Subway Plans Europe Growth With as Many as 1,000 New Outlets

Subway, the closely held restaurant chain with more outlets than McDonald’s Corp., plans to pick up the pace of openings in Europe by adding as many as 1,000 new locations in 2014.

The sandwich shop operator has 4,018 stores in Europe, where it has continued to grow during the continent’s recession and wobbly recovery, Assistant Regional Director Mike Charest said in an interview. The Milford, Connecticut-based company has opened about 500 stores a year in Europe for the past two years, and may add 800 to 1,000 next year.

“Europe is the strongest, fastest-growing international market for Subway outside of North America, and will continue to be,” Charest said by phone from his Amsterdam office on Aug. 13. Subway’s strategy “works for us regardless of economic situation” by balancing affordability with high-quality food.

The U.K. is at the “top of the list” for growth in Europe, with a goal to have 2,000 outlets by 2015, the executive said. Subway has added 63 locations in the U.K. in 2013 to take the number to 1,544, up from 59 openings in 2012. Growth may also quicken in the Netherlands, Finland and Sweden, where at least 20 stores have been opened in each country in 12 months.

The company aims to be in Latvia, Lithuania, Georgia and Ukraine by the end of this year. Ukraine has similar growth potential to Romania, which has 16 stores after the first opened in April 2012, said Peter Mompalao de Piro, a Subway spokesman.

Brand Awareness

Strong brand awareness in the U.K., Russia and France helps development in those countries, Charest said. Subway plans to add 190 to 200 stores in Russia and 100 in France in 2014, maintaining the current pace.

Growth in Italy, Denmark and Belgium, which have 17, 15 and seven stores, has been “more challenging” due to difficulties establishing the initial profitable franchises that fuel development, Charest said.

Italy has “plenty of home-grown independents and chains to feed the market,” said Anya Marco, a director at London-based Allegra Strategies, a research consultant to restaurant companies including Subway.

Belgium is hard for international restaurant companies to enter because it’s a small market dominated by independents, while Subway’s difficulty in Denmark relates in part to a preference for established Danish chains, Marco said.

Room for Hamburgers

Subway’s European expansion doesn’t pose a problem for hamburger chains like McDonald’s and Burger King, given the company’s focus on deli sandwiches, Jack Russo, an analyst at Edward Jones & Co. in St. Louis, said in an interview. Similarly, Subway isn’t much of a threat to Yum! Brands Inc., owner of the KFC and Pizza Hut chains, he said.

“The pie is big enough for everybody,” said Russo, who has a buy recommendation on McDonald’s shares and advises holding Yum! Brands stock.

Burger King’s revenue in Europe, the Middle East and Africa fell 10 percent in 2012 to $472.9 million even as 239 new locations brought the region’s total for the Miami-based company to 3,121. Same-store sales at Oak Brook, Illinois-based McDonald’s fell 1.9 percent in July from the previous year in Europe, where it gets 40 percent of its revenue.

Subway’s revenue in Europe increased 18 percent to $1.57 billion in 2012. Global store sales rose 9 percent to $18.1 billion.

The company’s European expansion is part of president and co-founder Fred DeLuca’s aim to have 50,000 Subway stores worldwide by 2017. Subway opened shops in Ireland in 1994 and England in 1996, according to its website. It currently has almost 40,000 locations, compared with almost 35,000 for McDonald’s.

Subway is owned by Doctor’s Associates Inc., which is co-owned by DeLuca and Peter Buck, a family friend who loaned a 17-year-old DeLuca $1,000 in 1965 to open a sandwich shop. The restaurant chain is valued at $5 billion, according to the Bloomberg Billionaires Index.

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