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Earnings Claims of Top Franchises Revealed

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Battle of the Brands: Jimmy John’s and Firehouse Subs Emerge as Brands Worthy of Investment in the Sandwich Sector?

by Brian Bixler on October 26, 2014

in Battle of the Brands, Franchise Chatter Guides, Sandwich Franchise



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Jimmy John's vs. Firehouse Subs main

This Franchise Chatter Guide on Jimmy John’s and Firehouse Subs was written by Brian Bixler.

Jimmy John’s Gourmet Sandwiches’ quick climb to the top of the franchise heap in the United States might seem as freaky fast as one of the characters in the restaurant’s quirky commercials. The chain was named No. 5 this year on the Entrepreneur Franchise 500 and continuous healthy growth is forecast for the future.

“It may seem like Jimmy John’s stores popped up nearly everywhere overnight, but the company’s journey to some 2,000 units—including an estimated 275 added in 2013—was the result of a 2002 franchising-program revamp that focused on discipline and method,” Entrepreneur noted of the restaurant’s fast fortunes.

But the sandwich space, dominated by Subway, is a crowded one and also includes a number of smaller, viable chains that give Jimmy John’s a run for its money. Not the least of those is Firehouse Subs, which was ranked No. 65 by Entrepreneur this year, making it the No. 3 brand behind Subway and Jimmy John’s and just ahead of Jersey Mike’s Subs, according to the publication.



Jimmy John’s and Firehouse are very different in how they operate and even their classifications by Entrepreneur are different with Firehouse grouped under submarine sandwiches and Jimmy John’s falling under miscellaneous sandwiches. Potential investors will want to keep an eye on growth for both brands to determine which one is best for them.

RELATED: Franchise Chatter Guide: How Subway’s Five Dollar Footlong Helped the Entire Sandwich Sector

RELATED: Franchise Chatter’s Top 10 Sandwich Franchises for 2013

The Histories

When Jimmy John Liautaud bottomed out at Elgin Academy prep school, his father gave him two choices: start a business or join the military. Liautaud opted for the former and started the first Jimmy John’s shop in 1983, operating on a shoestring out of a garage in Charleston, Ill.

Liautaud concentrated not only on developing sandwiches from his own recipes, he also stressed fast delivery, which appealed to students of nearby Eastern Illinois University. Today, fast delivery, or as the company calls it, “freaky fast delivery” is still a hallmark of the brand.

Liautaud bought out his father in 1985 and was sole owner by the time he opened his second and third stores and, later, developed a prototype for more. The first franchise store opened in Eau Claire, Wis., in 1993.

San Francisco-based private equity firm Weston Presidio holds a minority stake in Jimmy John’s, and the chain has reportedly completed two recapitalizations since that investment in 2007.

Two firefighter brothers Chris and Robin Sorensen tried a number of entrepreneurial avenues to make money and have said they were considering investing in a sandwich franchise in 1992 when they formulated the idea for Firehouse Subs, believing they could do better than the brand they were researching, which has since become one of their company’s rivals. They founded Firehouse in 1994 in Jacksonville, Fla., and began franchising the following year.

The co-founding brothers maintain a tight hold on leadership of the company, but Chief Executive Officer Don Fox gets most of the credit for the chain’s recent success. Fox was named Operator of the Year by Nation’s Restaurant News in 2011 and last year was named No. 1 fast-casual executive by FastCasual.com.

Meanwhile, Firehouse Subs is on the 2014 Fast Casual Movers & Shakers list as No. 10 of 50 fast-casual brands, making it the company’s fourth consecutive top 10 finish, including holding the No. 1 spot in 2011.

Current Status

Both Jimmy John’s and Firehouse Subs made the top 10 growth chains of the Nation’s Restaurant News Top 100 in 2014 as growth continued, albeit at a slower pace than previous years. For example, NRN noted that although estimated sales per unit at Firehouse Subs fell by 6.3 percent in the most recent year, a net 143 new restaurants, all franchised, opened during that period. That means the company’s unit count increased 25.1 percent to a total of 712 and made it the fastest-growing chain in the Top 100 in terms of number of units added.

Sales of $436.1 million, rising 14.8 percent from the previous year, placed the chain at No. 92 in overall domestic sales. It was the eighth fastest-growing chain in terms of sales.



The company has said its strategic plan calls for 2,000 restaurants by the year 2020, which will be achieved through an international push into Central and South America as well as continued expansion domestically.

Meanwhile, Jimmy John’s earned a sixth-place finish on the top 10 growth chains list in 2014. The sandwich shop’s $1.5 billion in latest-year system-wide sales were up from $1.3 billion the preceding year, allowing it to climb three spots in the overall sales rankings, from 41 to 38 and keeping it in the top 10 growth chains for another year. It has more than double the number of units that Firehouse Subs has; in 30 years it has grown to more than 1,800 locations in 43 states and the District of Columbia.

The big winner in the sandwich space, however, was Jersey Mike’s Subs, which made its NRN Top 100 debut this year and grabbed the top growth chain honor away from Firehouse Subs, which took the No. 1 spot last year.

Jimmy John’s also took the No. 5 spot on Technomic’s 2012 list of fastest-growing chains with sales over $200 million, but lost some ground to Firehouse Subs, which was No. 2. Neither brand appears in the top five for 2013. The only representation from the sandwich segment on the list is, again, Jersey Mike’s Subs, which was listed at No. 5, down from the No. 3 spot the previous year.

Initial Investment

There are a number of sources for investors to consider when deciding which brand might make the better partner. Franchise Chatter named both brands in its list of the Top 10 Sandwich Franchises of 2013. In addition, QSR has released its ranking of the QSR 50. Listed by system-wide-sales, Jimmy John’s came in at No. 24 with overall sales of $1.47 billion and average sales per unit of $879,000. Firehouse did not make the list, but a number of its competitors did, including Subway at No. 2, Jason’s Deli at No. 42 and McAlister’s Deli entered the top 50 for the first time at No. 50.

Firehouse Subs does not disclose its system-wide average unit volume. But that information can be extrapolated from its most recent Franchise Disclosure Document. In 2013, 38.7 percent of company-owned and franchised restaurants in the sample generated weekly sales of at least $14,000. That’s $728,000 when annualized. Moreover, 73.4 percent of restaurants in the sample generated weekly sales of at least $11,000, or $572,000 when annualized.

RELATED: FDD Talk 2014: Our Latest Views on Jimmy John’s Average Sales, Expenses, and Operating Profits

RELATED: FDD Talk 2014: Our Latest Views on Firehouse Subs’ Average Gross Sales, Operating Expenses, and Operating Income

The total estimated initial investment necessary to begin operation of a Jimmy John’s restaurant ranges from $330,500 to $519,500 with a $35,000 initial franchise fee. Meanwhile, the total estimated initial investment necessary to begin operation of a Firehouse Subs restaurant ranges from $131,150 to $928,405 with a $20,000 initial franchise fee. (The wide range is due to significant differences in leasehold improvement costs, miscellaneous expenses, equipment and fixtures and rental of the site for three months, among other things.)

Differentiators

While Subway lords over the sector, chains such as Jimmy John’s and Firehouse Subs have undergone rapid growth, are gaining ground on the No. 1 competitor and have increased their market share during the past five years by chasing a defined segment of the market, according to IBISWorld market research.

Delivery has been a part of Jimmy John’s branding since the very beginning when founder Liautaud wheeled meals to students of Eastern Illinois University.

Jimmy John’s also includes “Gourmet Sandwiches” in its logo, evoking a more upscale dining experience than competitors that sell subs and hoagies. The menu offerings are made with bread baked daily and meats with no additives or vegetable-based fillers. Ingredients are sliced in the store and the company also associates itself with other trusted brands by using such condiments as Hellmann’s mayonnaise, Grey Poupon dijon mustard, real olive oil, and red wine vinegar.

Jimmy John’s remains focused on its gourmet sandwiches while other brands augment their menus with such things as soups, salads and other items.

The brand has also attracted at least one celebrity owner: New Orleans Saints quarterback Drew Brees recently announced that he plans to expand his current Jimmy John’s holdings to as many as 23 stores. As it explores new regions, franchisee Atlas West Inc. also announced expansion in California, saying it expected to open more than 100 stores in the southern part of the state and the greater Los Angeles area following an initial 24 that are currently planned.

With such good news, damage control for Jimmy John’s might be in order following some recent revelations. The company has been criticized for making low-wage, low-level employees, including sandwich makers and delivery drivers, sign a non-compete clause that would prevent them from working for any competitor for up to two years after leaving Jimmy John’s employ. Such clauses are usually reserved for executives and employees who might have sensitive information about a company.

Another problem could develop from founder Liautaud’s penchant for hunting big game animals. Photos of the founder posing with animals he has killed have surfaced on the Internet and there is even a Facebook page named Boycott Jimmy John’s to protest the founder’s actions.

Finally, Jimmy John’s recently recently settled a class-action lawsuit brought by a customer who failed to receive sprouts on her sandwich as advertised in the store. It turned out that Jimmy John’s discontinued sprouts when it was learned that some of them were connected to an E. coli outbreak. However, the parent company and its franchisees failed to remove sprouts from their menus even after the company discontinued them. Without admitting liability, Jimmy John’s has agreed to provide customers who claim to have been harmed with vouchers with a face value of $1.40.

Low-Calorie Menu

Meanwhile, Firehouse Subs prides itself on steaming its meats and cheeses to release their flavors, and serving large portions. Even its lower-calorie sub options have the same amount of meat served on smaller wheat buns with light mayonnaise.

It also reinforces its firefighter theme with fundraisers, including sales of its used five-gallon pickle buckets. It’s all part of the chain’s Firehouse Subs Public Safety Foundation founded in 2005 and dedicated to improving the life-saving capabilities of first responders and public safety organizations in communities served by Firehouse Subs. The foundation donated more than $2.2 million in life-saving equipment and resources for first responders and public safety organizations in 2013.

Meanwhile, the chain, which boasts big portions, this year hopped on the healthy bandwagon by introducing an under-500-calorie menu, the most significant addition to the menu in its history, according to the company. The Hearty & Flavorful menu debuted with six subs and four chopped salads each under 500 calories and available at all Firehouse Subs nationwide.

Possible Sale

Even as Jimmy John’s rides its current wave of success, however, analysts are speculating about the sale of a major stake in the company following a report earlier this year by Reuters. While Jimmy John’s would not confirm information gathered from sources close to the deal, it was noted that Liautaud attracted scrutiny in 2011 after threatening to move his company’s headquarters from Champaign, Ill., to a more tax-friendly state. He has also faced backlash from the Industrial Workers of the World, which has campaigned to unionize Jimmy John’s workers, citing low wages and unpredictable shifts.

How such developments will affect investment in the company remains to be seen, but so far Jimmy John’s and Firehouse Subs continue to hold their own in a battle to be among the top sandwich purveyors in the country.



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