April 17, 2005

CHAIN GANG WARS

By LOUISE KRAMER

Forget just the burger wars. The competition in the U.S. fast-food business is escalating into an all-out food fight as the $153 billion industry's mega players try to wrest away each other's customers.

Amid searing competition, Subway, the leader in the made-to-order sandwich market, is quietly perfecting a breakfast menu with premium coffee to replace its ordinary joe that could hit all of its 17,900 U.S. stores by next year.

Starbucks, the Seattle coffee colossus, this week is launching upscale pre-made sandwiches, plus a cheese plate from celebrity chef Terrance Brennan to its 180 New York City stores as part of a chainwide lunch push in urban markets. The idea is to give java junkies a reason to visit at noontime rather than go somewhere else.

Meanwhile, McDonald's is testing made-to-order deli sandwiches in 400 U.S. restaurants and has added the line — including New York Reubens and Crispy Buffalo Chicken — to all its Canadian locations. These are viewed as serious threats to Subway and Quiznos, the No. 2 player in sandwiches, which is known for toasted subs. A McDonald's rep said the company is watching the U.S. test "very closely" but will not launch the subs chainwide this year.

Mickey D's is hardly ignoring Starbucks either. Later this year the fast-feeder is eyeing a test of specialty coffee drinks in more than 1,000 restaurants and will back it with an ad campaign. Some franchisees have already added machines in their stores in other markets to brew lattes and espresso.

These turf battles are fiercest in New York, where the cost of doing business exceeds virtually anywhere else in America, and where the market is saturated with more than 26,400 eateries from major chains and local entrepreneurs.

"Brands in this market have to pay expensive rents and they need to be maximizing their opportunity to generate revenue," said Andrew Moger, president of Branded Concept Development, which led the march of Quiznos into New York.

National industry tracker Ron Paul says the idea is to grab market share.

"The focus for public companies is same-store sales. You have to get more butts in seats by whatever it takes."

The big risk is losing focus. "They have to remember what brought them to the dance," Moger said. "If you try to be too many things to too many people, you risk losing your general appeal."

But breakfast at Subway may make sense. After all, the real estate is there, and the stores are empty while lines are forming at Dunkin' Donuts, Starbucks and McDonald's.

"It is long past due," said Paul Landino, the New York development agent for Subway. "We want to close the gap as much as possible."

Landino said recipe testing is under way for products such as French toast that can be eaten on the run. "We really don't want to be serving just eggs and sausage. We want to be a little different and a little creative," he said.

The success of Starbucks has proven that consumers are willing to fork over more money for products like coffee, and is helping fuel this spate of new and typically higher-priced products, experts said.

So far the strategy is working. Premium products helped boost average checks for fast food so far this year and in 2004, and lifted March sales in stores open at least a year by 3.6 percent, Andrew Barish, a restaurant analyst for Banc of America Securities, said in a research report last week.

But he warned that as inflation and fuel prices climb, he wonders whether the industry's "headwinds will start to slow."

©Louise Kramer 2005

 

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