Subway’s $5 Deal A Hard Habit To Break


quotation.jpg Subway’s $5, foot-long sandwich deal has given birth to the biggest restaurant pricing trend since McDonald’s Corp’s (MCD.N) 2002 Dollar Menu debut, but some to wonder whether it will make it harder to break diners’ discount habit.

Since Subway’s introduced the deal in early 2008, “$5 has emerged as the second most important price point” in the fast-food industry after $1, said Telsey Advisory Group analyst Tom Forte.

“I would not be surprised if Subway was outperforming many of its peers” due to the promotion, he said.

Privately held Subway, which does not disclose sales figures, has 22,000 outlets in the United States compared with about 14,000 for McDonald’s, and is seen as a major force in the fast-food segment.

Jeff Moody, chief executive of the Subway Franchise Advertising Fund Trust, told Reuters that as fast-food restaurants saw same-store sales slip into negative territory in the last few months, Subway has seen less deterioration due in part to the promotion.

“We can correlate our sales to unemployment,” said Moody.

Analysts expect future gains would not come as easily. Subway is lapping year-ago figures that benefited from the $5 deal. Beyond that, joblessness is forecast to continue climbing and rivals like Yum Brands Inc’s (YUM.N) and Wendy’s/Arby’s Group Inc (WEN.N) have stepped up competition.

Stifel Nicolaus analyst Steve West said the $5 deal helped Subway steal traffic from quick-serve hamburger chains, but he predicted that the company could have trouble weaning diners from the $5 sandwiches after the economy rebounds.

They’ve “trained the customer to eat $5 foot-longs,” West said.

Leave a Reply