This post was written by Jonathan Gabrio, Director of Strategy here at Jump. You can find him on Twitter @JonathanGabrio, or get in touch with him by commenting on this post.
Creamy Sriracha sauce. Garlic bread. The Flatizza. And of course, there’s the infamous Fritos chicken enchilada melt. The recent uptick in menu variations at Subway is making it obvious that they’re facing a challenging business growth problem. And there’s a lesson in its execution about the difference in value between core competencies and core assets that almost any business can learn from.
Like many other quick service restaurants (and businesses for that matter), Subway is trying to figure out what it will take to keep their customers coming back, and how they can break out into other markets.
Among the foods I just mentioned, one of the more recent items is the Flatizza (in case you’re not familiar, the aptly-named food is Subway’s take on the flatbread pizza).
Pizzas aren’t new to Subway; they appeared on the menu once or twice before but were taken off because franchise owners found that their toasters were too slow to cook the pizzas properly, slowing down their lines during the lunch hour. One might expect that when they brought back pizzas—albeit in a different form—they’d make some serious changes. Innovations are often all about timing, so it’s possible that Subway thought that this time, with a change in positioning, the pizza could work.
In Subway’s case, pizzas are a compelling corporate concept because they’re built off of existing assets that are already found at Subway locations. I can picture the logic that was used in internal meetings to decide on the menu change: “How can we get more out of the assets we already have in stores?”
The core assets here are food ingredients. It takes the same ingredients to make a pizza as it does to make a sandwich—they’re just assembled differently. Flatbread has long been a menu item at Subway, and can now be used as a pizza crust. To top it all off, Subway now makes extensive use of toasters to toast sandwiches, which they can also use to cook pizzas. The only new asset here is pizza packaging, which is still essentially just a cardboard box with a logo.
On the surface, then, the Flatizza seems like a good idea—just repackage your existing ingredients and you have a menu item that will keep people coming back. But what Subway failed to acknowledge (and fix—remember, this is their second go at the pizza in stores) is how different pizza making is from sandwich making. Their franchises have a core competency in speedy sandwich making, but not yet in speedy pizza making.
Here’s how competencies differ between the two. You need to put marinara sauce on the pizzas, which requires a visit to the fridge (not on the sandwich line). Then, even though the ingredients are the same, they’re all too big for the size of a pizza, so the pepperoni, tomatoes, etc. have to be sliced into fourths to achieve the correct layering of the pizza.
After that, the Flatizza needs to be carefully transferred over to the toaster (which takes time), and put into a box (an entirely new process). What’s more, most people who order this new menu item are ordering two because it’s part of a 2/$5 promotion, multiplying this whole process by two. The total time required to do all of this is three or four times longer than it is for a sandwich. Picture that if you’re a customer behind someone who orders a Flatizza.
And that is the power of core competencies.
The lesson here isn’t about whether or not pizzas make sense for Subway. Subway’s experiment is a good metaphor for what goes on within the walls of many big companies. Many companies—like Subway—forget that their core competencies are more important than their assets when it comes to thinking about growth challenges.
In doing so, they launch new offerings that are low-risk just because they’re a new combination of preexisting core assets, all the while forgetting that those new combinations may require different competencies than they have. Subway has all of the core assets (ingredients) needed to physically make a pizza, but they lack the core competency in pizza making needed to make a pizza succeed in their stores.
True, Subway has had moderate success with inventing new menu items before, but that won’t even begin to touch the bigger growth problems they have in offering a compelling proposition to a demographic who loves Chipotle. When looking for new growth opportunities, it’s usually much easier to take your core competencies and apply them towards different assets than it is to go the other way around.
Subway’s Flatizza may look tasty, but ultimately provides a great business lesson: when creating new offerings for your business, you should always pay more attention to core competencies than core assets.