One Monday night three weeks later, as Pete and I reviewed his impressive sales chart, which was now climbing uphill, we agreed that two shops were better than one. That led us to the logical and immediate conclusion that three shops would be better than two. That night before Pete left for home, we decided to open a third location.
I found a third shop at 1212 Barnum Avenue in Stratford, Connecticut. Two vacant storefronts were next to a parking lot and I had the choice of renting the inside storefront for $85 a month, or the more visible outside section for $100 a month. The lower rental fee was tempting, since we didn’t have a penny to spare, but I decided to pay the additional $15 monthly just for the visibility. Since we had no visibility in our other locations I had a hunch visibility was worth the extra money. Fortunately, I was right.
So on July 22, less than a year after we had opened our original shop, we opened our third location, which initially was as successful as our first two. For the next six weeks, through early September, we had a thriving business, and the mood of our Monday meetings was even more high-spirited than usual. Sales were up at all three locations, proving our theory that it was better to have more restaurants than to have fewer. We were far from thirty-two restaurants, but we still had nine years to hit that goal.
But then, one Monday in late September, that ugly downhill pattern that had appeared the year before on Pete’s sales chart showed up again. Sales in all three locations had begun to follow the first-year pattern of our original restaurant. September’s sales were lower than August’s. And the downhill trend was back in force. By the winter of 1967, instead of owning one low-volume, money-losing shop, we owned three of them!
That’s when we suspected the seasonal effect to our business. Had we known anything about the fast food business, we would have anticipated the dramatic swings that occurred in sales between summer and winter. Eating out in the 1960s was not yet an everyday occurrence, and with cold weather and several holidays that consumed energy and money, people were more likely to eat at home. Consequently, winter’s sales levels might amount to just 60 percent of summer’s sales. But we had no way of knowing this at the time. All we could do was wait it out. “By spring, sales may pop back up again,” Pete said one winter night. Thank God he was right.
A Turning Point
We opened a fourth low-volume location on Park Avenue in Bridgeport in 1967, and then one Monday night in April 1968, I surprised Pete with the news that I had just rented our fifth shop. He was excited and he wanted to know where it was located, but I was saving that information until after dinner. “It’s in Bridgeport. We’ll drive over to see it after we eat,” I said, building a little suspense.
I was nervous about showing Pete our fifth location, and for several reasons. We had yet to sign a lease for any of our shops, but I had signed one this time. It probably wasn’t legal because I was underage, but the landlord wasn’t about to do business without a lease. When he told me to report to his office to sign the document, I did. I then immediately began construction on the shop. That might not have been an issue except that I also made a dramatic change to our standard decor without consulting Pete. Worst of all, however, Pete had actually seen this location two years earlier and had rejected it because there was no parking space for customers! This was the first time I had made bold business decisions without seeking Pete’s approval, and I didn’t know how he would react.
After dinner we headed toward the location in my car. Pete wasn’t very familiar with the streets in Bridgeport and I purposely drove the back roads to confuse him even further. I approached the shop from a direction that I hoped he wouldn’t recognize. “There it is,” I said, as we turned the corner from East Main Street onto Boston Avenue. “It’s already under construction, and we’ll be open in May.”
Pete looked at the shop for a moment and said, “Haven’t I seen this location before?”
I admitted that he had, and that he had rejected it.
However, I was excited. The restaurant’s visibility was incredible, so much so that I didn’t really think parking would be an issue. The location was its own billboard, particularly after dark. People coming down Boston Avenue, a heavily traveled road, could see the shop for half a mile. Tucked into a large residential neighborhood, the shop was the first commercial business for three quarters of a mile and my experience told me that was powerful! Parking didn’t matter, I was sure of it. Customers would figure out where to park.
In the two years since Pete had rejected the location I couldn’t get it out of my mind. I drove by it every day because my girlfriend, Liz, who is now my wife, worked half a mile down the road at a German delicatessen owned by her parents. Every time I stopped for the light at the corner of Boston and East Main, I would look at the location that could have been. So when the florist who rented the store failed, I decided to grab it and deal with the consequences later.
“Pete, I think it’s going to be our best location,” I said tentatively.
Pete wasn’t happy. “Without parking,” he grumbled, “customers aren’t going to come to this shop. That’s a problem.” And he wasn’t happy about the extensive decor changes, either, but he didn’t interfere.
Opening day sales of our fifth restaurant dwarfed each of our previous first-day sales. Just as I had hoped, the terrific visibility overpowered the parking problem. Customers parked wherever they could. They parked in the bus stop and they drove over the curb to park on the sidewalk immediately adjacent to the shop, and they also parked across the street in a no-parking zone. Basically, everyone parked illegally, but no one complained. As for Pete, he was no longer annoyed once he saw how much money the restaurant generated for us.
At about 4:00 p.m. on opening day, when the restaurant wasn’t supposed to be busy, I was installing floodlights on the roof to illuminate our sign. As I looked to the ground and watched the steady flow of customers coming into the shop it reminded me of our original opening day when Pete and I sat on the curb counting our chickens. This time, however, I was counting customers, and I was certain this shop would become our strongest producer.
In fact, the Boston Avenue shop often doubled the sales of our other locations. The shop made a profit its very first day and never slid backward. Within a matter of months Pete and I knew that Boston Avenue was a turning point in the development of our business. Without it, our company might not have succeeded because our earning stream was tenuous, and we may not have survived many more winters. Until we rented this shop, our mix of locations was not really profitable, and it was getting old making money in the summer only to lose it in the winter. But now, with Boston Avenue on-stream we had some stability and we could weather the tough times. We probably could have kept this one location and closed the others and made as much money as with the five. However, the goal of thirty-two restaurants was important, so we kept them all. As proof of the staying power of the Boston Avenue location, after thirty years it still exists. After we began franchising, Pete and I sold it to one of our employees, Rosa Perillo, who for many years continued to benefit from its bustling location.
Rapid Expansion
After we started Subway in 1965, I devoted most of my time to the business. However, I didn’t really think of myself and the business as companions for the long term. I attended classes, I studied, and while no one would have called me a party animal, I had fun. I joined a fraternity, I dated Liz, and I had a good time in college. As important as the business was to me, I always thought of it as a means to an end, and nothing more. It wasn’t a lifelong commitment,