The Fastest Growing Restaurant Chain You’ve Never Heard About

This chain is spreading everywhere.

Jul 20, 2014 at 10:16AM

You probably could have guessed that the answer is in the fast-casual space. Made-in-front of you food is higher quality, more fun, fresh, and gives you peace of mind. We all have that secret fear of sending food back to an enclosed kitchen and perhaps tougher times make us all the more distrusting.

With that in mind, it should probably come as little surprise that three out of the top 10 growth restaurants in 2013 were sandwich shop chains. And I'll give you a hint: none of them were Potbelly (NASDAQ:PBPB).

Source:  Jersey Mike's

It's not Subway
Subway is just too big as it is to show any meaningful growth by percentage, but apparently plenty of opportunity remains for others to make and sell sandwiches on Subway's giant sandwich turf. In the No. 8 spot was Firehouse Subs with systemwide sales growth of 14.8%. Firehouse Subs' secret though? Just keep building. Same-store sales plunged 6.3% while it grew its unit count by 25%.

Next was Jimmy John's Gourmet Sandwiches in the No. 6 spot. It posted flat same-store sales with overall revenue growth of 16.1% stemming from its 15.4% growth in units. Speaking of units, the average one rakes in close to $900,000 in sales while Firehouse rakes in nearly $700,000. Subway is not even close at under $500,000.

Potbelly sticks out
Potbelly beat them all with over $1 million in average sales per unit last year, but its growth didn't quite reach superstar status. Its revenue did improve 9% mostly because of new unit openings with company-owned same-store sales rising just 1.5%.

According to Aylwin Lewis, CEO of Potbelly, the goal going forward is 10% unit growth. For 2014, the company had expected same-store sales growth in the low single digits but on July 9 lowered its guidance to flat to negative. In order for Potbelly to translate that into top rankings, it needs to seriously improve its same-store sales.


Source: Jersey Mike's

And the winner, with a founder who isn't named Mike
Jersey Mike's Subs is growing like a weed. It only had 713 locations at last count, but that is more than double that of Potbelly and a gain of 22.1% in the last year alone. Overall sales grew 21.2% with same-store sales contributing 2% of this. Founder and CEO Peter Cancro has owned the chain for 35 years since he purchased "Mike's Subs" from the previous owners when he was just 17 years old.


The original. Source: Jersey Mike's

Cancro spent the next 12 years tinkering with the concept to get it just right before he changed the name to Jersey Mike's. He apparently spent the next couple of decades perfecting it and is now in the process of a rapid roll-out. The average Jersey Mike's does just over $600,000 in sales, another chain far below Potbelly on a per-store basis. That's not stopping it.

A sandwich is a sandwich -- what's the difference?
Potbelly's goal is simply to be different. It wants each store to be unique with original decor, music, and atmosphere. It wants that unchained friendly feel where one can relax, Starbucks style, and get a warm and hearty sandwich.

Jersey Mike's on the other hand prides itself on that old-school consistent old-time favorite sub sandwich that hasn't changed in decades. Jersey Mike's attempts to appeal to nostalgia. For example, for the second sub on its menu it states:

Back in the fifties when Jersey Mike's was one of the only places in the world to get a sub, people living at or visiting the Jersey Shore would flock to Jersey Mike's to get our delicious #2. If it's a favorite at the Jersey Shore, we're certain you'll like it too. 

In the end, both chains serve yummy meats and yummy veggies on yummy bread. And they're both growing their overall sales. It's amazing that the sandwich market isn't completely tapped out yet with so many new players popping up but I guess our busy lives have us grabbing fast hand-held bites away from home more and more these days.


Source: Jersey Mike's

Foolish takeaway
None of these guys are showing anything super exciting in the way of same-store sales growth lately so it seems like it's all about unit growth. Follow that, follow the plans, and you can possibly follow the next big winner. Will it be Potbelly? I wouldn't hold my breath.

Though 10% per year is pretty nice that puts its unit total around a decade away from where Jersey Mike's already is now. With so much more competition creeping up I'd prefer to see Potbelly grow its tiny store count more aggressively now and stake its claim for the future. 

Subs aren't the way to make money from your living room
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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