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it is a study about the decrease of sales of firehouse, and how they manage to come up with a solution.
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A Case Study Presented to the faculty of the College of Business, Management and Accountancy DE LA SALLE ARANETA UNIVERSITY Victoneta Ave., Malabon City, Metro Manila In partial fulfillment of the requirement for the degree of Bachelor of Science in Accountancy By JACQUELINE A. AQUINO STEPHANNIE B. ARREOLA JOYCE B. BELEN ELIZABETH C. BONITA ANGELA LHORIE N. CASTOR To MR. LESTHER JOY LAN CALVA 2019
period. Furthermore, the policy changed again after only six months of being freed from the two (2) percent royalty. After owners had become used to the extra funds, they were asked to go back to old ways and double up on the payment. The final issue with the case of Firehouse Subs is the ambiguity of the market-wide campaign message. The company requires consumers to vote on marketing and only two-thirds of the markets voted to follow the advertising strategy that has been tested and proven. The problem with this is the consumer base and cross-border mixed messages. Some of the problems faced by Firehouse Subs may be short-term, while others may be long-term obstacles. The brand's decision to withdraw the marketing fees is a short-term problem. Owners are going to create a lot of controversy around it but then they're going to get past the thought of not having to pay the necessary royalty and go on business as usual. Originally, the decision to withdraw the payments had a negative effect which led to further decreases in revenue. This decline would lead to a shorter turnaround time. Identifying and finding a new advertising agency was another short-term problem. Rapidly recognized the need to hire a new company by the Sorensen. Doing this is never a simple 5 operation, but it's a short-term problem. They chose an agency they respected, Zimmerman Marketing, and adapted easily to the modern style of leadership. There are more serious problems in the long term. For one, it takes time to address the sales decline and reposition the product. All parties should stay in line with their acts on the same board. Agency, corporate, franchisees and retailer affiliates are included in both groups. Transition is always complicated and never a smooth transition. The founders should remain consistent and optimistic as the company goes through this process, suggesting Firehouse Subs and Zimmerman Marketing. Both the franchisees and the community need to be positive. We need to be open, and they need to include evidence and reassurance that the company is moving forward. They not only have to say it, but they also have to believe it! Another long-term problem facing Firehouse Subs is the market-border confusion.
Firehouse Subs, officially known as Firehouse of America LLC is a fast casual restaurant and a chain of submarine sandwich shops with more than 400 locations in twenty-one (21) states which started in Florida in 1994 and owned by Robin and Chris Sorenson who were both former firefighters so they've come up to use a firehouse theme and authentic firefighting gear to decorate it. Their menu followed suit, featuring sandwiches with names such as the Hook and Ladder, the Firehouse Hero, and the New York Steamer. In 2001, the Sorensons operated 30 Firehouse Subs restaurants across Florida and began selling franchises to expand across the Southeast and beyond. Their goal is to have 2,000 locations by 2020. For two decades, the sector enjoyed double digit growth in terms of market share increase and out of the 500 list of most valuable companies in which twelve (12) percent were from, the fast-casual segment of the market Firehouse Subs was the 66th. It is also worth noting that the growth rate indicated above has started to stabilize, as the industry reaches its peak. As a result, companies such as Firehouse will need to adopt more aggressive marketing strategies to gain more market share. Sales at Firehouse Subs restaurants were growing until 2008, when year- over-year sales declined throughout the chain by 3.4 percent. The sales decline was particularly puzzling because lower-priced restaurants such as Firehouse Subs normally are well-positioned in economic downturns to attract customers who continue to dine out but look for less expensive options. Something besides the recession was causing sales to decline. Firehouse Subs provides franchisees with a complete business system, strong brand name recognition, and the opportunity to own their own restaurants with investments that range from just under $200,000 to $425,000. In return for the franchisor’s support, Firehouse Subs charges franchisees a $20,000 initial franchise fee, a royalty of six (6) percent of sales, and a three (3) percent advertising fee. When the executive team met to discuss the company’s declining sales, Robin Sorensen had an unconventional idea which is to eliminate the two (2) percent local advertising fee and allow franchisees to create and execute their own marketing strategies. The Sorensons and Fox presented the idea to franchisees, who approved it overwhelmingly, but unfortunately, six months after giving franchisees control over their local advertising budgets, the sales decline at Firehouse Subs had worsened and the system-wide sales were down six (6) percent from the previous year.
As stated earlier, the two main problems that the Firehouse Sub is facing are; one the decline in the sale in 2008, 7 years later after they transitioned in a franchise model and the second is the advertising fees and message to the consumer. Based on the time, it was easy to attribute the decline to the economic environment despite that they already have franchisees they undergo in the decline in sales which very doubtful since they have an estimate of 390 restaurants in 17 states that is located mostly in the South and Southeast. As their sales fell, and the company’s executive grew dissatisfied with their advertising agency they started groping for new strategy. When their advertising agency didn’t have a remedy with the problem the Chairman of the Firehouse Sub, Robin Sorensen suggested an unconventional suggestion and that is to give the local marketing dollars back to their stores. Because at that time they have a six (6) percent royalty, three (3) percent advertising fee from franchisees including two (2) percent local advertising. The Company used the honor system, with no mechanism to verify that the local stores actually did any advertising when they were expected to do their own marketing. Revoking the two (2) percent things only got worse, when the company stopped collecting marketing royalties in July 2008 the sales went down again by 3.4 percent compared to the sales from last year. And by the end of the operating period the system wide sales were running six (6) percent behind the previous year which is far below the industry average of two (2) percent. This option lasted for about 6 six months, M. Fox and Mr. Sorensen estimate that only a third of their franchisees made meaningful effort to market themselves and the rest are dependent on the advertising agency strategy. The other solution they have come up with was discounting, a common tactic to increase sales but then the leadership team quickly dismissed it and opt to purchasing large portions of more expensive ingredients and offer their product for a lower price. Fox and Sorensen rejected the idea of reducing the portion sizes and using cheaper ingredients. So they ended up making a new marketing campaign. Mr. Fox once said that “I knew our brand was stronger and deserved better than negative six (6) percent.” As Firehouse Subs failed in experimenting on the local advertising they began looking for a new agency to handle the corporate account and that is Zimmerman Advertising located in Fort Lauderdale, Florida whose accounts include Papa John’s Pizza and Nissan. The agency promised an eight (8) percent increase in sales which is a bold move in the grim economic climate of
early 2009. To do a proper campaign, Zimmerman insisted that the company not only reclaim the two (2) percent local marketing fee but double it- asking the franchisees to pay four (4) percent. That would increase the combined royalty and advertising fees to eleven (11) percent from the original nine (9) percent when most franchisees were struggling and they do the test campaign in three cities. Zimmerman developed a creative campaign and radio ads that emphasized the food and the portion sizes but offered no discounts. The agency used the Sorensen brothers which was the founder of the company and their slogan was “Our way beats their way. If you don’t agree, it’s free”. In June 2009, then corporate executives made the case for “investment spending” at the annual meeting with franchisees. Firehouse and Zimmerman showed the results from then three test markets. Augusta, Ga., Jacksonville, and Knoxville, Tenn., all had doubled-digit sales increases after the test campaign. Franchisees were allowed to vote on whether to take part in the new marketing program in their markets. About two-thirds of the franchisees agreed to pay the four (4) percent marketing fee. The ad program ran only in the markets where all franchisees agreed. Those who didn’t agree paid the two (2) percent advertising fee.
For two decades, the sector enjoyed double digit growth in terms of market share increase. Firehouse was 66th in a list of the most valuable company where 12% of the 500 companies were from the fast casual segment of the market. It is also worth noting that the growth rate indicated above has started to stabilize, as the industry reaches its peak. As a result, companies such as Firehouse will need to adopt more aggressive marketing strategies to gain more market share.
Mission accomplished. Eighteen years after opening their first Firehouse Subs restaurant in Jacksonville, the two former firefighters have turned their sidewalk epiphany into a booming national franchise. The theme of the now nearly 500 locations runs from the décor (firefighting equipment, Dalmatian- pattern tabletops) to the food (large toasted subs with names like the Hook & Ladder). Firehouse Subs ranked third among sub sandwich franchises on Entrepreneur 's Franchise 500® list, and company revenue exceeded $ million in 2011, up nearly 39 percent from 2008. Meanwhile, average unit volume for Firehouse Subs franchises grew from $572,000 in 2009 to $650,000 in 2011. Firehouse has one of the most recognizable fast casual brands in the US and other North American Countries. This is a strong asset as the company is geared mainly towards franchising and attracting investors to avail more funds for marketing and expansion. The company has a unique recipe which as implied before, has helped it amass a dedicated army of clients. It has a wide presence in more than 800 locations around the North American continent. It has a nutritional menu which attracts health conscious people, in part of a trend that is fast gaining popularity in the Western world (Kruger et al, 2008). Firehouse's ability to prosper while the economy tanked owes largely to the tight grip the Sorensen brothers maintain on company strategy and culture. Behind their relaxed, affable demeanor, "we are control freaks," Robin says. The brothers have been especially vigilant about managing growth. They carefully vet store locations and franchisee candidates, while enforcing a one-store-at-a-time approach with franchisees who do come onboard. "We could easily have two or three thousand stores by now," Robin says. "Grow too fast and you can feel the rivets coming out of the wings." Belying the generous portions Firehouse heaps on its subs is an organization-wide commitment to frugality. While the company has been debt- free since 2001, neither brother took a distribution until 2004, on the 10th anniversary of opening their first store. A firefighter's courage is also evident in the Sorensens' strategic decision-making. Instead of retrenching when the economy spiraled in 2009, as many of their competitors did, the Firehouse brain trust decided to pump more resources into a radio-focused advertising campaign. "Looking back, putting more into marketing was really risky but a great judgment call," says Shawn
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