'McDonald's has shown the way, it's great for Subway'

The man who started Subway 47 years ago and made its first sandwich himself is now targeting 1,000 outlets in India in five years and 5,000 in 10 years.

There are 260 outlets now.

Fred DeLuca, founder and CEO of restaurant chain Subway, started a sandwich shop 'Pete's Super Submarine' at Bridgeport (Connecticut) when he was 17.

It was started with a $1,000 loan from family friend Peter Buck to pay his college fee. DeLuca sees high potential in the Asian market, especially India and China.

Having overtaken McDonald's in the number of outlets globally and in India, Subway's founder gives credit to the rival American chain for showing the way in eating out to Indians.

He names 'Vege Delight' and 'Turkey Sandwich' as his own favourites at Subway, where he eats often.

Born to second-generation Italian parents, DeLuca is among the richest Americans now, with 36,000 restaurants across 99 countries.

In India to get the feel of a market that matters a great deal for his sandwich empire, he speaks to NiveditaMookerji.

Edited excerpts:

Why are you in India and how have things changed since your last visit?

I have been in India for 12 days now, travelling to various parts of the country to meet franchise owners and customers and learn from their experiences.

I was here eight years ago the last time.

At that point, we were just two years old in India.

Now, we have 260 stores.

A lot has changed here, especially in terms of economic development.

And, yes, I went to see the Taj Mahal with my wife this time, something I could not do earlier.

What is your expectation from the Indian market?

It's a high-potential market, with its large population being one of the major reasons.

As the economy grows, more people are eating out.

Our immediate goal is to have 1,000 stores in five years.

Then, if we do a good job, we plan to have 5,000 outlets in 10 years.

Our ideal target group is the 16-30 upwardly mobile Indians.

While we are focused on the metros and tier-I cities, we are looking at growing in tier-II cities as well.

How do India and China compare in your scheme of things?

The two markets have almost the same number of stores and approximately the same growth rate.

We are present in almost 100 countries, but China and India have very special challenges. In India, it is important to have a good vegetarian menu.

Around 40 per cent of our sandwiches in India are vegetarian.

In China, they just need to know whether they are good to eat sandwiches.

How do you look at the Subway versus McDonald's competition? Also, some new chains like Pizza Express are coming to India. How do you handle that?

I look at it in different ways in different countries.

In India, there isn't much overlap or competition yet.

The size of our business in India is still very small, compared to a country like the US where we have overlapping customers.

I think McDonald's has been great for us, as they have shown Indians that it's good to eat out.

That has helped our business.

But, the real competition is in finding good locations as more brands come to the country. There are two main challenges in the business -- first, to find a good location and two, to attract customers.

How much revenue are you getting from the Indian market? How does it compare with the Asian and the total global revenue of the group?

The global revenue is around $17 billion (around Rs 85,000 crore), against $500 million (Rs 2,500 crore) from Asia and $55 million (Rs 275 crore) from India.

Will the revenue ratio change in the years to come?

It has to change.

While I can't give you the exact projections, Asia is set to grow at 30-40 per cent in the near future, against North America's 10 per cent.

Currently, Japan has the highest revenue share in Asia, as we had started there 20 years ago. Malaysia is another region growing very fast in Asia.

How much raw material do you source from India for sandwiches sold here?

Everything except olives, which are not grown here, is sourced from India.

What's the scenario like in the US for you, given the economic slowdown?

Food is not as sensitive as other businesses as people continue to eat. We have been fortunate and have grown our business in the US.

You began with $1,000 and went on to build this huge business. Can the success model be replicated in the current day and age?

It has taken a very long time.

It's been 47 years.

The food regulations have become very stringent now in the US, so that's much tougher than when I had started.

The first problem I would have faced is I would have gone out of money, as regulations and rules have increased the cost of starting and doing business.

But, if one had enough money to open the first store and enough time to learn the business, over time people can accomplish big things even now. In some parts of the world, regulations have been reduced to make things easier for entrepreneurs.

How hands-on are you in the business?

I'm very active in the business, but I also delegate a great deal to other people.

How much do you travel on work?

I would say around 13-15 weeks in a year.

Is your family involved in the Subway business? And, do you have a succession plan in place?

My sister is in the R&D business of Subway.

My wife takes keen interest in it.

There are other relatives who are in the business, too.

No, I don't have any specific succession plan yet.

Why didn't you diversify into other businesses? Do you have any such plans?

No, those things don't interest me.

I lead a simple life and want to continue to focus on selling sandwiches.

I made the first sandwich when the first store was opened.

The food business suits me quite well.

Do you have any favourite at the Subway?

Yes, Vege Delight and Turkey Sandwiches are my favourites.

What's your take on the campaign against fast food?

Subway sandwich is certainly in the fast food business, but this is a different kind of fast food.

We have a lot of vegetables and a lot of choice for the consumer.

The criticism that fast food does not have healthy choice is not quite true in our case.

On a different note, who are you rooting for in the US presidential election, Barack Obama or Mitt Romney?

Well, all of them have their faults.

But, I would lean towards Romney.

Image: Fred DeLuca | Photograph, courtesy: Business Standard