Sector Summary: The Sandwich category is a highly competitive sector within the food industry. Competition is fierce and consists of both franchised and non-franchised outlets. Generally, sandwich stores are easy to operate and only demand a limited number of employees. With that said, the revenue potential is also limited due to the sector catering mainly to lunch crowds only. Generally speaking, we like the sector because stores are scalable, easy to operate and training times are lower than other sectors.

Investment Summary: Penn Station East Coast Subs is mostly a Midwest brand with over 230 locations. Most locations are located in Indiana, Ohio and Kentucky. There are a lot of good reasons to invest in this brand given the high quality operations and focus on the franchise model. (1) unit economics are higher than its peers. (2) training and support is strong. (3) financial ratios are top tier. Additionally, management is growing the brand within adjacent states, which will certainly help reduce the likelihood for failure and ensure franchisee success. After speaking with multiple franchisees, we have learned that the management team, with over 160 years of combined restaurant experience, is strong and is dedicated to growing the model slowly and steadily.  Plus, Penn Station institutes a procedure whereby 50% of operating profit goes to full time managers.  At first, we thought we misheard, but it seems to be working well and allows franchisees to scale while ensuring top talent.

Recommendation: TheFranchiseHound believes entering the Penn Station system will provide a strong return on investment. We like management’s strategy to keep the menu simple, and we appreciate the slow growth mentality. We strongly believe that this brand will continue to increase unit economics year over year as the brand continues to get stronger. Remember, there are only ~230 locations. This brand has the opportunity to scale nationwide which will help existing franchisees gain traction. We urge potential franchisees that live in the Midwest or adjacent markets to consider this brand further.