The "Zero to One" wisdom is that lots of competition means low margins for the business. It's very difficult to afford much more than minimum wages for your sandwich shop employees. That's part of why you don't see a lot of venture-funded restaurants.
LA has quite a large number of them. The restaurant startup space is quite big these days.
Regardless, the optics of venture funding changes this analysis because now we're looking at ROI and not just say, creating successful enterprises that create wealth and value.
The latter is the thing of interest to me. In technology we've focused too much on the former. A say, twenty person software company where everyone is paid well and the customers like the product is a worthy, fine goal. $5,000,000,000 MRR is fine as well, but the vegas-style way people think of tech shouldn't be the only road out there.
Actually, in the UK at least there are VC firms which invest solely in retail and food businesses. Usually they take an already existing restaurant with a single location and turn it into a chain. It is possible to create scalable value in the retail and restaurant businesses, mainly due to the power of brand recognition.
Creating a recognizable brand means answering the question about differentiation, though.
People know how KFC is different from McDonalds is different from Pizza Hut is different from Chipotle. Hell, most of the time they even know how Burger King is different from McDonalds (white meat chicken tenders and more meat in the burgers), how In'N'Out is different from McD's (simple menu, Thousand Island dressing, onion rings), and how Chick'Fil'A is different from KFC (sandwiches over buckets; Chick'Fil'A sauce; lighter frying). The extent to which these are viable as VC-backed chains is exactly the extent to which they can be differentiated in customer's minds.
Oh, I was referring to how In'n'Out will slice a whole onion (in concentric rings, still attached) and put that on your burger, while McD's uses diced onions sprinkled over the top. Used an unfortunate phrase to describe it, because onion rings are also a real side dish (which I don't associate with any fast food joints - more like clam shacks and stuff). Maybe that makes it a bad example anyway, if nobody knows what I'm talking about.
With sandwich shops, location is a key differentiator. We are X for Y, where X is the sandwich shop and Y is specific location.
Sandwich shops is also a highly competitive market. As such, when you look at a snapshot in time it seems like there is diversity without strong differentiation. However, in most cases, if you look at it historically you’ll see that differentiation at inception was required.
Fun note - the largest sandwich shop of all started growth when it became “a commercial real-estate company for franchised sandwich shops”.
This grab for the #1 slot analysis robs the richness of expression that businesses provide.
The trophy model implicates that everyone but a single group walks away losers. It's not a necessary model or, in my opinion, a healthy encouraging analysis. We are the most social species to ever exist, something that requires ruthless cutthroat individualistic competition leaves out the vast majority of humans who aren't like that.
In some markers, the players try to stomp on each other's heads acting like tyrants while in others they coexist peacefully. Not everyone is always trying to be a dick.
Knowing Subway's market cap now, would you invest in them as an angel investor? You'd be a billionaire right now.
They didn't become big by differentiating product. Their sandwiches aren't that special. They became big by coming into existence where people wanted sandwiches.
They absolutely did become big by differentiating product. There's a Jersey Mike's and an Arby's near my home, as well as a Subway about a mile away. The former two chains came into existence right around the same time (and slightly before) Subway did. They struggle for business, both nationwide and locally. It wouldn't surprise me if most readers of this comment haven't heard of them, while most everyone has heard of Subway. That's despite having a similar product (sandwiches) and similar locations to Subway.
What they're missing is the brand. Subway pushed heavily on being a healthy, quick-service chain with good selection in the late 90s, right as America was waking up to the virtues of healthy food and wanting something different from burgers. (They'd actually been around since the 60s, but I never heard about them until the early 2000s.) Nobody buys a Subway for the sandwich; they buy a subway because they want something quick & easy, from a known source, and don't feel like getting a burger. There are plenty of other sandwich shops that sell sandwiches cheaper, oftentimes with better ingredients (i.e. not 49% soy protein in their chicken), but you'll never have heard of them, and most close up in a few years. Invest in them and you go broke.
I have to believe you're wrong, given how awful Subway is compared to every other sub place, particularly Jersey Mikes, Jimmy Johns, Potbelly, DiBellas, even Firehouse Subs. Without doing in depth research, the differentiator has to be their franchising model.
No, Subway's biggest differentiator was and continues to be the low cost of building one, compared to a McDonalds. You can build out a Subway for $200,000 in some cases compared to $1-2 million for a McDonalds. That's why they're the most popular franchise restaurant.
That’s from the sellers point of view and doesn’t translate into consumer demand to keep the ventures profitable and have a competitive ROI.
A 100 cheese and tomato sandwich shops are even cheaper and would probably go broke or a paper airplane franchise ...etc
I suppose there is a relationship between profits and the establishment cost however customer demand is king
It could be related - a low franchise cost means a Subway on every corner (there're 3 within a 5 minute driving radius of my home), which increases the chain's brand recognition. Same strategy that Starbucks uses, opening a store on every corner, even to the point where they cannibalize each others' sales. Familiarity has an advertising benefit all on its own.
Ok cool, more than one Patel owned motel, more than one Cambodian owned donut shop in the LA basin...
The point is that the existence of something isn't a valid reason to not do it. Sometimes not even an excuse to not do it in a nearly identical way.
If someone wants to make say a tetris clone, I say go ahead, make the best one you can make. Take pride and joy in your accomplishments. I hope it will be great.
YACC was named "yet another compiler compiler" because in the 1970s, there were plenty of others around and it was yet another one. But it was well built, well designed, and done anyway. It survived, the others didn't.
You have an idea, others are doing it? So what? Do it.
And how do you decide which sandwich shop to go to when you want a sandwich? You've just answered the question "how does a sandwich shop differentiate itself?"
Generally speaking, I would say the quality of the bread or the cookies. But I don't really go looking for a generic sandwich (like a ham or turkey sub) most of the time. Instead, I go to a place that might be good, find one thing that they do well, that probably doesn't have a direct competitor, and order it over and over again until I'm tired of it. Or alternate with whatever another place does best.
It's my belief that almost all worthwhile restaurants only have one or two things that they do particularly well, so having a huge menu is a negative.
In my case, usually whichever one is closest. If I want good food I wouldn't be going for a sandwich.
Even in the case of good food, it's usually the closest one that meets a certain bar. You could serve identical food as a distant, good restaurant and I would go to yours if you were closer. You don't need to differentiate, especially if you are serving a standard, authentic rendition of some ethnic dish.
Taste, value for money, what I feel like, distance, change and my feelings about healthy eating that day.
The shop can influence taste, value for money and change by specials
