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Subway Executive Describes Changes Prompted by Covid

Subway Executive Describes Changes Prompted by Covid

Major changes in the restaurant business precipitated by the COVID-19 pandemic have prompted the Subway chain to cast key elements of its business model in a new light, said Anthony Tsocanos, food scientist, bakery, at the Milford, Conn., sandwich chain. In a panel discussion about the quick-service restaurant industry during the BEMA annual meeting, Mr. Tsocanos shared a dramatic story about steps Subway took to “hit the ground running” as the pandemic receded and how it relied on suppliers to help navigate selective but severe supply-chain disruptions. The panel was held on June 24 during the annual meeting at the JW Marriott hotel on Marco Island.

While Subway has embraced opportunities created by greater customer interest in doing business digitally, Mr. Tsocanos said such a shift creates a range of challenges for businesses carefully conceived to meet consumer needs using an in-store model. “Subway was built on customization, with a sandwich artist, picking out exactly what you want,” he said. “I think that’s been one of the biggest challenges in remote ordering — how do you properly convey what you want on your sandwich when you can’t see how many olives you’re going to get? If you’re an olive guy and you want olives, then you want olives.” For sandwiches ordered online, the question becomes, “How do you build a robust tool that allows your customers to get exactly what they want?”

Increasingly, apps offer “fantastic tools,” allowing consumers to better communicate what they would like in order, Mr. Tsocanos said. Still more difficult to address is the growing amount of time elapsing between when a sandwich is made, and when it is consumed. “What we weren’t expecting is, we don’t expect people to take a large amount of time for people to get from the restaurant to their sandwich, to where they are going to eat it,” he said. Greatly elevating this concern is the growing role of third-party delivery companies, which Mr. Tsocanos said places “the responsibility of your brand with someone else to manage.”

In this realm too, technology appears to be coming to the rescue. “Luckily, I think cold sandwiches do extremely well,” he said. “Hot sandwiches are definitely what we need to worry about. So many packaging innovations have been happening around how you cater better. How you handle the third party with tamper-proof seals. All those things I think were almost starting to move forward, and then when the pandemic hit they really took off. They got prioritized. That with delivery has been huge.” Whether e-commerce will grow in importance at Subway to the point that the in-store model is changed in the future remains to be seen, Mr. Tsocanos said. Online ordering allows Subway to merchandise add-on products more effectively, perhaps, than around a cash register, he said, citing cookie packs as a potential example.

“On the flip side of that, if all of the food theater leaves the restaurant, I think that will certainly be a conversation at Subway, which has bread ovens right behind the counter,” he said. “We have equity in fresh-baked bread, equity in fresh-baked cookies, equity in customizable sandwiches. I think that balance is going to be something that is going to be very seriously considered when you look at how consumer habits are shifting.” Subway’s approach to research and development has shifted because of the pandemic, Mr. Tsocanos said, explaining that pre-COVID, the company was exploring a wide range of innovations. He described what transpired over the last few months as a case of “prioritizing and reprioritizing.”

“Our marketing team came to us and told us what the plan was coming after the pandemic,” he said. “We knew the size of the prize was huge. You had to hit the ground running. There was a concerted effort to make a huge change to the core footlong.” Subway partnered with Aspire Bakeries and another partner to reformulate the company’s signature sandwich rolls for the changing marketplace landscape. The objective was to develop the new formulation at a lightning-fast speed, he said.

“We know if you can win the core, you can get people experimenting on the menu,” Mr. Tsocanos said. “But you have to drive people into the restaurants, and we know that is going to be absolutely the biggest win. Getting people refamiliarized with Subway and happy with how that experience goes.” He credited Aspire and Hector Morales, Aspire’s senior vice president of strategic partner development, for the rapid rollout of a sandwich roll reformulated for the demands of a post-pandemic world. The new roll holds up better for a longer period after sandwiches have been made. “The work that Hector has done has been phenomenal to essentially turn around a decision made in December and turn that around and launch in April,” Mr. Tsocanos said. “We did have some time beforehand to vet it out, but the amount of time we had to get it completed, everything felt short.”

Mr. Morales said the work done before December proved crucial in the successful rollout of the new formulation. “If you think about delivery and bread going from point A to point B, the length of time between the actual baking of the bread, which happens at the store level at Subway, to when it is going to be eaten, maybe two, three hours later, that bread has to hold up a lot better than it did before,” he said. “It has to hold up longer, better to sauces. It needs to toast better. Having a more robust formulation was the key to being able to deliver changes in the marketplace. Even before December-April, we had been working on it for some time.”

Recent events have created extraordinary difficulties with the execution of the new formulation, which contains more vital wheat gluten than the original Subway rolls, Mr. Tsocanos said. Between the new formula and the stepped-up sales, total gluten usage was doubling. With difficulties at US ports, and a shipment interruption in connection with an extended closing at the Suez Canal came to a realization of supply-chain challenges. “The customers now are even understanding now how lean the supply chain is on so many things,” he said.

Mr. Morales said Aspire worked with ingredient suppliers for a workaround that would “allow them to use less of the problematic ingredient” and still maintain the quality and flavor profile with a different mix of ingredients. Mr. Tsocanos said the reformulation change and rechange was tough. “We went out with there with this new formula,” he said. “We knew exactly what we were targeting. We nailed the target, and then we go back to them and say, ‘If you want sandwiches, they may not be  exactly what  we promised in the beginning because there’s less gluten in there.”

From the CEO to franchisees, the message in response to the problem was “we absolutely have to have bread out there in the field.” Mr. Tsocanos and the other panelists agreed immediate communication is crucial in a crisis. “You can’t sit on your hands and brainstorm,” he said. “The collaborative effort that has to happen, it has to happen outside your organization with your ingredient suppliers, the manufacturers. Decisions need to be made so quickly in this environment. Making sure that does happen is crucial to keeping our businesses afloat right now. You certainly don’t want to have your doors closed right now. It was certainly a jarring call when I heard there were a couple of days of production with the amount of gluten we had.”

Subway was not alone among the panelists scrambling for difficult-to-find ingredients. Ethan Hart, president of Custom Foods, De Soto, Kan., said his company had worked hard to develop a gourmet product for its client, the Mr. Goodcents restaurant chain. After an extended development period and having developed an ingredient supply pipeline, trouble emerged. “We finally identified the ingredients and had the pipeline filled,” Mr. Hart recalled. “Literally a week later we got a call from our chocolate supplier, and they said, ‘There is a white chocolate shortage, and you may not get any more white chocolate.’ This was a week after we had just launched this new product for them. So we had many levels of frustration. We were able to pivot and get around it.”

Mr. Hart said Custom Foods has had to invest in equipment and research to deal with the changes emanating from the pandemic. “Most of it has been around packaging solutions, whether its individually wrapped cookies that are fully-baked in the facility,” he said, noting that previously Custom Foods would ship frozen dough rather than baked cookies. “So we’ve modified our operation,” he said. “We have had to move very quickly to get done.” Farrellynn Wolf, chief executive officer of Mr. Goodcents, a regional sandwich shop chain also based in De Soto, said plastic shortages have made party trays difficult to find.

“Those kinds of disruptions in the supply make it difficult to maintain the catering segment of our business,” she said. To BEMA equipment suppliers, Ms. Wolf said Mr. Goodcents relies on open, honest communications as the company makes plans with franchisees. Such communication is crucial as it sets timelines on the potential openings or updating of shops. “Having transparency, all the information on the table from my suppliers, about what the availability really truly is on these items we need to talk to our franchisees about (is what we need),” she said. “Everyone understands we need to be flexible with what we’re dealing with. Our folks don’t appreciate when we tell them it’s six weeks, and it’s six months. (Transparency) helps me do a much better job of not setting expectations too high.”

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