It may seem like Subway Restaurants have reached the saturation point, but one Los Angeles entrepreneur is betting big that Southern California can accommodate even more of the sandwich shops.
Hardeep “Hardy” Grewal purchased the district territory for Los Angeles County Subway restaurants in October. And in a deal to be finalized on Wednesday, he is to take over the Orange County territory as well.
What that means is that Grewal suddenly has become the sovereign of Subways in Southern California. And no small empire it is, either, since there are more Subways in Los Angeles County than any other food or beverage retailer.
“I wish everyone could do this,” said Grewal, an Indian immigrant. “It’s the American dream.”
In his post, Grewal will select and train the franchisees, scout out real estate for locations and supervise the existing shops in both counties. Grewal’s Oh Cal Foods LLC, the company he purchased along with the Los Angeles territory, has 40 employees.
When he bought the L.A. territory, there were 446 restaurants. Now there are 468 and he expects to have 490 by the end of the year. (For comparison’s sake, there are 397 Starbucks and 325 McDonald’s.)
In Orange County, where there are 190 Subway restaurants, Grewal said the first priority will be to bring up sales at the current locations. But he plans to expand there, too.
But has Grewal made his bet at the top of the market? Some industry observers think the chain is near its limit in terms of the number of retail outlets.
“It’s going be like the bagel craze was,” according to Darren Tristano of Technomic Inc. a food-industry research and consulting firm. “You could get retail bagels in super markets, bagel sandwiches were brought in at McDonald’s and specialty bagel stores closed all over.”
Adding to the crunch produced by the proliferation of Subways, a number of other fast food restaurants have added subs or other sandwiches to their menus, Tristano said. McDonald’s now has a chicken club sandwich and Wendy’s has a line of Frescata sandwiches, a variety of meats on ciabatta-style sandwich rolls.
In short, he said, this is not a great climate for much expansion for Subway.
Grewal disagrees.
“Every time we’re opening a restaurant, it’s to strong sales,” he said. “I evaluate each location as a franchisee. I know if it’s a good location or a bad location.”
Grewal added that the chain has historically added about 30 to 35 restaurants per year in L.A. County and that the chain has to keep growing to accommodate the area’s huge population growth. He said that he’s hardly the only one that thinks more Subways can fly; he gets about 1,600 franchisee applications every month.
Moreover, Subway does have one big advantage, Tristano said. Through its branding and marketing, Subway has established itself as the healthy alternative on the fast-food front. The company’s campaigns touting its sandwiches with 6 or fewer grams of fat have been extremely successful.
“The perception by consumers is that they’re the healthy player,” he said. What’s more, at least during the workweek, convenience is the most important thing on consumer’s minds, he said. They’ll sacrifice cost, value, freshness and even taste for food that’s fast, close and easy. And Subway, with its myriad locations, fills that bill.
“Five out of seven days people want convenience and Subway provides that,” Tristano said.
Thriving territory
According to Subway, Grewal runs one of the company’s top performing districts.
“Since Hardeep has become our development agent for L.A. County, his operational excellence and ability to understand the big picture, along with his communications skills, have already begun moving this top-performing market beyond its previous heights,” said Don Fertman, Subway’s director of franchise sales.
Subway currently has 200 district agents for its more than 20,000 locations in the United States. Tristano said the district agent model is the way many big chains are going since it’s easier to deal with one person in a given territory than several hundred franchisees.
Grewal was born in Punjab, India, and attended school in Montreal. He and his wife Patwant, moved to Los Angeles in 1986, when Grewal got a job as controller at a Mitsubishi subsidiary.
By 1989, his wife was bored and Grewal bought her a Subway franchise so she could have something to do. Then the money started rolling in.
“I saw what my wife was making in those days from this one little store and I decided if I could multiply by 15 or 20 times, that would be really great,” he said.
Grewal got into the franchise business full time in 1993. He opened some shops and took over some that were underperforming, until he had a total of 24 locations. Eventually, he realized the real prize was the district license, however.
He sold all but three locations to buy the L.A. territory. Keeping a few enabled him to keep a hand in day-to-day operations and provided convenient places to train new franchisees.
He now makes money based on royalties paid to the parent company from each franchisee. Grewal said he could not disclose his percentage, as each district agent negotiates his own rates.
At Grewal’s company headquarters, franchisees can take various classes or seek advice. Many of them have never owned a business or run a franchise, and need some advice about operational and personnel issues.
After four months of being a district agent, Grewal was ready for the next step.
“I realized there’s a lot of potential in Orange County and I knew the owners of the company and we made a deal,” he said.
His brother, Gurcharan, and nephew, Harpaul, will run things for him in Orange County, together with the 12 employees who worked for the previous owner, a company called Kenlar. It will be rechristened Grewal Foods Orange County LLC.
Although Grewal wouldn’t disclose the amounts that the districts cost him, he said it was in the millions of dollars in each case. Not so long ago, having money like that was unthinkable for him.
“When I lived in Montreal, the lottery was worth $1 million and I used to dream about what it would be like to have $1 million in your bank account if you won,” he said. “It’s incredible.”
