Secretary of Sandwich
Former House Lawyer Grows His Subway Empire to 1,000-Plus Locations

By Thomas Heath
Washington Post Staff Writer
Monday, July 7, 2008

The cost of food is increasing. A slumping economy is forcing Americans to eat out less frequently. Home values are dropping. Gasoline is rising. Starbucks is shuttering stores.

And Larry Feldman -- the Subway King of the mid-Atlantic -- has just opened his 1,019th shop in the region.

Business, says the 58-year-old, is excellent.

"In this economy, people can always withhold from the white-tablecloth restaurant, from the more expensive meal, and eat at Subway for $5," said Feldman, relaxing in a leather chair at one of his busiest stores, at the corner of L Street and Connecticut Avenue NW in downtown Washington. "It's an ideal time for our products. Average unit volume is up about 20 percent."

Feldman is also going to open the first Subway Cafe, aimed smack at the Starbucks crowd. The new upscale concept, which will debut in Alexandria next month, will be a hybrid between sandwich shop and coffee bar. The stores will feature brick or wood-paneled walls, comfortable armchairs, gelato, baked goods and panini.

Feldman is planning five Subway Cafes in his territory the next couple of years.

Feldman is the classic entrepreneur, a lawyer who found his niche in fast food. He came from Brooklyn and became a multimillionaire, gives generously to Democratic politicians and has a weakness for Bentleys. He has a primary home in Boca Raton, Fla., and spends summers at his residence in Vail, Colo. Feldman visits Washington for about a week every month to oversee his burgeoning empire.

"I am blessed," Feldman said over a recent lunch at the Palm, a swanky white-tablecloth restaurant that is around the corner but, economically speaking, miles away from the closest Subway shop.

Fred DeLuca, Subway president and co-founder, said Feldman is "the largest and most successful development agent in the Subway company." He gets special projects, like Subway Cafe, "because he has a good team and we know he will preserve the Subway brand," DeLuca said. Subway, based in Milford, Conn., has 29,483 restaurants in 86 countries.

The story of how Feldman got exclusive Subway rights in this area began in 1977, when Feldman was an assistant minority counsel to the House Banking Committee. He wanted to turn a vacant space steps from the U.S. Capitol, on First Street SE next to Congressional Liquors, into part of a chain of sandwich shops that were the brainchild of a buddy from the University of Bridgeport. The buddy? DeLuca.

"I was always a frustrated entrepreneur. And congressional food is not very good, as you can imagine. In the morning, I would be at hearings, whispering in congressmen's ears. Then at lunch, I would run across the street, put on my apron, and stand behind the counter. These lobbyists who were at the hearings would look at me and say, 'You look very familiar.' Then I would take off my apron and run back across the street and continue the hearings."

The Capitol Hill Subway store quickly become one of the busiest in the chain, so Feldman took his profit and rolled it into a second store, at Andrews Air Force Base, and then a third, at the University of Virginia.

"It was really about going where the customers were," he said. "Huge military bases. Huge universities. So we had captive audiences and a clientele that was made for the sub sandwich sector. Sandwiches were literally a couple of bucks, back in the day."

Feldman now owns the rights to the District, Maryland, Delaware and Virginia territories and is responsible for finding franchisees to start every Subway shop.

DeLuca said Feldman's success is rooted in his desire to take on more.

"The reason Larry Feldman got such a huge territory was his basic answer was, 'Yes. I will do that,' " DeLuca said. "Most people say, 'I don't know if I can do that.' Some people obsess about it. He took a very top-level view and was able to immediately make a decision. It's like free land. Here is a bunch of acres for your ranch, now go do it."

They call the model the development agent concept, and it is designed to relieve the central office of sales and development and ensure the stores maintain levels of quality and profit.

"We find the franchisee, then we take them through the entire process, assisting in construction, development of plans, education, training," said Alan Warmund, the day-to-day operations executive for Subway Development of Washington. "Unlike other companies where they sell the franchise and disappear, we are required to do monthly inspections and evaluate food quality, preparation, services, marketing and advertising. Our income and my profit is based on the individual franchisee. If they do well, we do well. It's the beauty of this system."

But in the beginning, Feldman's mother wasn't sold.

"When I decided to leave the Hill, I called my mom," Feldman said. "Remember, I was the first in my family to go to law school. So I called my mom in Brooklyn and I say, 'I am no longer your son the minority counsel to the House. Now I am going to be your son the sandwich maker.' And I could hear the screaming all the way from Brooklyn."

By 1988, he owned 200 stores. By 2001, he ran 650.

Mom changed her mind after Feldman bought her a condominium in Florida.

Not every Feldman venture has been a home run. Feldman, whose father was a hair stylist, in 2000 launched a chain of specialized hair color and style salons called Haircolor Xpress. Starting in Florida, the company opened 70 stores and sold the rights to 200 franchises before Feldman sold out in 2003 to another group. He broke even on his investment and still owns two hair salons, in Boca Raton and Fort Lauderdale.

Warmund said the hair salon idea was distracting Feldman from his profitable Subway franchises. "It was more work than he anticipated and not worth the time," Warmund said. The chain fizzled out under the new owners.

With help from his team, which includes Warmund, Feldman has built a sprawling and hugely profitable business. He won't discuss numbers, but his 1,000-plus stores generate half a billion dollars in annual revenue, based on average store sales of $500,000 to $600,000 a year. Subway world headquarters gets about 8 percent of that revenue and gives about a third to Feldman's Subway Development, which this year will amount to $12 million to $15 million, Warmund said.

Warmund said the cost to open a store is around $200,000. "We take small spaces; we aren't building buildings; we keep costs low," Warmund said. "The more money owners make, the more they are apt to expand to more stores. That makes expansion easier for us and less work."

Feldman has a 55-person staff and three offices in Virginia and one in Maryland. Most franchise owners operate multiple stores, which helps keep the success rate on new franchises at around 98 percent, Warmund said. With 12 employees at an average Subway, where they earn around $7 per hour, Feldman's stores employ more than 12,000 people.

Feldman can wax for hours on the merits of Subway sandwiches. He has been known to get behind the counter, eyeballing the amount of tuna that a sandwich-maker spreads on the bread. He makes surprise visits at stores and eats at Subway about once a week.

Competitors said they respect what Feldman has built.

"We have some franchisees in our system who were Subway franchisees, and they understand the restaurant business and have only good things to say about their experience with Subway Development Corp. of Washington," said Bob Phillips, president of California Tortilla Group, a chain of 38 fast-casual restaurants on the East Coast.

Feldman plans to open 60 stores this year, many of which will be in nontraditional locations. The Dulles International Airport Subway, his busiest, has taught him the value of captive audiences. There are now three units in the Pentagon, and there are even some in development at high-security government facilities that Feldman cannot identify.

Dennis Lombardi, executive vice president for foods service strategies at WD Partners, a design and development firm for retail and food chains near Columbus, Ohio, said Subway hasn't hit its limit in the United States.

"Fifteen years ago, no one would have believed there could be 10,000 Subways in the U.S. Now there are more than 20,000," he said. "So I am not going to guess what the saturation number is, but it's certainly some number bigger than where we are now."