Pizza will join subs for chain

Port of Subs Inc., the Reno-based chain of sandwich shops, soon will announce an effort to co-brand locations with a national pizza operator.

The first four or five stores offering Port of Subs sandwiches along with nationally branded pizzas will be open by the end of this year, said John Larsen, chief executive officer of Port of Subs.

The co-branding effort essentially, two branded shops operating under one roof represents a major step by Port of Subs toward controlling its costs, Larsen said.

"We've have to learn to be more efficient," he said last week.

"We've got to reduce our fixed costs." But over the longer haul, the move toward co-branding also opens the possibility for Port of Subs to begin controlling its own real estate.

The company's 134 stores 118 franchised, 16 company owned typically occupy only about 1,300 square feet.

Cobranded stores, however, may be large enough in some instances to warrant freestanding buildings in which Port of Subs holds a stake, Larsen said.

He declined to disclose the identity of the pizza operator, but said an announcement is coming soon.

The co-branding initiative comes on the heels of a year in which Port of Subs saw sales from existing stores fall by about 2 percent from a year earlier.

Much of the decline, Larsen said, is attributable to weakness in the Las Vegas market, where Port of Subs has 40 stores.

Reno-area sales, he said, were up about 4 percent.

"If you take Las Vegas out of the equation, we're up," he said.

The sales decline was painful for Port of Subs, which posted a sales gain of more than 9.8 percent in 2000 and came back with same-store increases of more than 5 percent in 2001.

Larsen doesn't expect the slump to end anytime soon in the quick-service restaurant business "There are going to be big casualties, big fall-out," he said about the industry and Port of Subs is cautious about 2003.

The pace of store openings will decline a bit maybe one every 20 days instead of the previous pace of one every 15 days and the company will devote most of its advertising dollars to regional television buys in the six Western states where it operates.

The ability to concentrate media buys, in fact, is one of the key elements to the Port of Subs strategy since Larsen bought the company's first shop at Rock Boulevard and Oddie in Sparks in 1976.

(The shop was launched by two brothers in 1972, a date the company marked as its founding date during recent 30th anniversary celebration.) The latest big concentration has come in the Phoenix market.

Ten Port of Subs stores operate in Arizona, and Larsen expects it will be the fastest growing market for the company.

Boise, where the company recently opened its first store, also is attractive, Larsen said.

Most of the growth will continue to come through franchised operations, and more than 75 percent of the new locations are opened by existing franchisees.

At the same time, however, Port of Subs continues to add company-owned locations as Larsen seeks to maintain a strong base of assets under the operation.

Besides, company-owned are a heck of a lot more lucrative.

The fees paid by a franchisee generate about $20,000 a year per store, Larsen said.

A company-owned store, on the other hand, generates about $65,000 a year.

For all the careful eye he's keeping on costs in light of a tough economic environment, Larsen is optimistic about the future of the sandwich business.

Health-conscious consumers a crowd that's growing each year perceive sandwich shops to provide healthier fare than their burger-cooking competitors.

And he demonstrates that optimism with a steadfast unwillingness to take his company public.

Wall Street, after all, would place demands on the company for growth that Larsen finds unwise.

Besides, he likes working with his management team including his two daughters and Larsen said he'd be happy to see the managers and family own the company when he's done.