Subway Economics: Why D.C. Needs More Chains
D.C. is in the midst of a Subway explosion, of the deli counter variety. There are already some 70 locations in the District, and 1,100 in the Washington area; now the company wants to add 100 more by the end of next year. And that's just one piece of the overall picture: Subway has nearly 34,000 locations worldwide, recently outstripping MacDonalds to become the biggest franchiser on the planet.
Why is the model so successful? According to John Filipiak, Subway's regional manager for D.C. and Virginia who spoke at a recent Washington D.C. Economic Partnership event on franchising, a few reasons. First, there's no cooking involved, which means stores have fewer restrictions on the types of spaces they can occupy. Second, their staffing requirements are lower; an owner-operator can be the only person in the shop at low-traffic periods. Third, they pitch themselves as being a healthier alternative to other fast-food chains, going into places that don't have many options for fresh food. Fourth, there's a very simple formula to opening a franchise: You essentially buy a kit from Subway for $15,000, which goes down to $7,500 for the second store you open. They train you, help you find a space to lease and design the store, and then basically check out. As long as you keep paying eight percent of your profits weekly, you're good to go.
Subway itself owns no stores, which many chains still do. Opening franchises has been a leg up for thousands of would-be businessowners who don't have the vision for their own restaurant concepts and want the unbeatable advantage of international purchasing power for all their supplies. As long as you pick a decent location, and keep the place clean and friendly, there's basically no way to fail.
Most neighborhoods, though, wouldn't put Subways high on their list of desired eating establishments. Not that there's anything wrong with them–it's just that there's nothing particularly exciting about them either.
What people do ask for is hardware stores, like the indie-feeling Logan Hardware on P Street NW. Except that's a franchise too: Licensed by ACE Hardware, but not required to display corporate signage (technically it's a cooperative, with a yearly dividend and stock when you sell a location). In fact, its owner, Gina Schaefer, owns a total of seven ACE hardware stores in or near D.C., all bearing the names of the neighborhoods they're in. Even though she says the average small hardware store loses about 30 percent of its revenue when a big box opens nearby, ACE stores are better able to weather it, because of their purchasing agreements with big manufacturers.
All of this is worth thinking about more seriously as D.C. contemplates the prospect of having four Walmarts plop down within in the city limits in the next two years. You need local businesses in the best possible position to withstand the global purchasing power of the biggest retailer in the world, and having several locations is one of the best ways to do that.
Today, Richard Layman alerts us to the existence of a "best chains on Main" contest, which highlights some of the multi-store companies that have enriched local economies. D.C. already has a few homegrown versions: Busboys and Poets, Yes! Organic Market, Marvelous Markets, Cafe Phillips, Senor Chicken, Sweetgreen, Mayorga Coffee, the Uptowner Cafe, Taylor Gourmet and CityBikes off the top of my head. Then there are the groups of restaurants owned by the same person, like the Jose Andres cluster, Constantine Stavropolous' Diner/Open City/Tryst triumvirate, and Aleks Duni's Marx Cafe/Heller's Bakery/Verandah collection. It's true, most of these are food chains, rather than services–but couldn't independent dry cleaners, stationers, bookshops, and clothing stores be encouraged as well?
Sometimes, the best defense against big things is small things getting bigger.
6:28 pm
Damn you Walmart!!
6:28 pm
Yes. You can't just deny economies of scale.
10:48 pm
We need some MOFO Wendy's! in the Georgetown area PLZ!
1:10 am
Thank you for recognizing this issue! Franchises, as well as 'chain-lets' with 2-5 locations, often play a pivotal role in transforming urban neighborhoods. We are the creators of the 'Best Chains on Main' competition, and we write about these and other issues regularly on our blog, http://www.commercialdistrictadvisor.com. We will run this contest again later this year, so be sure to check back and nominate your favorite business!
9:01 am
Oh hell no. More Taco bell's maybe, but F Subway.
10:13 am
Finding ways to balance retail mix - including chains, 'chain-lets' and mom-and-pops is critical to creating a business district that successfully offers shoppers what they need. A city-wide survey recently completed by the Municipal Arts Society found that 66% of all respondents feel MORE comfortable shopping in chain stores for apparel. People often SAY one thing, but then happily shop at chains without giving it a second thought. We have to recognize that reality. If business districts don't include chains, shoppers will go elsewhere. The result is that they won't shop the district frequently, and subsequently won't be tempted into the local mom-and-pop store just because they happen to be walking by. It's all about striking a balance.
10:13 am
FYI - Municipal Arts Society is a NY-based non-profit.
11:52 am
although larisa, part of the problem is that independents don't have the backing systems of support to be competitive with chains, and I think this is a big issue with survey results such as what you recount from the MAS.
I've written about this in the past:
- http://urbanplacesandspaces.blogspot.com/2007/09/why-ask-why-because.html
- http://urbanplacesandspaces.blogspot.com/2008/01/indepependent-retail-businesses-can.html
but there is also an interesting article in a recent issue of Financial Times about a wholesale distribution company in Poland focused on providing the kind of back office support, distribution, and prices so that independents can be competitive with chains.
- http://www.ft.com/cms/s/0/899e544c-2332-11e0-b6a3-00144feab49a.html
While we do have examples of business coops and buying groups for appliances or bicycles and apparel, and there are grocery wholesalers like Supervalu (which has serious corporate and profitability problems of its own) and some good state retail associations (like Illinois Retail Merchants Assn.) and a couple remaining assns. for small store groups like the National Grocery Assn., for the most part, the infrastructure isn't there.
That's what most retail business development programs fail to understand, and why we mostly scrape around the edges when it comes to dealing with the problems of revitalization traditional commercial districts.
And you in NYC don't have the same issues as people in most other communities that lack the kind of density that Manhattan, Brooklyn, and Queens has, which fosters a different set of opportunities than are possessed by most other cities in the U.S.
For the other cities, chains mostly don't care, and won't care, and aren't the solution for most of the extant commercial districts.
- http://urbanplacesandspaces.blogspot.com/2007/02/why-future-of-urban-retail-isnt-chains.html
Even in cities like DC, we need to grow our own businesses. And the programs and knowledge for how to do this are extremely lacking.
I have a model for how to do it, but the person I was working with flaked out, and I never got a chance to try to put it into place on a pilot basis in a commercial district.
5:59 pm
Franchising tends to do better than other industries during economic downturns such as we have been experiencing the U.S. over the past several years. According to the International Franchise Association, franchising is expected to grow by more 19,000 establishments nationwide this year, adding 190,000 jobs.
Also, many people tend to think of franchising only in the fast food restaurant sector, but many other industries franchise as well, offering entrepreneurs the opportunity to own their own business with the backing of the brand, marketing, training and structure of a well-known chain.
Many hotel chains, business services establishments such as The UPS Store,and personal services establishments like Tide Dry Cleaners or Curves and others are all franchises and are owned by local businessmen and women.
At the IFA, we like to say that franchises build local businesses, one opportunity at a time. Visit our Web site http://www.franchise.org to learn more or to see how franchising impacts where you live, visit http://www.buildingopportunity.org.