$5 Footlongs

"I like round numbers," says Stuart Frankel, explaining how he came up with the idea to offer Subway footlong sandwiches for five dollars, reports Matthew Boyle in BusinessWeek (11/16/09). Stuart got the idea because sales were down on weekends at his two Subway sandwich shops, located "at either end of Miami’s Jackson Memorial Hospital." It was so successful — suddenly he had lines out the door — that Stuart made the pricing permanent and began "promoting the idea to Subway’s corporate leadership, amid skepticism."

Subway’s fear was that lowering the footlong’s price to five dollars — about a dollar less than its usual price — "would send food and labor costs soaring, erasing any hope of profits." But Stuart’s experience was just the opposite. Yes, his "food costs did rise as a percentage of sales, but that was offset by the overall boost in volume and the increased productivity of his employees, who had less down time." Another franchisee, Steve Sager, also tried the idea "in a troubled Fort Lauderdale outlet" and "sales doubled."

A third franchisee, Charlie Sarabian, followed at his 50 South Florida stores, and "sales rose as much as 35 percent." Others tried it in other states with positive results. Subway’s board eventually approved launching the $5 concept nationwide, backing it with an ad campaign. Net is, Subway’s sales are up 17 percent as the $5 footlong generated $3.8 billion in sales in the year ending in August. Subway’s competitors are now offering $5 items, too. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, an industry consultant. "It’s huge." And yet it started so small.