Wal-Mart makeover favors Subway over McDonald's
Subway, the fast-food chain that likes to promote its sandwiches as a healthy alternative to traditional fried and grilled fare, began doing business with the world's largest retailer only three years ago. But from a lone restaurant inside a Wal-Mart in Ozark, Ala., Subway has quickly overtaken McDonald's(MCD, news, msgs) as Wal-Mart's primary fast-food concessionaire across the United States.
At one time, McDonald's was the exclusive in-store restaurant for Wal-Mart Stores (WMT,news, msgs). But now Subway, a unit of closely held Doctor's Associates of Milford, Conn., is in 1,419 Wal-Marts compared with 1,021 McDonald's. So far this year, Subway has opened 105 Wal-Mart locations in the United States -- more than three times McDonald's' 34.
In some ways, Subway's rapid rise at Wal-Mart isn't surprising. The sandwich chain has been expanding at a torrid clip worldwide while McDonald's has been reining in growth, focusing on boosting sales and returns at existing locations.
Also, a restaurant inside a Wal-Mart can't operate a drive-through window. That's a big drawback for the hamburger giant, which does about half its business with motorists.
Another major factor, however, may be what's on the menu.
Wal-Mart's embrace of Subway comes as it battles an image as a ruthless corporate giant with stingy wages and benefits for employees. Looking to portray itself as a good citizen, Wal-Mart has been tackling greenhouse gases and wasteful packaging. Pitching the virtues of "sustainability," it also has been emphasizing healthier foods at its stores, including organics.
A push for healthier lifestyles
As it struggles to cap rising health-care costs, Wal-Mart has singled out employee diets as a concern. Andy Ruben, Wal-Mart's vice president for corporate strategy and sustainability, suggested this spring that "eating healthy meals instead of fast food" might be a good start.
An internal memo leaked to the press in 2005 revealed that the retailer was looking for ways to cut its health-care costs without damaging its reputation. It noted that rates of obesity-related heart disease and diabetes were growing faster among its employees than the general public. Among its recommendations were discouraging unhealthy people from working at Wal-Mart and requiring all jobs to include some physical activity, such as cashiers gathering shopping carts in parking lots.
The memo sparked an uproar, and Wal-Mart retreated on the shopping-cart idea. But it has since launched what it calls "personal sustainability projects" for employees to take better care of their bodies and the environment.
More than 400,000 of Wal-Mart's 1.3 million U.S. employees are participating in the fast-growing program organized by Act Now Productions of San Francisco. In addition to recycling more and cutting energy use, workers this year have been resolving to get more exercise and eat better.
Subway franchisee Maurice Novak thinks he's a beneficiary of the program. Six months ago he was invited by Wal-Mart to replace a McDonald's inside a store in Great Falls, Mont., after the hamburger chain let its lease expire. McDonald's cited disappointing sales, but Novak thinks there were other factors at work, too.
"They're trying to push healthier lifestyles -- they have a 'green' initiative, a 'sustainability' initiative," Novak says of Wal-Mart. "It made sense to get a Subway in there. The management is thrilled to have us."
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