Simplicity: How This Billionaire Created the World's Largest Restaurant Chain

Often, the best investment are the simplest. Here are three lessons in simplicity we can all learn from Billionaire Fred DeLuca.

Aug 30, 2014 at 9:05AM

50 years ago, Subway was nothing more than an idea in the mind of a 17-year-old. However, with just a $1,000 investment from a family friend, Fred DeLuca turned his idea into the world's largest restaurant chain, and generated a personal net worth of $3 billion.

By solving a major problem in a way that was simple in concept, simple for consumers, and simple to grow, DeLuca's story highlights the value of simplicity. 

Fred Deluca Ny Post Smaller

Source: NY Post.

It is my belief that the key to building personal wealth and finding great investments -- like Whole Foods Market, Zillow, and BofI Holdings -- is all about keeping it simple.

Simple, but big, idea
In 1965, DeLuca was working at a hardware store, attempting to save for college to become a doctor. Stuck eating fatty fast food nearly every day for lunch, DeLuca wished there was a healthier option. After discussing the idea with family friend Peter Buck, the two settled on opening a sandwich shop. 

Fred Deluca Early Subway Subway

Source: Subway website.

This wasn't the "perfect" idea, but DeLuca didn't need perfect, he only needed a product that was better than what was currently available.

Stock Pick: In a very similar fashion, John Mackey and Renee Lawson Hardy set out to give consumers a healthier, more organic grocery store option when they founded Whole Foods Market in 1980. Over the past decade, Whole Foods has more than doubled its number of locations from 163 in 2004 to 390 today -- 17 of which are new international locations in Canada and the U.K. 

Over the last five years, Whole Foods stock price is up almost 170%. 

Simple for customers
In general, we choose where to eat lunch based on four things: Location, time, price, and taste.

According to DeLuca, Subway has "on average about 1 store for every 13,000 people in the United States." This means you won't have to travel far to find the nearest Subway. Second is time: If you're going out to eat on your lunch break, you need to know you can get in, out, and back to work. Making sandwiches is quick and easy. 

Third is price, and this doesn't necessarily mean cheap or expensive, but rather do you have an idea ahead of time what you will pay? In 2008, Subway started the $5 footlong. Not only is it an affordable price, but its simplicity is memorable. 

Fred Deluca

Source: Subway website.

Lastly is taste, and remember we're talking about fast food, so the bar is set pretty low. But consumers want consistency. That's the difference between Subway and regional sandwich shops; there's a sense of security that goes along with the Subway brand. It's not the best sandwich, but you know what you're getting, and that's a big competitive advantage.

Stock pick: Zillow simplified the home buying process by allowing consumers to find a real estate agent, as well as compare mortgage rates and home prices all on the same platform. 

Because Zillow's free information attracts a very targeted customer base to its website, it's the perfect platform for local real estate agents and mortgage professionals to advertise. Also, because the website encourages browsing through homes -- meaning consumers are spending a good deal of time on the website -- it's a great place for other advertisers.

Zillow is up more than 300% since it went public in mid-2011. 

Simple structure
Just nine years after opening their first store Subway began franchising, and it's the perfect example of a company that franchises well. They sell a simple product to make -- which makes training employees easy -- and they do it with fairly low overhead costs. Most of the ingredients are cheap, and Subway locations are small. Put it all together, and it makes a business that can easily scale. 

Stock pick: Internet banks are nothing new, and most have flamed out over the years. However, with traditional banks moving more and more toward online banking, I think customers are getting used to not needing a bricks-and-mortar location to feel like their money is safe.

Being able to collect deposits without physical locations, as Bank of the Internet has proved it can do, gives the company a huge cost advantage. BofI Holdings stock price is up over 1,000% over the last five years.

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends BofI Holding, Whole Foods Market, and Zillow. The Motley Fool owns shares of BofI Holding, Whole Foods Market, and Zillow. 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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