Penn Station East Coast Subs Expanding Within Its 14-State Radius

Penn Station East Coast Subs anticipates opening from 18 to 23 new locations in 2022, despite some … [+] heavyweight competitors.

Courtesy of Penn Station, Inc.

One might expect a submarine restaurant chain named Penn Station East Coast Subs to be headquartered in either New York City or Philadelphia. But names can be misleading.

Despite its name, Penn Station East Coast Subs is based in the Midwest in Milford, Ohio, and derived its name because founder Jeff Osterfeld started his research on sub sandwiches and cheesesteaks in Philadelphia. He thought Penn Station suggested the East Coast, known for its quality and first-rate subs, and preferred that association.

It opened in Cincinnati, Ohio in 1985. Since that time, it has expanded to 310 locations in 14 states, almost exclusively through franchising. In fact, only one of its locations is company-owned.

A Midwest submarine chain, with an East Coast name, is expanding in 14 states, while it competes against larger rivals.

Its president Craig Dunaway says, “It’s an East Coast-style menu, including cheesesteaks, which were born in Philadelphia, with dagwood sandwiches born in New Jersey. Cincinnati cheesesteaks won’t fly.”

From the outset the chain emphasized efficiency, notes Dunaway. “Everything is placed to order, and you’ll get a grilled cheesesteak, on average, within six minutes,” he says.

Before the pandemic struck in March 2020, 60% of its sales was consumed off premises. But it adapted quickly when that number grew to 100% during the pandemic.

Penn Station East Coast Subs faces a slew of heavyweight competitors including Subway, Jersey’s Mike and Jimmy John’s. Asked what differentiates it from its rivals, Dunaway replies that most of its subs are “grilled, served hot and made to order, such as our fresh-cut fries.”

But Subways and Jersey Mike’s also sells hot subs, so how is that a differentiator? Dunaway replies, what separates it, are its “proprietary breads. Our breads have won awards, and the bread is served hot, and our fries are fresh cut.”

Because of the pandemic and its ensuring supply chain and construction delays, its rapid expansion slowed down in 2021 when only four new locations debuted. But it expects to pick up speed in 2022 and anticipates 18 to 25 openings.

All of its openings will be located in its current 14 states so it can depend on brand recognition to boost sales. “We like to grow in concentric circles and not jump all over the country,” Dunaway explains. When a chain grows in a 10-to-15-mile radius, consumers are familiar with it.

Asked why a potential franchisee would opt to invest in it rather than its larger rivals, Dunaway replies, “The average profitability of our franchisee’s locations tends to be greater than our competitors.”

He noted that most submarine shops specialize in lunch while its business is split 50/50 between lunch and dinner.

Its target audience is people aged 18 to 54 years old. “We’re competing for people for every $11 ticket,” he says. A charge of $11 will get a consumer a submarine sandwich, fries and a beverage.

People won’t eat the same menu every night, but “we want to be the sandwich of choice,” Dunaway states.

But many Americans are moving to healthier diets, so why choose it? “We have salads and wraps,” he explains. Many customers, he cites, go awry with healthier diets with the condiments opting for mayonnaise or Thousand Island dressing.

To entice new franchisees in 2021, it offered, in newer, less established markets, a deal with zero percent royalty for six months and 50% off initial franchise fees. Why?

Dunaway said it’s a “buyer’s market. We want to be competitive compared to our competitors and it would be a good incentive to grow with a smaller Midwest brand that has super regional and ultimately national aspirations.”

Post-Covid, Dunaway says “Comparative stores sales have increased over 30% on a combined basis for 2020 and 2021.” It also added third-party delivery, which now accounts for 10% of sales.

The most difficult challenge it has faced over the last 15 months has been retaining staff and finding new employees. It works with Workstream, a firm that specializes in hiring hourly employees, which helps with digital recruiting and responding to job seekers almost instantaneously.

Dunaway describes the three keys to its future success as: 1) Continuing to execute on a daily basis with its strong business model, 2) Attracting quality franchisees who seek a positive return on investment, 3) “You can’t be all things to all people,” he says, so it avoids following fads.