The second bite

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  • Friday, 20 Apr 2012

Subway recently opened its 100th outlet in Space U8 mall in Bukit Jelutong much to the delight of Vincent Choo and Cynthia Cheong, the Malaysian development agents for the largest submarine sandwich chain in the world.

The achievement calls for much celebration from the duo, considering Subway’s venture in Malaysia had a rocky start.

The restaurant chain opened its first store in Ampang Point in 1999 and grew to 11 stores two years later. However, by 2002, the chain had closed down 10 stores and was back to square one.

Choo and his wife, Cheong, took over the roles of development agents for Subway, which is equivalent to master franchisor in Malaysia, in December 2004 with just two stores under their belt.

“It was tough and challenging when we took over. Subway did not have a good reputation because it had to close down 10 stores,” Choo lamented.

Previously, the franchise was not well managed and the parent brand’s operational standards were not fully met.

Additionally, the quality of franchisees then was uneven. Payment to suppliers and landlords were delayed, which did not put Subway in a good standing with various parties.

Since then, Choo and Cheong have brought in better franchisees. Both of them believe that quality franchisees are one of the foundations to running a successful franchise operation.

Choo recounted that shopping malls were not keen to have them onboard when they were surveying locations for new Subway outlets. So, Choo and Cheong concentrated on office areas.

Growth was slow in the first two years with only two new stores opened a year.

“We wanted to make sure that everything was done better. Growth was slow, but good,” said Cheong.

Getting the right location was not their only problem. Suppliers were reluctant to deliver goods to Subway due to previous experiences of poor payment. The suppliers eventually relented on their cash-on-delivery terms.

Thus, began the couple’s efforts to rebuild the Subway brand in Malaysia.

Today, there are 87 outlets in the Klang Valley and the remaining 13 stores in Penang and Johor Baru.

And the duo are not about to rest on their laurels. They are targeting another 25 stores to be opened in the Klang Valley this year, with a total of 180 stores nationwide by the end of 2015.

According to the Wall Street Journal, Subway is the now the largest restaurant chain in the world with more than 36,000 outlets in 99 countries. It is ranked in the top five in Malaysia in terms of number of outlets for fast food chains.

Choo and Cheong have been in the thick of things since day one of Subway Malaysia’s advertising efforts. Choo, who is trained in marketing, said they were the main ones steering the direction of Subway’s advertising campaign in the first three years when funds were much harder to come by.

Subway’s advertising campaign started after it opened its 22nd store in 2008, with a budget of RM500,000. All the franchisees contributed towards the central advertising fund. This year, the group allocated about RM4mil for advertising.

“You must have a person who can manage advertising funds well. Otherwise your mileage will not go very far,” said Cheong.

“We still set the direction for our advertising and promotion, but now we have engaged advertising agencies to help us. We focus more in developing the franchise business,” Choo said.

Both Choo and Cheong noted that Subway’s success in Malaysia has raised eyebrows at the international level.

From July 2009 to March 2010, Malaysia was No. 1 in sales among all countries where Subway is present.

The local business grew more than 50% year-on-year

In 2008 and 2010, Choo and Cheong were named regional development agents of the year.

Finding the right players

As Subway grows rapidly in Malaysia, Choo noted that they have to keep bringing in new franchisees to expand.

With Subway’s rocky past firmly behind it, Choo now finds it important to educate new franchisees on being good franchisees and paymasters.

“Cynthia and I have a good relationship with our suppliers and landlords as we are the ones who usually negotiate for the locations. And I always tell the landlords to let us know in the event that the franchisee delays their rent so that we can chase them to pay up in order to maintain our reputation,” said Choo.

The franchise fee for Subway is US$10,000 (RM30,600). Inclusive of rent and renovation, the start-up cost for an outlet is about RM500,000 to RM600,000.

In addition, franchisees pay a royalty fee of 8% and 4.5% for the brand’s central advertising expenditure.

Having a strong foundation ensures a strong business and Choo believes that getting the right franchisee is as important as getting the right location.

Tapping new markets

“We can grow Subway even further. There are still a lot of untapped locations and markets that we can go into,” said Choo.

He noted that there is still a large percentage of Malaysians that have not heard of Subway and he considers this group as a major target to focus on.

Apart from shopping malls and office areas, Subway has expanded their outlets to hypermarkets, Petronas stations, hospitals and colleges. Choo also has his eyes set on an outlet in the Kuala Lumpur International Airport.

Choo noted that promotional efforts such as introducing the “Sub of the Day” menu and coupons is driving more customers to their stores.

“The ‘Sub of the Day’ is definitely more affordable and we come here for that. Their breakfast set is also of good value,” said one patron at a Subway outlet when asked why he chose to eat there. “Additionally, Subway offers a healthier alternative to other fast foods,” he added.

Asked whether Subway was considering other business models such as a drive-through or delivery services, Cheong said, “Not at the moment.”

“Drive-throughs may not be suitable for the market. We want customers to come into our stores and have a good experience picking out their own ingredients. And we have to be careful about delivery services because we want to make sure our customers get their sandwiches fresh,” she said.

After much effort to rebuild Subway’s brand in Malaysia, Choo and Cheong have succeeded in their mission.

Subway Malaysia was recently received The Brand-Laureate-SMEs Best Brands Awards as the Best Brand In Foods & Beverages 2011 — Sandwiches.

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