Subway Eyes Matching McDonalds in China in 10 years

March 8 - U.S. sandwich chain Subway hopes to match McDonalds (MCD.N) in China by store count in 10 years, its President Fred DeLuca said on Monday.

DeLuca, who founded Subway when he 17 in 1965, said China had great growth opportunity and targeted 500 stores in the next 5 years, with 35 to 50 set to open in the coming year. "If we accomplish that, then maybe in another five years we may be able to match McDonald's store count," DeLuca told Reuters. He added that Subway was looking particularly at second tier Chinese cities for expansion as major ones such as Beijing and Shanghai had already built a good foundation. DeLuca said Subway's growth in China was in the early stages of development with awareness for products still quite low.

"Our biggest challenge is getting customers to try the product," DeLuca said, adding that they were considering lowering the price to attract more customers. A standard subway sandwich costs around 20 yuan ($2.93) compared with 6 yuan for a cheeseburger at McDonalds. Subway, one of the largest fast-food chains in the world, has 150 stores in China compared with McDonald's, which has more than 2,000.

"We have a very different business model to McDonalds. We make smaller stores and tend to put a lot more of them around," said DeLuca.

Subway's emphasis on fresh eating and lots of vegetables will help the franchise chain grow as the Chinese consumer looks for healthier options, DeLuca said. He added that China was starting to become aware of rising obesity.

"People are starting to understand there is a bit of a problem. This may match up with our growth trajectory and put us in a position where we can grow quite fast." Subway's China stores account for 0.5 percent of Subway's global network of 32,000 stores with markets such as the United States, Canada, Australia and the UK making up the bulk of revenue. In 2009, worldwide sales were $13.8 billion, of which China contributed only a "tiny" amount.

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