The Economics of Harris Teeter Subs

I don’t consider myself a “foodie” by any means, but when it comes to sandwiches, I’ve always had a deep rooted love affair with subs.

As a child, my mother, sister and I frequented a Blimpie’s in Atlanta so often that the employees would begin making our order as soon as we walked in the door. When I got to the age that my parents trusted me with sharp edges, I began exploring my own style of sandwich expressionism. After seeing the franken-sandwich creations I concocted using leftover french bread and our toaster oven, my stepdad began asking me to make two. I knew my sandwich artistry was just beginning to blossom as I packed my bags to head off to UNC.

It takes effort and money to always have fresh ingredients on hand though, so as a budget-conscious college student, I often found myself eating out. However, when it comes to sub shops, I am quite picky. Subway offers a good selection of fresh toppings, including green peppers, cucumbers, and spinach, toppings rarely found at pricier competitors. Their meat and bread leaves something to desired though: their bread has no taste and their cold cuts remind me of those overly processed and watered-down slices of meat found in Lunchables, a childhood favorite. However, Subway recently passed McDonald’s as the world’s largest restaurant chain for good reason, mainly their pricing strategy. When you want cheap, fast food but don’t want a spike in blood pressure, nobody beats Subway, especially with their wildly popular “Five Dollar Footlongs”. My sandwich snobbery doesn’t allow me to enjoy Subway though, so I gravitate towards the incomparable Jersey Mike’s. While Jersey Mike’s has all the necessities for a good sub, it is their bread and sliced-to-order Dietz & Watson deli meats that distinguish them as the Rolls Royce of submarine sandwiches. With prices almost double that of Subway’s though, I sometimes wondered if the marginal benefit of Jersey Mike’s was worth the higher price tag.

My search for the perfect price-to-palatableness sandwich thus began. Quizno’s took after Subway by offering large subs for $5, but their “toasty” niche sandwiches lost their flair after a while. Firehouse was a worthy competitor to Jersey Mike’s, but their pricing strategy was very similar. It was around my sophomore year however, that in the words of Will Smith, “my life got flipped turned upside down”: Harris Teeter began offering made-to-order subs using fresh baked bread filled with their deli meats and cheeses. Not only were the subs made using quality ingredients, but they were priced at an absurdly low $1.99 for that day’s 6-inch special. As a sub enthusiast/economics major, I knew their foray into subs was genius for three reasons:

1. Harris Teeter’s marginal revenue on each sub was insanely high. The grocery industry is all about inventory and margins. You have to have enough inventory on hand to meet demand or customers will begin shopping elsewhere: nobody likes having to make two grocery stops. However, if you become overstocked, your race against the expiration dates begin. Prices have to be temporarily lowered to clear out inventory in order to avoid waste. The genius idea with the subs is that Harris Teeter already had incurred a cost basis for the meats, cheese, and produce. By using soon-to-expire products on their subs, Harris Teeter essentially pocketed 100% of each sub’s sale. All they had to pay for was labor to make the sandwiches and make a few extra loafs of bread.
2. Brand loyalty. Along with the made to order subs, Harris Teeter launched the “Sub Club” promotion. By swiping your Harris Teeter VIC (Very Important Customer) card at checkout, you earned a point for each six inch sub purchased. After 15 purchases, boom, free foot long. Also, Harris Teeter has always been at the higher end of grocery store pricing. By bringing in a new, budget-seeking demographic that typically shopped at cheaper groceries such as Food Lion or Bi-Lo, Harris Teeter didn’t even need to break even on the subs to make money. If HT could convert just a few sub-patrons into regular customers, the sub experiment would be a huge success.
3. Extra Higher Margin Purchases. Americans are used to the fast food combo. You get an entree, but it comes with a side and a drink. Well, Harris Teeter’s side item and drink selection is limitless. By placing individual serving potato chips, pickles, cookies, and drinks well within eyesight on the pathway from sub counter to check-out, Harris Teeter made sure to entice those $1.99 customers to become $3.50 or $4 customers who were buying high margin items. Again, genius.

Soon, as I expected, the “Teet” sub phenomena exploded. The $1.99 daily special sub became a staple of my social circle’s dietary routine. You could see the effect wasn’t limited to my peers either: the lines were growing at a constant rate. We would try to hit the local Harris Teeter before noon to beat the crowd. We never grew tired of eating subs because each day of the week offered different specials, from Philly cheesesteak Friday to Any Sub Tuesday. The only concern we had was beating the 7PM deadline when we wanted subs for dinner. Life was good.

Knowing they were on to something big, the higher ups at Harris Teeter knew it was time to capitalize. No longer were they satisfied with capturing all that extra revenue at such little added expense. They decided now was the time to raise prices from $1.99 to $2.49. The drop in demand was going to be minimal since they were still pricing themselves under the competition. My friends felt betrayed. It was almost as if their child-hood baseball hero had been caught using performance enhancing drugs. Oh wait. Now buying two 6-inch $2.49 daily specials resulted in a $5 Foot Long. Sounded eerily familiar. Harris Teeter knew their throngs of loyal “Sub Clubbers” needed to be retained at all costs, so they introduced the infamous “Foot Long Fridays”. Any sub, hot or cold, would cost a mere $3.99 on Fridays. While this led to some very lethargic Friday afternoons for me, I was appeased. Years went by. I graduated college, got a job, moved to Raleigh, but Harris Teeter was one of the few constants of my life. My new co-workers had a similar love for the ‘Teet”.  We would often draw straws to see who was making the sub run that day while the rest of us remained glued to our screens, trading stocks.

Then something odd happened. I was checking out one day when I noticed my check-out total was 50 cents higher than normal. The next time I was at the sub counter, my modest fears were realized. They had raised their prices to $2.99 for 6-inch specials, $3.49 for any other sub. Again, those profit-seeking “suits” at Harris Teeter corporate knew that amongst it’s loyal sub-clubbers, this pricing “agression would not stand, man”. They introduced a toaster oven to their sub-making operations. While I was skeptical, the idea of enjoying all of my old favorites with a new toasty twist blinded me to what was truly happening. Then, half a year later, the prices rose to their current $3.49 for a special. Not only that, but $3.99 Footlong Friday was now $5 Foot Long Friday. I felt betrayed. This once glorious sandwich love-child between price and satisfaction had now become just another brick in the sub-sandwich wall. I knew the tough economy and rising commodity prices were probably hurting Harris Teeter’s bottom line, but not this much. This treachery knew no bounds. They had roped us in like crack cocaine addicts: offer us an addictive product at can’t beat prices and then jack up the prices when they knew they had us.

Gone are the days when I can get a toasted turkey and swiss on wheat that fills up my stomach without emptying my wallet. But you know what? You can keep that toasted turkey Harris Teeter, because I’m going cold-turkey. Unlike smokers who use nicorette gum or heroin addicts that use methadone, I am going to ween myself off of your subs by using a substitute that is just as satisfying and suddenly, economically competitive.

I just hope the fine folks at Jersey Mike’s welcome me back with open arms.