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12.18.14

Innovators’ Spotlight: SUBWAY (Franchise World Headquarters LLC)

Subway_logoThe mega-chain goes mobile with many partners and an app of its own with two key ingredients—convenience and loyalty.

By Adam Perrotta, Assistant Editor

Quick service restaurant giant SUBWAY is known for offering choices—enabling customers to choose their breads, meats, fillings and dressings when ordering a sandwich. It’s been a successful approach; the company’s more than 26,000 U.S. locations brought in $12.7 billion in sales last year. SUBWAY also has made customization a key ingredient in its mobile payments strategy, taking a form-agnostic approach that enables customers to order and pay how they want.

In September, SUBWAY announced it would begin accepting NFC payments via Softcard—the mobile payments initiative (formerly known as Isis) backed by AT&T Mobility, Verizon Wireless and T-Mobile—at its U.S. locations. A month later, SUBWAY added Apple Pay acceptance. The company also unveiled its own mobile app, which features QR code-based payments, an order-ahead service and loyalty integration.

Getting to Know SUBWAY (Franchise World Headquarters LLC)

Marketplace Names: SUBWAY

Location: Headquarters in Milford, Conn., with 14 regional offices worldwide

Organized: 1965 (will be celebrating its 50th anniversary in August 2015.)

Line of Business: Serving great sandwiches that are better for you

Secret Sauce: Giving customers exceptional value, custom choices and food that is better for them.

Founders: Fred Deluca and Dr. Peter Buck

Funding: $1,000 from Dr. Buck to open the first restaurant

Something You Might Not Expect: SUBWAY is the biggest restaurant chain in the world, with nearly 43,000 locations—all of which are franchisee-owned.

Serving up Selection

For SUBWAY, offering multiple payment options is a key ingredient in creating a convenient customer experience, according to Carman Wenkoff, who, as the company’s chief information officer, is responsible for spearheading its mobile payments strategy. That’s one reason the restaurant chain did not join Merchant Customer Exchange, which, at least right now, requires exclusivity. “Our philosophy is to make payments as consumer-friendly as possible and not try to force customers into using a certain type of payment,” he tells Paybefore. While some chains—notably Starbucks—have been successful in driving adoption of one particular in-house payment platform, Wenkoff notes that such initiatives are harder to pull off in the dining-based QSR segment, where customers are more apt to visit multiple chains, making loyalty a tougher proposition. “When you’ve got to fight for loyalty and every visit, creating a frictionless experience for the customer is really important,” he says.

SUBWAY opted to accept both Apple Pay and Softcard in part because they serve different customer segments, with Apple Pay on iOS devices and Softcard primarily on Android and Samsung devices, but also now on Windows devices. And, the company expects the high-profile launch of Apple Pay to increase consumer awareness about contactless mobile payments in general.

Meanwhile, SUBWAY is promoting its own branded app by highlighting the order-ahead feature to drive usage. The service enables customers to build and pay for sandwiches in advance, so the only time they spend in stores is picking up their orders. “It’s a huge convenience for the customer and has the potential to increase throughput,” notes Wenkoff. “We don’t have as many drive-thrus as some of our competitors, so adding the convenience factor is big for us.”

SUBWAY’s app also is tightly integrated with its loyalty program; customers automatically earn loyalty points for every purchase made within the app, whether via a linked credit, debit or prepaid card or SUBWAY’s own prepaid loyalty card (as long as the loyalty card is loaded onto the app).

“The integration of our loyalty program into our app is critical for a great customer experience,” Wenkoff contends. The company plans to add in-app redemption of loyalty points in early 2015. Although all three mobile payment initiatives are still in the early stages, Wenkoff predicts mobile sales will comprise 5 to 10 percent of all SUBWAY transactions within a year—and as many as 25 percent of transactions by the end of 2017.

The Path to Today

Being an early adopter of mobile payment acceptance is in line with the company’s long history of innovation around loyalty and payments. SUBWAY launched its first loyalty program, known as the Sub Club, in the 1980s. That stamp-based program was replaced by a loyalty platform, which was integrated into the Subway Card, a reloadable prepaid card the company launched in 2006. Today, more than 5,000 SUBWAY locations participate in the loyalty program.

Meanwhile, Wenkoff brings his own professional experience to bear in guiding SUBWAY’s payments strategy. A payments technology veteran, Wenkoff co-founded Ontain Corporation, a mobile solutions and stored-value start-up, in 1999. In 2004 established Stored Value Management Inc., a program manager for online payment and loyalty programs, including SUBWAY’s electronic gift and loyalty cards. From there, Wenkoff joined Value Pay Services, where he focused exclusively on SUBWAY’s card programs, before taking on a leadership role with the SUBWAY franchisee-owned Independent Purchasing Cooperative. He then joined the SUBWAY mother ship, assuming his current position as chief information officer in May 2012.

SubwayAppWenkoff’s work across the SUBWAY value chain helps him “to quickly understand the changing landscape and assess the value for our customers and stakeholders,” he says. For instance, his time with the purchasing co-op taught him about cost concerns for franchisees—an especially important factor for SUBWAY, which is 100 percent franchisee-owned. Speaking to those financial concerns was vital in driving franchisee buy-in of the new payments initiatives. The coming EMV shift and rapidly emerging mobile payment technologies, Wenkoff says, also made clear to franchisees that it was time to upgrade their POS systems.

“Our franchisees realized it was time to switch out their terminals, so the key for buy-in was for us to have a well-thought-through strategy that contemplated all of the foreseeable technology solutions and to deliver a future-proof terminal,” he notes. “Introducing Softcard and Apple Pay required an incremental investment, but our franchisees quickly saw the longer term value of doing this and a way to leverage the terminal investment.”

Meanwhile, the SUBWAY app’s order-ahead feature is the descendant of a similar, Web-based initiative Wenkoff helped pilot in SUBWAY stores more than a decade ago. He says it was “just too early” for the service to catch on at the time, partially because retailers were placing more priority on other new initiatives, such as closed-loop prepaid cards, and also because smartphones had yet to hit the scene.

Now Wenkoff sees a moment of convergence—with hardware and software advances and the rise of more sophisticated payment vehicles well-suited to serve evolving demands around customer experience and security. “All of these different factors are coming together to enable us to finally make this a very successful initiative,” he says.

In addition to its mobile payments initiatives, the restaurant chain is on its way toward certifying all U.S. locations with EMV-compliant POS terminals by the payment networks’ October 2015 fraud liability shift deadline. And some new plans are in the works too. “We’re taking a good look at express check-out, enrollment products and a few alternative payment networks,” says Wenkoff. “We have 16,000 restaurants in 106 countries outside of the United States to work on as well, so we have enough to keep us busy for a little while.”

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