GRAND RAPIDS, Mich. -- Spartan Stores has opened a Subway restaurant in one store here and plans to install the sandwich operation in additional stores before the end of the year, officials said.
Spartan, a wholesaler-retailer operating 57 of its own stores and supplying more than 300 independents in the Midwest, installed its first Subway operation in a corporate-owned Family Fare Supermarket at the beginning of summer.
Two other corporate-owned stores, with different sets of demographics, are being considered for a Subway, Tom Montgomery, Spartan project manager, told SN.
The store here, a recently remodeled unit measuring about 45,000 square feet, sits in a middle-class residential area with a few offices around. One of the stores under discussion for a Subway is right in the city, and the other is north of Grand Rapids, in a rural resort area.
"We want to get the flavor of how the [Subway] business does in different circumstances," Montgomery said. "The three locations, quite different, will give us a good understanding."
The company knew it wanted to partner with a franchised brand of some kind to set itself apart, and the sandwich-making business made sense because Spartan's stores had not developed strong sandwich programs of their own. Officials also considered it important to choose an established, high-profile brand, Montgomery said.
"We chose Subway because it's such a well-known chain," Montgomery said. "It has instant recognition, and recognition is a big piece of it. We could take a quantum leap with this. Even if we had had an established sandwich program of our own, it would take us years to build brand recognition."
There are four established freestanding Subway restaurants in Family Fare's marketing area, which Montgomery sees as an advantage, not a problem. Subway uses a formula to determine what size and type of area it takes to support a restaurant without cannibalizing sales at other restaurants, Montgomery said. He also thinks the strong brand recognition outweighs potential competition.
"We're satisfied with Subway's research and analysis," he said. "And all of us, all the Subway operations in the market area, are showing positive [sales] trends. We also know Subway's a strong, well-disciplined franchise. They're strict about how their franchisees run their branded businesses, and I consider that [strictness] a strength, not a weakness. What's good for Subway is good for us."
At Family Fare, the Subway counter, which runs 17 to 18 feet along the wall, is at the front of the store, adjacent to the deli department. A full menu is offered, including Subway's new toasted selections.
"We reconfigured some space that had been occupied by the in-store bakery and deli, consolidated some things and finagled a little space from both departments, to make room for the counter, some backroom and seating. It doesn't require a lot of space," Montgomery said.
Although Family Fare Supermarkets' delis don't typically have seating, at this store, tables and chairs were added to accommodate 12 to 16 people in an area squared off by a half wall across from the counter.
Spartan chose to be the franchisee itself, rather than rent space to an individual franchisee, so it could learn the business.
"We want to understand this business, and being the franchisee gives us more options," Montgomery said. "For instance, we can advertise Subway in our ad circular. We definitely knew we wanted to be involved."
Subway monitors franchisees' operations on a periodic basis, and the company provides extensive training for employees, he added. Most Subway staffers at this store were drawn from Spartan locations, but some were hired from outside. They're all Spartan employees and wear Subway uniforms.
"We were very lucky in the fact that the manager we hired had run a Subway operation in a different part of the state," Montgomery said. "She had just moved here and was looking for a job, so it worked out perfectly for us. She reports to the store director."
The venture with Subway is Spartan's second foray into national brand partnerships for its corporate stores. When the company acquired Glen's Markets a few years ago, one of Glen's units had a successful link-up with Dairy Queen. That relationship continues and has proven to be successful, Montgomery said.
The privately held Subway restaurants, owned by Doctors Associates, Milford, Conn., operates more than 23,000 units in 82 countries, most of which are franchised out. In fact, only a handful are corporately owned, and they're used for research and development, Subway officials said. More than 13,000 Subway units are in the United States.
While the majority of its restaurants are freestanding, Subway has put units into convenience stores and, more recently, reached agreements with other retail food outlets. Late last year, the company made a deal with Wal-Mart to put units into Super Wal-Mart stores. After a tremendous flurry of installations this past spring, nearly 300 Wal-Marts have Subway restaurants. Supermarkets with Subway operations number 75 at this point, but there will be more in the future, officials said.
"Independent grocers are becoming increasingly creative in ways to compete with the larger retailers," said Joanne Kilgore, Subway's nontraditional account manager who's responsible for the development of Subway locations at grocery stores, department stores and hospitals.
"One way to stand out in the crowd is to bring in branded fast food," she said. "Having a branded partner is a draw for customers and allows the grocer to concentrate on the other important aspects of the grocery business."
