Port of Subs was founded by two brothers in Nevada in 1972 and acquired about three years later by John Larsen and his family. The sandwich shop initially grew slowly before picking up its pace a little bit in 1985 with the launch of franchising.
There are now 135 units open in seven Western states.
President Healey Mendicino thinks there is potential for 500 locations in the next six years, including a presence well beyond its Western roots. Indeed, the company recently signed robust development agreements for the Washington D.C. region and Florida, on top of a 30-unit deal in California. Why such ambitions now, after 52 years?
Mendicino, who joined the company about 30 years ago after meeting Larsen at a conference, pointed to several factors driving expansion. Chief among them is last year’s acquisition by Colorado-based private equity firm Area 15 Ventures, which is led by RE/MAX co-founder Dave Liniger. It was the first time Port of Subs’ ownership changed hands from the founders’ family, and it created a “rocket ship,” she said. Following the acquisition, she was named president and “handed the keys.”
“The first priority for us was keeping all the team members in place and (Area 15) was board with that, which was very cool because then we could ensure that our core values would remain the same and it helped bring stability and build trust,” Mendicino said during a recent interview.
Once that trust was established, Port of Subs shifted its focus to high growth. It switched from being a regional brand with single-unit developers to a national expansion model using a regional developer model. Mendicino’s background is in commercial real estate and development, so she felt comfortable changing gears. She also just happens to be a former franchisee with the brand, so she is also comfortable leveraging that mode of growth.
“Now here we are about 18 months later, and our franchisees and team members are energized and collaborative and focused on making sure we do high growth the right way,” she said.
The “right way” means building up Port of Subs’ unit economics. According to Technomic Ignite data, the chain’s average unit volumes at the end of 2023 were nearly $600,000. Mendicino said the company is focused on system sales increases, which increased by about 7% from 2022 to 2023. It is also focused on same-store sales increases and profitability to move the needle higher as it grows.
“If we focus on our unit economics now as one of our priorities, and we focus on one unit at a time, then we’ll increase our AUVs,” she said.
Such work, however, is a challenge in the current environment, but Mendicino said Port of Subs is “choosing not to engage in all the noise around value.”
“We’re not going to discount our core menu because we don’t have to. Value to us means focusing on add-ons versus discounting. So far, it’s had a great effect,” she said. “We’re also coupling that with our digital efforts.”
Port of Subs, for instance, just launched a new loyalty program with gamification features that offers customers “incremental value,” as Mendicino explains.
“The numbers, the guest check increases, and frequency since the launch are stunningly higher,” she said. “We wanted to make it fun and easy and give rewards more often.”
As much of the industry remains pressured, Port of Subs is making up ground on transactions because of its loyalty program and is running flat on sales.
“I’m proud of that. Things aren’t easy right now and it means our fundamentals are working,” she said. “We’re trying to focus on what we can control. We can’t control the economy or consumer or investor sentiment. We can control being great with our guest experience and our franchisee network.”
That network, by the way, now includes 11 regional developers who have about 310 units under contract for the next five years. Each region is tasked with building a flagship location and establishing strong community relationships – a longtime pillar of the brand.
“The quality of those developers is the foundation of our future growth, so we’re mindful of who we’re bringing in,” Mendicino said. “We have to start with the right people and then we can figure out how to get bread and products to their stores from there.”
Port of Subs’ growth, in other words, is still in the early innings, but Mendicino is confident the plan will play out as expected. She said the food – which she calls “the best sandwiches on the planet” – travels well, the brand’s longevity and community focus have helped create a cult following, the limited-service model is benefiting from a full-service trade down effect as well as an ability to fit in nontraditional spaces like convenience stores and truck stops, and there is a lot of white space.
“We can put a Port of Subs anywhere. We also have a mindfulness to not cannibalize our brand because that’s not worth it. We call it ‘mindful growth’ and it’s based on huge goals,” she said. “Huge goals have the ability to change people’s lives. After 30 years with the brand, I’m personally excited to have that opportunity – to see what we can do as a team.”
Contact Alicia Kelso at [email protected]
