Key points
- Jersey Mike's beat third-quarter expectations on both top and bottom lines, and Charlie Morrison says same-store sales rose about 3%, driven mainly by traffic.
- Morrison says Jersey Mike's has posted positive same-store sales growth for 21 consecutive years, a record no other restaurant brand can match.
- Jersey Mike's plans about 300 openings a year, sees 15,000 stores of global potential, and says cannibalization across its remapped U.S. trade areas is very minimal.
Jersey Mike's grows on traffic, not price, eyeing 15,000 stores
Jersey Mike's is growing on traffic rather than price, and management argues the model has room to scale. Restrained pricing and value offers keep franchisee margins intact while about 300 stores open each year. The company sees 15,000 stores worldwide and a path to higher volume per store through catering and digital marketing.
Takeaways
- Traffic drives growth and a 21-year streak. Same-store sales rose about 3% in the third quarter, another consecutive gain driven mainly by traffic. Morrison cites 21 straight years of positive same-store growth, which he says no other restaurant brand matches. Results beat expectations on revenue and earnings, and shares rose.
- Little price taken, value offered without discounts. Jersey Mike's raised prices only slightly this year while much of the market raised them heavily. It keeps a premium price point and stresses value, such as a $7.99 mini sub and chips bundle, rather than deep discounting, to keep traffic building.
- Promotions have not hurt franchisee margins. A company executive says value offers have not eroded margins. He cites a summer chicken salad sub at $8.95 and the relaunched Mike's Hot Italian, which is margin accretive for franchise owners, whose food costs are a little lower than a year ago.
- Roughly 300 openings a year toward 15,000 stores. The chain has about 3,450 stores and opened 80 last quarter. Morrison sees 7,500 stores of white space in the U.S. and another 7,500 globally. The company expects around 300 openings annually over the next few years.
- Cannibalisation and growth pace are not concerns. After remapping the U.S., the company identified over 1,600 trade areas to develop with franchisees over five years, and says cannibalisation is minimal. Morrison is not worried about growing too fast, noting at least 300 openings a year for several years.
- International expansion starts with the UK. Outside the U.S., Jersey Mike's operates only in Canada today. The UK opens in the coming weeks, and more global markets are to follow, as Morrison sees room for a further 7,500 stores abroad.
- Closing the gap to $2m volume. Average unit volume is about $1.4m against a $2m goal, with no timeline set. Some stores already exceed $2m. Catering, franchise market development and digital marketing aimed at younger, more diverse customers should lift visit frequency beyond today's narrow base of frequent customers.