in front of a crazy number of eyeballs and show them what we can do. Shadden listens, poker-faced. He's already made his decision. Look, I know it's a big gamble, but we want to sell more franchises, and to do that we have to get people in the door. Did you know that our best leads for potential franchisees come from people who answer the ad on the back of our napkins? Come on, we need to be bolder than that, and we need a new and surprising way to say that our subs are toasted, and toasted tastes better.

24:25The executives around the table nod, but exchange tense looks. They're wondering where the boss is headed with this. Schaden grins, enjoying their consternation. He has a big surprise for them. Well, guys, I found someone who I think can solve our problem. I want you to meet Arthur Bezier. He's executive creative director with our advertising consultants, Cliff Freeman and Partners. The door to the conference room opens, and Bezier enters carrying a stack of poster boards and an easel. He looks like the born New Yorker that he is, in a stylish black suit and rectangular-framed architect glasses.

25:06He sets up the easel, places the storyboards on them, and turns to the Quiznos team. Nice to meet you all. Rick asked us months ago to mock up some Super Bowl ads. Our president, Cliff Freeman, couldn't fly out today from New York, but he asked me to come instead and show the mock-ups while he presents our best ideas via the magic of speakerphone. Hello, everybody. I hope you enjoyed Rick's little surprise. Freeman leads the Quiznos team through the agency's ads frame by frame, while Bezier flips the boards. The first two ads focus on creating a passion for Quiznos toasted sandwiches. They're pretty straightforward shots of people scarfing down subs.

25:50Then, Bezier unveils the third set of storyboards. Freeman describes the action. Opening shot. A sign on a door reads, Testing in Progress. Cut to inside the room. A test subject sits at the table. In front of him are two covered dishes. Standing alongside him is a researcher. The researcher asks, Which would you prefer? This toasted sub? He lifts the lid to show the Quiznos sub. Or this untoasted sub with lettuce? He lifts the lid over the untoasted sub, which is covered with cash. The subject grabs the money and walks out. The tester speaks into a cassette recorder, clearly prefers the untoasted sub with the lettuce.

26:33The voiceover, the only way to beat a Quiznos toasted sub is to cheat. Rick Chodden sits up straight in his chair, his eyes wide. That's it. That's the one. It's hip, it's edgy, it goes right for Subway's jugular. Freeman and his team worked furiously on the ad for the next five weeks. Then, the whole world comes to a halt.