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Subway isn't a publicly traded corporation, but it's completely mopped the floor with McDonald's (NYSE: MCD ) over the previous decade.
In 2003, McDonald's had 31,129 total systemwide restaurants. By the end of 2012, that figure had jumped to 34,480 for an annualized growth rate of 1%. Considering that we exited the worst recession in 70 years, that's a reasonable and understandable growth rate. Subway, on the other hand, had just 20,260 stores in 2003 and is on pace to eclipse 40,000 stores this year, for an annualized growth rate of nearly 7%!
It hadn't dawned on me just how methodically Subway had dominated the golden arches until I read an article on "The Exchange" over the weekend that highlighted McDonald's chicken McWrap as a "Subway buster." Upon finishing the article I was intrigued as to exactly how the sub chain had come to so thoroughly dominate the global fast-food giant.
This isn't the problem
My first postulation was that Subway's emphasis on fresh meals and healthier eating habits had a lot to do with its surge beyond McDonald's. Fast food is cheap, but it's often associated with high fat content and low nutritional value. However, I'd contend that McDonald's efforts in expanding its menu to include more nutritious foods have been more than adequate to counter Subway's "Eat Fresh" campaign. McDonald's was introducing snack wraps long before many of its peers, and offers a full array of salads and other low-calorie options.
The sign of a trendsetter is emulation, and both Burger King Worldwide (NYSE: BKW ) and Jack in the Box (NASDAQ: JACK ) have done a great job demonstrating that McDonald's is the clear leader. Burger King's new menu aimed at reinvigorating its domestic sales is strikingly similar to McDonald's menu, while Jack in the Box followed McDonald's lead in remodeling its restaurants in order to create a more inviting ambience.
My next thought was that perhaps it's because of Subway's price points, or the value offered. Again, I'd have to disagree (you are correct, I am disagreeing with myself!) and point out that the Golden Arches' value menu is practically unsurpassed. The value menu is what initially drives cost-conscious consumers into its restaurants or through the drive-through and gives McDonald's the opportunity to demonstrate its value and generate return business. Wendy's (NASDAQ: WEN ) is the latest to emphasize the importance of its value menu, focusing on its "Right price, right size" menu. Initial estimates, which include a beefed-up advertising campaign, have been positive according to CEO Emil Brolick.
It's all in the marketing
What I see as the biggest differentiating factor that's propelled Subway well ahead of McDonald's is its dominance in social media and with regard to brand ambassadors.
In determining social media presence, I took to Twitter to see which company, if either, might have the advantage. McDonald's has dished out (as of this writing) 11,660 tweets, is following 12,166 other accounts, and boasts 1,055,061 followers -- an impressive total. Subway, on the other hand, has issued 172 more tweets, follows 22,233 more accounts, and has 43,491 more followers. Simply put, Subway's proactive tactic of following more accounts appears to have resulted in a more faithful following.
Where I really saw a difference between Subway and the Golden Arches was in their choices of brand ambassadors. I've spoken briefly before about the importance of having brand-name, successful, and in-the-news ambassadors heralding the advertising charge of consumer-facing companies. Every company has had its fair share of flubs -- just ask Nike, which needed to deal with the fallout of its Tiger Woods endorsement after his infidelity became a public matter -- but McDonald's lack of progress on the endorsement front is really quite disturbing.
McDonald's did nab an NBA endorsement deal with superstar LeBron James in 2010, but this came shortly after his departure from Cleveland, which didn't help his public image. Tack on an endorsement deal with golfer Michelle Wie, who may be one of the most overhyped golfers of all time given her two LPGA victories since she joined the tour, and you have a very uninspiring advertising campaign.
Subway, on the other hand, has a very recognizable brand figure in Jared. According to Mashable, using Jared's amazing weight-loss story in Subway's advertising campaign led to a doubling in sales from 2000 to 2008. However, when Subway and Jared scaled back their advertising briefly in 2005, sales dropped 10%.
In addition to having a face to go with the brand name, Subway boasts a lineup of numerous in-the-news athletes, including Washington Redskins quarterback Robert Griffin III, paralyzed Rutgers Scarlet Knights linebacker Eric LeGrand, and the Los Angeles Angels' Mike Trout, who dazzled as a baseball rookie. The point is that these ambassadors are in the news now, not stale like many of the ambassadors on its competitors' endorsement payrolls.
Turning that arching frown upside down
McDonald's definitely can get its swagger back again, but it'll need to focus less on its product and more on how it interacts on a social and advertising basis with consumers. By revamping its brand awareness and taking to the social airwaves, the Golden Arches can shine once again.
Can McDonald's become golden again?
After making investors rich in 2011, McDonald's has been one of the worst-performing blue chip stocks of 2012. Our top analyst on the company will tell you whether you should be worried by this trend, and he'll shed light on whether McDonald's is a buy at today's prices. Click here now to read our premium research report on the company.