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As Subway loses ground, Freshii pitches partnership

An employee at Freshii prepares an order at 444 Spadina Rd. in Toronto on Monday June 17, 2013. Matthew Corrin, founder and chief executive officer of Freshii in Toronto, says that U.S.-based Subway is suffering from overexpansion and could improve its fortunes by letting some of its franchisees operate Freshii stores instead.

Pawel Dwulit/The Globe and Mail

In an unconventional proposal, fast-food salad-and-wraps chain Freshii Inc. wants to team up with its much bigger rival Subway Restaurants to convert its underperforming locations to the Freshii banner.

In an open letter published on Tuesday in The Globe and Mail and other newspapers, Matthew Corrin, founder and chief executive officer of Freshii in Toronto, says that U.S.-based Subway is suffering from overexpansion and could improve its fortunes by letting some of its franchisees operate Freshii stores instead.

With roughly 45,000 locations globally, Subway probably would be better off with 30,000, he says, citing analyst estimates; Freshii, in contrast, has just about 280. Since both chains are based on a similar premise – marketing food that is positioned as healthy – with a similar restaurant size, the two could benefit from the proposal, he argues.

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"We think there's a problem" at Subway, Mr. Corrin said in an interview. "We think we have a solution. Let's start the conversation."

Fast-growing Freshii, which went public last month, has benefited from the trend of consumers seeking healthier fare while privately owned Subway – a pioneer of healthier fast food in the 1980s and '90s and a model of sorts for Freshii – has been losing ground in the past few years to new players that are vying for customers looking for healthier options.

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In Canada, Subway took a public-relations hit recently when CBC's Marketplace reported that the chicken in the chain's sandwiches was supplemented with soy.

Subway is suing CBC over the report, but Freshii probably is trying to cash in on the bad publicity and "strike while the iron is hot," said Darren Tristano, president of food service researcher Technomic Inc.

Mr. Tristano said the number of visitors to Subway restaurants continues to slip but is slowing. Sales declines, which started about three years ago when the chain raised its prices, also are slowing as the chain revamped its menu, adding antibiotic-free meats, for instance.

He said Subway's total sales fell 3.6 per cent in each of 2014 and 2015 but dipped to about half that rate in 2016. The chain is focusing more on international growth and "as a result, I'd say, they're doing okay."

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He called Mr. Corrin's proposal a bit of a publicity stunt, noting the idea isn't realistic for many Subway franchisees who can count on that chain's name recognition and marketing heft to draw customers.

"As unconventional as it is, it's very likely going to be difficult and challenging to get Subway franchisees to come over to the Freshii side," Mr. Tristano said.

A spokesman for Subway, run by Doctor's Associates Inc. in Milford, Conn., said on Monday he couldn't comment because it hadn't received a proposal.

Mr. Corrin said the proposal wasn't sent in advance to Subway but will be unveiled in an open letter on Tuesday. He estimated each conversion will cost about $75,000 (U.S.) a store.

He said he doesn't have a precise number of how many Subway restaurants he'd like to convert to Freshii, which already operates in 15 countries. "We have no issue going anywhere in the world; we think the Freshii brand resonates globally," Mr. Corrin said.

He said already several of Freshii's franchisees also run Subway stores. He said the converted Subway stores could be called "Freshii powered by Subway."

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He said Freshii already outperforms Subway in average annual sales a store – $520,000 at Freshii compared with an estimated $490,000 at Subway.

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Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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