Coffee Beans Growing

Lisa van der Pool reports in the Boston Business Journal that he price of coffee is continuing to rise. Wholesale coffee prices are the highest they’ve been in 13 years.

Futures contracts for December 2010 delivery have risen each of the last few days and a fungus in Colombia is threatening to hit the country’s coffee output, according to a Bloomberg News reports.

Leaving managers of many Boston-area coffee shops to ponder whether to pass on those costs to customers.

The J.M. Smucker Co., which licenses Dunkin’ Donuts coffee for sale in retail stores, has already announced it will raise prices by four percent.

But whether local Dunkin’ Donuts shops hike coffee prices is up the each franchisee, according to the Canton donut and coffee chain.

“Dunkin’ Donuts restaurants are independently owned and operated by franchisees who are responsible for making their own pricing decisions.

“While we are aware of J.M. Smucker Company’s recent price increase for grocery store coffee, it will not impact the cost of coffee in our restaurants. Dunkin’ Donuts licensing agreement with J.M. Smucker Company extends only to coffee sold in retail environments like grocery stores, mass merchandisers, club stores, and drug stores throughout the United States,” Michelle King, director, Global Public Relations at Dunkin’ Brands, Inc. in Canton, Mass., said in a prepared statement.

Starbucks Corp. has announced it will not raise prices. Starbucks last raised its prices in January of this year.

Smaller coffee shops are reacting more quickly.

Boston-based FlatBlack coffee house, which has three retail stores in the city, is raising prices about 5 percent this week. A regular latte at the gourmet shop costs $3, up from $2.85.

“We have no choice but to raise our prices, said Jeff Chatlos, co-founder and vice president of FlatBlack coffee shop.

Josh Gerber says he has worked hard to not raise prices at the two locations of 1369 Coffee House in Cambridge that he runs, but he says if coffee prices continue to spike, a price increase is on the horizon for his customers.

Overall, Gerber’s coffee prices have gone up between 5-15 percent over the past year.

“It’s a lot when it¹s your primary product. It’s unfortunate, because I know people are cutting back on their budgets and we¹re working hard to make that morning coffee fix possible,” said Gerber, co-owner of 1369.

William Trull, a roaster for Red Barn Coffee Inc. in Milford, watches coffee prices on his notebook computer as he’s roasting beans. He said Red Barn hasn’t raised its prices yet, but that may change. He expects coffee prices to settle down again, but not until October or November.

Boston Business Journal

Eric H. Karp

David J. Meretta

From time time DDIFO is pleased to present Guest Commentary from valued contributors. The following is an Analysis of  a recent 11th District Court Decisions regarding Burger King written and submitted by Eric Karp and David J. Meretta of 

Witmer, Karp, Warner & Ryan LLP  

22 Batterymarch Street,  Boston, MA 02109 Tel: 617-423-7250

Following the Supreme Court’s holding in State Oil Co. v. Khan, 522 U.S. 3 (1997) that maximum price fixing was no longer a per se antitrust violation, some franchisors have imposed deep discounting on their  franchisees through resale price caps.  Among the better known examples of this are the “value menu” pricing systems adopted by many fast food franchisors in which all designated  ”value” items must be sold at or below a specified price.

In certain instances, franchisees have embraced such maximum pricing caps, particularly where those schemes have maintained or actually increased the franchisees’ bottom line profitability.  Where pricing restrictions are viewed by franchisees as harmful to their profitability, however, substantial system discord and even litigation can ensue.

A fascinating recent example of the latter scenario can be found in National Franchisee Association v. Burger King Corp., 2010 WL 2102993 (S.D.Fla. 2010), which concerns Burger King’s system-wide $1 double-cheeseburger (DCB) promotion.  This case epitomizes the collision between the divergent interests of franchisors, for which the top-line revenue of the franchisees is paramount, and franchisees, who live off the bottom line.

The DCB promotion has long been the subject of heated debate between Burger King and its franchisees, which maintain that because it costs more than $1 to produce the DCB – something that is not true of any other item previously placed on the Value Menu – the promotion requires them to sell the DCB at a loss and could lead to bankruptcy of some franchisees.  The franchisees were also mindful that Burger King’s marketing of the DCB promotion was being funded by the franchisees’ advertising contributions.  Burger King’s decision to implement the promotion in the fall of 2009 marked the first time that it had imposed a maximum price on its franchisees without obtaining their majority consent, the franchise community having twice voted against it. 

In November 2009 the National Franchisee Association (NFA), which consists of approximately 83% of all Burger King franchisees in the United States and Canada, filed suit against Burger King in federal court in Florida.  The NFA alleges that (1) Burger King does not have the right to set maximum prices under the franchise agreement, and (2) the DCB promotion violates Burger King’s duty of good faith under both the express terms of the franchise agreement and the implied covenant of good faith and fair dealing under Florida law.

In response, Burger King moved to dismiss the complaint, challenging the NFA’s standing to sue on behalf of individual Burger King franchisees, and arguing that the Eleventh Circuit had previously confirmed Burger King’s authority to set maximum prices under the franchise agreement.

While the court agreed that it was bound to follow the previous Eleventh Circuit determination that Burger King does have the right to set maximum prices under the franchise agreement, the court declined to deny the NFA standing to bring its action at the current stage of the litigation, and it ordered that the case proceed with respect to the NFA’s claim that Burger King’s decision to impose the DCB promotion violated its contractual or implied duty of good faith.  Both aspects of the court’s decision are significant.

In reaching its decision, the court noted the longstanding principle that an association has standing to sue on behalf of its members when: (a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.  In this case, Burger King challenged the NFA’s associational standing with respect to the first and third elements.

The court rejected Burger King’s arguments that the NFA’s standing is contingent upon (i) all Burger King franchisees being members of the NFA, and (ii) the identification of an individual franchisee that has standing.  Observing that the NFA brought the action “on behalf of its members and on behalf of a class comprised of all the Franchisees”, the court found that, at the current stage, the action is only on behalf of NFA’s franchisee members and would only be extended to all Burger King franchisees should the NFA succeed in certifying a class.  The court likewise found that the allegation that “at least one” NFA member would be harmed by the DCB promotion satisfied the first element of associational standing.

With respect to the third element of associational standing, the NFA maintained that the participation of individual franchisees in the lawsuit is unnecessary, because the NFA could prove bad faith through Burger King’s own internal documents and data, and through expert testimony.  The court agreed and concluded that the NFA had sufficiently alleged associational standing at this early stage of the litigation.  The court cautioned, however, that because of the nature of the NFA’s claims, it must prove, on a franchisee-wide basis, that Burger King imposed the DCB promotion in bad faith, and “it remains to be seen” whether the NFA can prove such bad faith “without resort to individual determinations”.

Burger King’s duty of good faith to its franchisees is both contractual and implied by law.  The franchise agreement provides that Burger King can only make changes and additions to its operating system which Burger King “in the good faith exercise of its judgment believes to be desirable and reasonably necessary . . .”  Toward this end, under Florida law, the implied covenant of good faith and fair dealing prevents a party from capriciously exercising discretion accorded it under the contract “so as to thwart the contracting parties’ reasonable expectations.”

Addressing the NFA’s claim for breach of the duty of good faith and fair dealing, the court found that, construed in a light most favorable to the NFA, its allegations plausibly state a claim that Burger King breached its duty of good faith by setting the maximum price at $1, forcing the franchisees to sell the DCB at a loss. The court also noted the NFA’s allegation that Burger King has admitted that the sale of the DCB at $1 could lead to bankruptcy of its franchisees.

In our view, in addition to demonstrating the perils of implementing key system changes in the absence of franchisee buy-in, this case should serve as a lesson to franchisors that this kind of overreaching rarely survives legal challenge.  Can it really be good faith to require that franchisees sell a key product at a loss?  Would Burger King, if it was a chain comprised solely of company owned outlets, impose this promotion on itself?  Toward this end, we note that in April 2010 Burger King removed the DCB from its $1 value menu and re-priced it at $1.29.  This step has not eliminated the controversy, however, as Burger King now requires the sale for $1 of the “Buck Double” – which differs from the DCB only in that it has a single slice of cheese instead of two – a product that, according to the franchisees, still costs more than $1 to produce.

The case also serves as validation of franchisee associations in general and confirms, contrary to the statements of some franchisor advocates, that the implied covenant of good faith and fair dealing is very much alive and well.

3G could not immediately be reached and a Burger King spokesman declined comment.

The second-biggest U.S. hamburger chain has underperformed rivals like McDonald’s Corp (MCD.N) as its key customer base of young men has been hit harder by unemployment in the past two years.

That group has suffered massive job losses in industries like construction and manufacturing.

The company, which has a market capitalization of about $2.3 billion, debuted as a public company in May 2006 with an initial share price of $17.

Shares were up 15 percent to $18.92 in midday trading.

Famed for its flame-broiled Whopper, Burger King had previously been owned by private equity firms, which still hold a stake in the company. TPG, Bain Capital and Goldman Sachs purchased Burger King from British beverage company Diageo (DGE.L) in 2002 for about $1.5 billion.

One of the potential suitors, British private equity firm 3i Group Plc (III.L), distanced itself from a possible deal.

“We can confirm that we are not in discussions with Burger King,” a spokeswoman for 3i said.

Burger King last week forecast weak demand during its new fiscal year due to the U.S. economy’s slow pace of recovery and government austerity programs in several European countries. The company said it was unsure how costs for key ingredients like beef would impact the company.

Its shares hit a low of $16.30 in mid-August, but surged to $19.50 in premarket trading on Wednesday.

Private equity firms have become increasingly active and last month was the busiest August since 1999 in terms of the value of merger and acquisition deals struck.

In August, Blackstone Group struck a deal to buy power company Dynegy Inc for $543 million, or $4.7 billion including debt.

Travis says. “Our relationship with our franchisees is spectacularly good. If you focus on a collaborative relationship, everything else will follow.”

In QSR Magazine’s September issue cover story, Carolyn Walkup writes: the midst of the worst recession in decades may seem like a tough time to take the reins of a restaurant company that sells discretionary treats not needed in the everyday diet. However, Nigel Travis, whom Dunkin’ Brands hired to head its Dunkin’ Donuts and Baskin-Robbins brands in January 2009, quickly showed he was up to the task.

Fresh from a four-year record of achieving excellent results at Papa John’s, Travis set out to do the same at the privately held, 60-year-old treats company. Dunkin’ Brands’ board of directors chose Travis to succeed CEO and industry veteran Jon Luther. Luther, who joined Dunkin’ Brands in 2003, remains as executive chairman of the board and worked with the board to develop an orderly succession plan.

In announcing Travis’ appointment, Luther singled out his accomplishments in several companies he headed of building strong franchisee networks, improving sales, and furthering global growth.

In spite of the economic downturn, Dunkin’ Donuts opened 350 new stores worldwide in 2009, with 250 of those in the U.S. When counting sister Dunkin’ Brands treats concept Baskin-Robbins, franchisees opened 550 stores last year. Dunkin’ Donuts units alone number nearly 6,400 in the U.S. and 2,700 overseas.

“We think this trend will continue and get better,” says Travis, who predicts that Dunkin’ Donuts brand openings this year will exceed last year’s to total 500 newcomers worldwide.

“The recession caused some difficulties,” he says. “High unemployment had a negative impact. The biggest impact has been the lending environment and getting new people to come in.”

He’s optimistic, though, about recent talks with banks, and has found some that “seem very positive about our brand.”

“The recession is just a problem you have to attack with vigor,” he says. “We are focused on the top line and are reducing costs of operating and construction. Our franchisees worked with their store economics.”

The brand does seem to be faring well, according to restaurant consultant Aaron Allen, founder and chief executive of Aaron Allen Restaurant Consultants, who credits Dunkin’ with doing a good job of keeping costs in line.

Dunkin’s policy of allowing franchise agreements with no minimum number of store openings required, along with its flexible unit designs utilizing smaller footprints, encouraged franchise development in these challenging times. Design choices include kiosks, gas stations, in-line units, and end caps, as well as free-standing stores.

Read more: QSR Magazine

Canton-based Dunkin’ Donuts reported on Wednesday that it enjoyed a net increase of 338 new locations worldwide in the first six months of 2010, including 75 new stores in the United States. The company currently boasts of more than 9,000 locations worldwide.

The chain, run by Dunkin’ Brands Inc., changed its policy to allow new franchisees to sign a development agreement for as few as one to three locations. Previously, Dunkin’ had required first-time franchisees to sign development agreements for at least five locations.

Grant Benson, vice president of franchising and market planning at Dunkin’ Brands, said the company made the change about a year ago, partly to help new Dunkin’ franchisees land the financing they need. Benson said the change certainly helped continue to propel the chain’s expansion through the headwinds of an economic downturn.

“We have provided franchisee candidates more flexibility by allowing smaller development commitments,” Benson said. “In some cases, it could be as few as one, (but) we would like to be able to see at least two or three.”

Benson said much of the recent U.S. growth took place in the Southeast and in the Midwest, while overseas growth was strong in Korea and China.

Benson attributed the flexibility of the Dunkin’ Donuts model – shops can be opened in hospitals, train depots or gas stations – as a key element of its success. “That flexibility doesn’t exist with a lot of other concepts,” Benson said.

Jim Coen, president of the Dunkin’ Donuts Independent Franchise Owners association, said this is the first time he’s seen Dunkin’ Donuts allow development agreements for one-location franchises since he’s been involved with the chain. However, Coen said he expects most franchisees will continue to pursue multiple locations.

“The average franchisee nationwide owns at least six shops,” Coen said. “There’s an economy of scale, a point where you reach critical mass, that you really need.”

The company didn’t provide comparable growth numbers for the same six-month period in 2009. Benson said there were 171 net new locations in the U.S. in all of 2009, and 351 net new locations worldwide.

“It speaks to the staying power of the brand and the profitability of the brand,” Benson said. “It’s not a fad. It’s here to stay and built to ride out some of the turbulent times.”

The Patriot Ledger

Checkers signed the multi-unit store development agreement with Kerrim Jivani, previously a Dunkin’ Donuts and Baskin-Robbins franchisee with eight locations in the New York City area.  Jivani sold his Dunkin’ Donuts network in 2009, a news release said. Lynette McKee the Chief Development Officer at Checkers previously held a similar postion at Dunkin’ Brands.

Checkers in July announced a five-unit deal for the vicinity of Hartford, Conn. The rest of Connecticut, including New Haven, is still open for expansion, the news release said.

Based in Tampa, Checkers develops, owns, operates and franchises Checkers and Rally’s hamburger restaurants.

Checkers has more than 800 locations across the United States, including locations at “non-traditional” sites such as airports, universities and turnpike plazas.

Read more: Checkers expands with former Dunkin’ Donuts franchisee – Tampa Bay Business Journal

 WDFA prides itself on fearless innovation, ethical responsibility and exceptional service all focused on maximizing your return on investment. Each and every campaign is designed for measurable impact. WDFA’s staff works to evaluate a campaign’s effectiveness and make adjustments to increase value and success. While the company happily offers traditional marketing services like direct mail and door-hangers, it also specializes in non-traditional tactics.

 “As far as our tactics go, the possibilities are endless. We start with acquiring the best data that is available on the target customer, and then work tirelessly until we find the best way to drive them to your door,” said WDFA Marketing Executive Vice President Jason Fordley. “Whether it’s traditional print media, direct-to-door, cultural marketing or more innovative guerrilla tactics we can handle it all. We find that on the franchise level, micro-targeting within the community is a reliable way to ensure that we’re staying where your customers are, so that we don’t waste any of your budget, but we’ve also done full zip code saturations.”

 Under the umbrella of micromarketing, WDFA’s guerilla marketing campaigns often involve street teams – called brand ambassadors – who connect directly with your customers in the neighborhood or at community events. WDFA retains only the most reliable and passionate people who are able to drive more customers to your shop and boost your bottom line.

 Here are just two examples of successful WDFA strategies:

Sending brand ambassadors to a community event (e.g. movies in the park, a local outdoor concert) with “jet packs” of complimentary coffee or Coolatas: As they entice a consumer with free beverage samples, they simultaneously offer a flyer or coupon designed to bring that person into your store. Depending how close the event is to your shop, the brand ambassadors can even use sidewalk chalk to visually lead customers to your doorstep.

Orchestrating “guerilla projections” for shops that are open at night: WDFA has two different types of special projectors to “broadcast” your signal, so to speak. A large projector shines still shots or actual movies on a nearby building or wall. Using hand-held projectors, about the size of a cell phone, WDFA brand ambassadors cast images on the ground, surrounding buildings, even parked cars. Again, once they’ve drawn consumer interest, they follow up with a targeted flyer or coupon that drives customers to you.

“Our non-traditional, attention-getting methods might seem unconventional, but they help to ensure that the tactics drive sales,” said Fordley. “For example, there are so many people handing out flyers on the street that people often try to avoid them. But the right location at the right time, with a little something extra—sidewalk chalk, mini-projections, or just a really fun personality—that changes the game. People actually want that flyer; they seek it out! And that’s what it’s all about for us—finding a way to maximize the effectiveness of a tactic. If our clients don’t feel the ‘WDFA effect’ in their bottom line, then we’re out of business.”

Another key element is WDFA’s quick turn-around on orders. For example, a flyer or coupon piece can move from conversation to design to delivery within just a few days. And, because of the volume of work WDFA does with its nationwide trusted vendors and suppliers, you’ll save on production costs. What’s more, if you own multiple shops and want to launch a concurrent campaign across all of them, this usually means more savings: The more stores involved, the lower the cost.

WDFA offers countless strategies, including utilizing social media and social networking sites like Facebook and Twitter to capture new customers and keep “regulars” coming back for more. Basically, whatever you want to accomplish in terms of promotion, WDFA has a way to get you there. Whether you want to follow a traditional route or are looking for unconventional tactics, WDFA can help tailor your marketing in ways that will most effectively reach customers and drive sales.

“We look forward to working with Dunkin’ Donuts franchise owners as we feel that our arsenal of tactics and our collective drive to succeed can be a major asset,” Fordley said. “‘Partnership’ is a very important word to us, so we’ll do what it takes until our client thinks of us in terms of a strong, reliable partner that can be trusted to drive sales whenever it’s needed”.

For more information or to launch a campaign, contact Jason Fordley at 646-240-4880 or jasonf@wdfamarketing.com.

Learn more at: WDFA Marketing

Click Artwork to Register!

Over the past year, DDIFO has enjoyed tremendous growth. With the inclusion of the Midwest Dunkin’ Donuts Franchise Association (MWDDFA) and the Independent Association of Franchise Owners (IAFO), an association of Dunkin’ franchise owners from the Mid-Atlantic market, DDIFO now represents over 2400 shops in the U.S.  According to DDIFO President Jim Coen, this will be one of the themes celebrated at the upcoming National Members Meeting on September 21, 2010 in the Cabaret Theatre at Mohegan Sun in Uncasville, Connecticut.

But it’s also more than that. “We are designing the meeting around the concept that DDIFO is ‘United Now…More Than Ever’ because we all know that with greater numbers and greater unity comes greater strength for the organization,” said Coen.

 “The DDIFO National Members Meeting is the showcase event for our association,” said Kevin McCarthy, DDIFO Chairman. “With the robust growth of DDIFO we can now say we are closer to national representation. We are expecting good turnout from members throughout the Dunkin’ Brands development triangle of New England to Illinois to Florida. The meeting will provide members with interesting and relevant information plus the opportunity to network and share stories from the front lines.”

Mohegan Sun is situated on 240 acres along the banks of the Thames River in the scenic foothills of southeastern Connecticut. Coen says DDIFO chose this site for the National Members Meeting because the venue offers wonderful amenities at a reasonable price. Plus it is within driving distance for members located along the east coast. Mohegan Sun is 225 miles from Philadelphia, 125 miles from Midtown Manhattan and 105 miles from Boston.

The event will be punctuated by a top-notch list of speakers featuring:

U.S. Senator Scott Brown (R) MA. Senator Brown was elected by the people of Massachusetts on January 19, 2010 to fill the term of the late Senator Ted Kennedy. He serves on the Senate Committee on Armed Services, the Committee on Veterans’ Affairs, and the Homeland Security and Governmental Affairs Committee.  Prior to his election to the U.S. Senate, Brown served in the Massachusetts State Senate.  Senator Brown is a 30-year member of the Massachusetts Army National Guard and currently holds the rank of Lieutenant Colonel in the Judge Advocate General (JAG) Corps. Brown was awarded the Army Commendation Medal for meritorious service in homeland security following the terrorist attacks of September 11, 2001.  Scott’s first job as a teenager was at a Dunkin’ Donuts in Wakefield, MA, he particularly remembers cleaning out the grease trap.

Scott Carter, principal of Supply Chain Associates, Norcross, Georgia. Carter has over 20 years of management, finance, operations and consulting experience.  He has worked in executive positions in industry and consulting and has successfully built two global business strategy and operations consulting firms, UPS Consulting and Supply Chain Associates, LLC (SCA).  He is a member of the board of directors for two quick service restaurant co-operatives representing over 13,000 North American store locations. Carter served as interim CEO for the National DCP and now serves as a strategic advisor.  

Eric Karp, Esq. Karp is a partner at the Boston law firm Witmer, Karp, Warner & Ryan LLP. He serves as counsel to numerous franchisee associations in such chains as McDonald’s, Choice Hotels, Dunkin Donuts, Popeye’s Chicken, Cartridge World, TCBY Yogurt, Portable On Demand Storage, Fitness Together, Resort Maps, and Massage Envy. In that capacity, he provides a broad range of advice and guidance to the leadership of the associations on matters including the franchise disclosure documents, franchise agreements and issues that affect the relationship between the franchisee community and the franchisor as well as vendors and suppliers to the system. He has represented franchisees throughout the country in a myriad of franchise issues including sales, purchases, relocations, remodels, transfers, defaults and terminations and lease issues. 

Perry Ludy, Carolina Restaurant Partners LLC, a Dunkin’ Donuts franchise operator in Myrtle Beach and Florence, South Carolina.  Aside from operating a network of Dunkin’ stores, Ludy is the author of several business books including Profit Building: Cutting Costs without Cutting People, an award-winning management book that is translated into several languages and sold worldwide. Ludy is also a contributing writer to DDIFO’s Independent Joe magazine. His column, “Profit Building” includes many of the topics included in his books. Ludy

Dennis Gramm, FNC Restaurants, a two store franchisee in Northwest Suburban Chicago. He has been part of the Dunkin’ Donuts and Baskin Robbins businesses for 14 years. He began his Dunkin’ Donuts career in May 1996 as a General Manager of Operations in Boston. He experienced quickly the strength of the Dunkin’ Donuts Brand and the importance of franchisee involvement in the independent franchise association, committees and Brand advisory councils.

Dennis has been a franchisee since June of 2007 and a member of the Mid-West Dunkin’ Donuts Franchisee Association and the DDIFO. Prior to becoming a franchisee he held several leadership roles in ADQSR and Dunkin Brands as a Senior Market Executive, Regional Vice President and Vice President of Operations Baskin Robbins USA. In addition to his Dunkin Brands resume Dennis has held executive leadership positions at KFC, Pepsico and Market Day Corporation.  

In addition, the meeting will feature discussions with members of the Brand Advisory Council Panel and the DDIFO Board of Directors. DDIFO Communications Director Matt Ellis will serve as emcee for the meeting.

DDIFO Members Can Register Here

Sponsor support has been significant, booth space has been sold out. Sponsors for the DDIFO National Members Meeting include:

Access to Money;  Adrian Gaspar, CPA; Bederson & Company CPAs; Belshaw Adamatic Bakery Group; Comcast Business Services; Direct Capital Franchise Group; DTT Surveillance; Glacial Energy; HME; HS Brands; IKMS Group; iTech Digital; Jarrett Services; Jim Ventriglia, CPA; New England Repair Service; Paris, Ackerman & Schmierer, LLP; Paris-Kirwan Insurance; Payless Shoe Source; PepsiCo; Performance Business Solutions; RF Technologies, Royston LLC; Secure Energy Solutions; Skal East; Sprint; Starkweather & Shepley Insurance; SureShot Dispensing Systems; The Franchise Pros

DDIFO Members Can Register Here

Subway Breakfast Sandwich. Source NRN

Elissa Elan reports in Nation’s Restaurant News that after serving breakfast for four months, Subway said the daypart has increased sales systemwide and exceeded expectations, leading the sandwich chain to expand the early-morning menu with limited-time offers and explore the service of more coffee or espresso-based beverages.

In an interview with Nation’s Restaurant News, Larry Varvella, Subway’s research and development project leader, said the chain’s foray into breakfast — a daypart filled with heavyweights McDonald’s and Dunkin’ Donuts — was a success for the brand and its franchisees.

“We’re very excited that our initial results show it is outperforming even our original expectations,” Varvella said. “Those original expectations were based on our franchise owners breaking even at the least. Of course we fully realized that to be a major player [at breakfast] we needed a long-term commitment. We figured that would be a three-to-six-month period. The last thing we wanted was for our owners not to be profitable.”

The Milford, Conn.-based quick-serve sandwich chain introduced its breakfast program April 5 to more than 25,000 Subway restaurants across North America. The menu features egg and cheese sandwiches served on whole-wheat English muffins, flatbreads or Subway’s traditional 6-inch and foot-long hoagie breads at a prices ranging between $1.75 and $2.25 for the English muffin melts, $2 to $3.50 for the 6-inch hoagies or flatbread sandwiches, and $4 to $6 for the foot-long variety.

The chain entered breakfast as more research highlighted the daypart’s growth potential and popularity with consumers. According to a study conducted by market research firm Mintel Research earlier this year, the breakfast foodservice market is expected to grow 13 percent through 2014. In addition, two of the fastest-growing menu items at quick-serve restaurant chains are specialty coffees and breakfast sandwiches, according to NPD Group, a marketing research firm based in Chicago.

More sandwiches are on the way, Varvella said, although he would not disclose what was in test or when new items would debut.

“We are definitely looking at introducing new items through limited time offers,” he said. “We fully believe that new products are one of the life-bloods of a restaurant chain. We want to keep [the program] new and exciting, and have a lot of items in the pipeline.”

He added that Subway also is exploring the possibility of expanding its beverage line to include espresso-based and flavored coffee drinks.

“Coffee has been a very strong part of our program,” Varvella said. “We’re looking at expanding with Seattle’s Best above and beyond standard drip coffee.”

Though Varvella would not disclose sales for the breakfast program, he indicated there are several barometers that have determined its success, including the acceptance by Subway franchisees.

“The franchisees are happy and the customers are buying the product,” he said. “In the past the menu mix was higher in non-breakfast items, but now we’re seeing equal amounts [in sales] of about 50 percent breakfast and non-breakfast, which, again, is ahead of projections.”

Varvella noted that the two best-selling breakfast items include the egg white western melt and the double bacon and cheese omelet. Latest promotions have highlighted the steak, egg and cheese sandwiches.

Read more at: Nation’s Restaurant News