Jersey Mike's Franchise Systems, Inc

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Jersey Mike's Franchise Systems, Inc.

2251 Landmark Place
Manasquan, New Jersey 08735-1026
U.S.A.
Telephone: (732) 223-4044
Toll Free: (800) 321-7676
Fax: (732) 223-0777
Web site: http://www.jerseymikes.com

Private Company
Founded: 1956 as Mike's Submarine and Sandwich Shop
Employees: 80
Sales: $6.5 million (2005 est.)
NAIC: 722211 Limited-Service Restaurants

Jersey Mike's Franchise Systems, Inc., is the Manasquan, New Jersey-based operator of close to 300 Jersey Mike's sandwich shops located in 25 states. In some communities the stores are known as Jersey Mike's Super Subs, Jersey Mike's Giant Subs, or Jersey Mike's Giant Subs & Salads. Offering more expensive fare than Subway, Quizno's, and other competitors, Jersey Mike's prides itself on using high-quality meats and cheeses, sliced fresh in front of the customer, rather than relying on precut meat and cheeses. The chain's signature ingredient is its certified Angus beef, trimmed and roasted at the store. The bread is also fresh-baked on the premises each day, and unlike the competition, Jersey Mike's slices through its torpedo rolls instead of cutting open a wedge on one side as a way to scrimp on fillings. The chain offers a wide variety of cold and hot subs, all of which are also made available as wraps. Several signature wraps, such as Chicken Caesar and Baja Chicken, are available. Subs can also be purchased without the bread, the so-called "Sub in a Tub."

In addition, Jersey Mike's offers soups and salads, as well as potato chips and chocolate chip cookies, and the usual assortment of soft drinks and water. The chain's catering menu includes sub and wrap trays, box lunches, and cookie trays. Other than fresh ingredients, Jersey Mike's is known for the playful chitchat that takes place between the customers and the counter people—although outside the East Coast the banter is toned down, in keeping with regional differences. Jersey Mike's is owned by its president and chief executive officer, Peter Cancro.

FIRST SHOP: 1956

Jersey Mike's traces it origins to the Mike's Submarine and Sandwich Shop that opened in 1956 in the Jersey Shore community of Point Pleasant, just one of several shops that catered to the town's vacation visitors. The last name of the original owner was long-since forgotten by the time Cancro went to work for the shop's third owner in the early 1970s. Just 14 years of age, Cancro had an in: His brother was already employed at Mike's. Cancro worked full time in the summers making sandwiches for the shore patrons, and part-time during the school year, when he also found time to letter in football, basketball, and track, serve as a student council officer, and win election as class president in 1975. The 17-year-old Cancro was preparing to attend North Carolina University to study law and political science, but an opportunity arose in February 1975, less than four months before high school graduation, that derailed his plans. The owner of Mike's decided to sell the shop and Cancro's mother suggested that Peter buy it. Cancro agreed, approached the owner, and was given three days to raise a $125,000 down payment.

Cancro quickly put together a plan to show potential investors and soon interested a family friend who was willing to put up the money but in return wanted a 50 percent stake in the business. Cancro balked at the idea of having a silent partner and passed on the offer. Before the three days were up, however, he was able to arrange financing from a banker named Rod Smith who had once coached him in Pop Warner football and now offered two-thirds of the down payment. The rest of the money was supplied by Cancro's grandmother. Although he was still in high school and had to wait until he turned 18 in May to have the shop transferred to his name (and according to New Jersey law he was not even allowed to operate a slicing machine at the age of 17), Cancro became a small business owner. He now began managing the shop as he completed the final months of high school. His plans for college, in the meantime, were permanently shelved.

Cancro's business prospered and he gained practical experience as an entrepreneur. He first toyed with the idea of franchising Mike's in 1979, but given his lack of experience he was dissuaded at the time from taking the step. Instead, in 1980 he opened a second sub shop in Belmar, New Jersey, some 15 minutes away. This unit did not perform as well as the first, however. "It was," as Cancro told Chain Leader in a 2000 company profile, "twice the work and half the money." After about a year he sold the Belmar shop and returned his focus to the Point Pleasant operation, which continued to thrive. Cancro told Chain Leader, "I did incredible volume and made incredible amounts of money."

Mike's developed a cadre of local customers so loyal that many of them while on vacation had their favorite subs packed in dry ice in Styrofoam coolers and shipped to them overnight, some as far away as England and Australia. Other customers who moved from Point Pleasant also began to encourage Cancro to open sub shops where they lived. Thus, in 1986 he adopted the Jersey Mike's name, formed Jersey Mike's Franchise Systems Inc. and a year later began franchising sub shops. "At first we wondered how people in other parts of the country, like the South, would respond to the name," Cancro told Business Journal of New Jersey, "but we figured if Kentucky Fried Chicken could go international, so could we."

Over the next two years, 21 franchise operations were opened, along with four company-owned shops. In this early stage, Jersey Mike's did not attempt to make connections with multi-unit franchise operators, electing instead to award franchises to individuals with whom Cancro felt comfortable. Because bank financing was easy to obtain at the time, this approach worked well enough. Systemwide sales increased 67 percent between 1988 and 1989, from $6.3 million to $10.5 million. By the summer of 1990 the chain grew to 32 units, located in such states outside of New Jersey as Connecticut, Georgia, Ohio, and Tennessee. Cancro was poised to take Jersey Mike's to other parts of the country as well when interest rates rose and the days of easy bank loans dried up, temporarily putting a halt to his expansion plans. For the next few years the chain stalled at the 40-unit mark and Cancro focused on growing sales at shops already in place.

MID-DECADE REEVALUATION

It was in 1995 that another Point Pleasant native, Sarah Palisi, became involved with Jersey Mike's and provided the experience in strategic thinking that Cancro lacked. Palisi had risen through the ranks at Burger King where she had distinguished herself as the vice-president of strategic planning and then launched her own consulting business in Dallas. Palisi was impressed with Cancro, who had made a name for himself in the Point Pleasant community for raising money for the local high schools and other charitable efforts, and offered him some much needed advice on how to resume growing the Jersey Mike's chain. First, she encouraged him to thoroughly study potential markets. This effort led to a deeper understanding of Jersey Mike's clientele.

COMPANY PERSPECTIVES

It all started in 1956 at the Jersey Shore with a single neighborhood shop dedicated to serving authentic Subs. Today, the authentic taste is available nationwide.

Because of the high price tag of its sandwiches, the company had assumed that the ideal location for a Jersey Mike's was in a suburb, where more affluent customers lived. However, research indicated that the subs also held tremendous appeal with lower-middle income earners as well. Moreover, Palisi suggested that Jersey Mike's adopt a spoke-and-wheel approach to growth. By opening a few company stores in a new market, the chain would be able to attract franchise partners, people capable of opening multiple units in that area. These units would then provide a bridge to adjacent markets, where once again Jersey Mike's could open company stores as an advance guard.

By August 1997, the Jersey Mike's chain numbered 75 stores spread across eight states. The 100th unit opened in June 1998 near Pittsburgh, as Jersey Mike's expanded its reach to ten states. That year also saw Jersey Mike's air its first national television commercials, although the first spot, developed by Alexandria, Virginia-based Williams Whittle Associates and first shown in Raleigh, North Carolina, did not prove as successful as originally hoped. It featured an office worker asleep at his desk, who only briefly took note of a ringing telephone. A large Jersey Mike's sub was then shown and a voice-over proclaimed, "Don't order the giant." Unfortunately, many consumers were confused by the humor of the spot. When they visited their local stores many of them asked why they were being urged not to order the large sub. The franchisees were not pleased and the campaign was scuttled in favor of a more serious approach. The new spots, developed by Sirius Advertising of Avon, New Jersey, differentiated Jersey Mike's by focusing on its heritage, Angus beef, fresh-baked bread, and deli-style preparation. Instead of the problematic "Don't order the giant" tagline, the new spots closed with a satisfied customer exclaiming, "You have to try one."

To spur expansion, Jersey Mike's secured $10 million in funding from the Franchise Mortgage Acceptance Corp. in 1999. In that same year, the company opened its first airport terminal shop, located at Raleigh-Durham International Airport. By the end of 1999, the Jersey Mike's chain numbered 161 units, of which 12 were company owned. Systemwide sales totaled $70 million and company revenues were $9.2 million.

NEW CENTURY, NEW LOOK

As Jersey Mike's entered the new century, it looked to improve the location of its shops, which had been typically found in strip malls. A new prototype was also unveiled, the result of market research that indicated the look of the store did not match the quality of the product. While keeping costs down, an important consideration in the low-margin sub sandwich category, Dallas-based brand management consultant Debra Tippett made some significant changes to the look of a Jersey Mike's store, her main goal being to create a consistent, inexpensive decor that distinguished Jersey Mike's from the competition and did not look like a chain. Different tables and chairs were added, as were new, easier-to-read signs, and food photography to adorn the walls.

At the close of 2000, the Jersey Mike's chain included 185 franchise operations and a dozen company-owned stores. A year later just four company-owned stores remained while franchise operations topped the 200 mark. Although Cancro was interested in taking Jersey Mike's public, he was willing to bide his time. He told trade publication QSR, that "down the line" he would like to engineer a public offering of stock, "but we want to make sure that we are very strong because one of the problems with going public is stockholders want more immediate gain. They want to see quarterly earnings—and we don't want to chase quarterly earnings. If that means we don't go public, then we won't. But, if we're strong enough that we can make investors happy, then we're in control, and we would go public."

By the end of 2003 Jersey Mike's boasted 252 franchised units in 20 states, but only a single company-owned store. That situation would change in 2004 when Jersey Mike's opened several company-owned units in a market it had overlooked for many years: Monmouth and Ocean counties of the Jersey shore. The vast majority, about 95 percent of Jersey Mike's stores, were located outside of its home state. In New Jersey a sub shop where the meat and cheese were sliced in front of the customer was hardly a novelty, but sales had been increasing in the New Jersey stores. Moreover, national chains including Subway and Quizno's were making a push to open more stores in the state. Jersey Mike's was simply looking to maintain its share of the local business.

Jersey Mike's continued to grow modestly in 2005 and 2006, spreading to five more states. There was no indication, however. that Jersey Mike's was any closer to going public than it had been earlier in the decade.

Ed Dinger