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Jimmy John’s Market Analysis

1 Jimmy John’s Market Analysis

Avyay Suri, Felipe Rodriguez Jr., Alex Balbanos, Shane Kudia, Chelsea Meyers DePaul University

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Jimmy John’s is a domestic franchised sandwich company founded in Illinois. Jimmy John Liautaud started the company in 1983, with $25,000 seed money from his father. After just 3 years, he opened his second and third shops near the University of Illinois. By 1994, Jimmy John Liautaud’s ten shops were netting him more than $1 million per year in gross profit. Ten years after this, he sold part of his stake to a private equity firm for $130 million dollars. At this point, his empire had expanded so much that he began to have difficulties as CEO. He began looking for another PE firm with a more hands-on approach that could help him successfully scale the business. In 2014 he found Roark Capital, a firm based in Atlanta, to help him out. He relinquished his title as CEO and sold for more than $1 billion dollars (Kirsch, 2019). Today, Jimmy John’s operates domestically in all states except Alaska, Connecticut, Hawaii, Maine, New Hampshire, and Rhode Island. In total there are 2,805 Jimmy John’s nationwide. JJ’s operates with a simple franchise business model. They were ranked by CNN as one of the top 10 franchises to get into. This is partly due to their low cost, with each franchise costing just between $300,000 to $500,000. JJ’s boasts an average net profit of $280,000 (Franchise Direct). Once the shop is up and running, it is also very low maintenance. Each store’s layout must be relatively the same. On top of this, Jimmy John’s only features six types of meat, three types of bread, and provolone cheese (besides toppings). This keeps costs down while also creating a streamlined ordering process. Their main revenue comes from sandwich sales (Kirsch, 2019). On the franchise side, one must dedicate 6.5% of weekly sales to marketing and 6% in royalty fees. For the future, Jimmy John’s is looking to expand to not only more locations but also into understanding more about their consumer. JJ is achieving this by tracking customer data with a brand-new rewards program, called Freaky Fast Rewards. They already have 3.4 million members and are expanding the program rapidly (Kirsch, 2019). This allows

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them to make more informed decisions about their menu and customer experience to maximize profits. Spain and France were chosen as the two host countries that would be best for Jimmy John’s to move into. These countries were chosen because of the rapidly increasing demand for fast-casual food in Europe. European fast casual is expected to reach revenues of $17 billion by 2024. This estimate reflects an expected 6% compounded annual growth rate (R&M.com). This would mean that Jimmy John’s franchisees in Europe would expect to see significant growth for the future. On top of this notion, one of Jimmy John’s strong suits is their in-house online delivery service. This is one of the factors that sets Jimmy John’s apart from their competitors. Europe is expected to see an 8.2% compound annual growth rate increase in online orders from now until 2024. Revenues for last year were $18.9 billion and they are expected to hit $25.9 billion by 2024 (Statista). This shows huge potential for growth among Jimmy John’s, as they check both the online order category as well as fast casual. This makes Jimmy John’s a perfect candidate to claim some stake in the European markets. The form of government in Spain is a parliamentary monarchy. Meaning the monarch, Felipe VI, the king of Spain is the head of the state. The king is referred to as The Crown and it is the highest office in Spain. Felipe VI oversees representing the state’s best affairs at the national and international scale. The prime minister, the president of the government of Spain, is Pedro Sanchez. He is the head of the government in the executive branch, the highest second office. The three democratic branches of the government are executive, legislative, and judicial and the current political system is based on the Spanish Constitution, which was established in 1978. Spain practices and uses different types of acts, laws, and policies to establish a healthy work environment and a code of ethics. For example, in 2014, a new reform to the Corporate

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Enterprises Act allowed more free corporate management. The reform has allowed shareholders to be able to have voting rights, attend general body meetings, and have an opinion of the company’s performance (Martinez, 2017). In Spain, everyone is expected to adhere to Corporate Social Responsibility. It promotes a healthy culture development in the workplace and enforces strong ethical values. When looking at Spain, “ease of doing business (index),” Spain falls under number 30 for the year 2019 (Explore Economies, 2019). This means that in Spain, starting a Jimmy John’s will be relatively not as complicated compared to other countries. For trading across borders, it had a rating of 1, making it easier to do business. The highest number Spain had was starting a business, a ranking of 97. Somewhat of a challenge but not impossible. Overall starting Jimmy John’s in Spain is already an advantage as all the top 10 rankings are below 100, out of 190. Obtaining certificates, loans, bank accounts, notifying the ministry of labor, are within a day to a full week, allowing an easier transition of doing business. According to (Transparency Index, 2019), Spain is ranked number 30 out of 180 and has a score of 62 out of 100. Meaning there is corruption, but the higher the number is closer to 100, the less corrupted it is. Spain falls just a little over 50. Spain is focusing more on whistleblowers, due to Spain’s largest corruption scandal with Francisco Correa. Spain’s Gross Domestic Product within the last five years has decreased slowly, it decreased from 3.8 to 2.0. In 2015 it had an annual GDP of S1,199,688M and in 2019 had a GDP of S1,393,505M. The GDP per capita for the past five years ranges from -12.9 in 2015 to -3.7 in 2019. In 2015, Spain had a GDP per capita of $25,850 and in 2019 had a GDP per capita of $29,586. Spain falls as the 16th exporter in the world. Cars being their biggest exporter and accounting for 12.3 % of its total exports. Many other exports include vehicle parts (3.4%),

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medicaments, delivery trucks, and refined petroleum (3.64%). Spain’s biggest imports are crude petroleum (7%), cars (6.1%), vehicle parts (4.8%), medicaments (2.8%), and petroleum gas. France has a semi-presidential system of government and follows the French Constitution. France has both a President and a Prime Minister. The president is known as the President of the French Republic (Head of the State) and appoints the Prime Minister, who is the Head of the Government. The current President is Emmanuel Macron and the Prime Minister is Edouard Philippe. The Prime minister implements laws, regulation’s, and national defense, according to the President. France enforces Corporate Social Responsibility to help make an impact in society and cover human rights, corruption, taxation, supply chains, and diversity. France adheres to the Global Compact, which encourages businesses to adopt and support fundamental values for human rights, labor, and environmental standards (Ministère de l'Europe et des Affaires étrangères, 2020). The French NCP (National Contact Points) allows and provides businesses the resources for issues that may arise from business and civil society. Individuals can call NCP’s to investigate if guidelines have been breached by French Companies operating in France or abroad. Looking at the ‘ease of business (index),” France is not that off compared to Spain. France is ranked as number 32 out of 190. Just like Spain, France is ranked number 1 for trading across borders. Their highest ranking was 104 for getting credit and registering property for a ranking of 99. Registering a name for uniqueness, depositing initial capital, publishing notice of incorporation of the company can be done within a few days. Overall, relatively doing business in France is not as complicated as well, there are a few different obstacles and different approaches that must be taken compared to Spain. The transparency (index) for France ranks it a

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23 out of 180, and for corruption a score of 69 out of 100. Relatively making it a little higher than Spain. The last five previous years, France has ranged from 69 to 72, maintaining just a little of 70% for being clean. A problem in France is that individuals take bribes, the EU is targeting these individuals and has protection programs for whistleblowers. France's annual GDP has steadily increased within the past five years. In 2015 its GDP was 1.1%, in 2017 it increased to 2.3%, and in 2019 it decreased to 1.3%. The annual GDP went from $2439436-$2591775-$2708067. The GDP per capita annual growth for the past five years ranged from -15% in 2015 to 4.6% in 2017, and in 2019 went to -5.9%. The GDP per capita ranges from $37,938-$40,109-$40,411. France is the 6th largest exporter in the country and 14th most complex economy according to the Economic Complexity Index. France's biggest exports are planes, helicopters, and spacecraft (9.4%), medicaments (4.8), cars (4.7%), and wine (2.1%). Its biggest imports are cars (5.9%), crude petroleum (3.5%), refined petroleum (2.8%), and aircraft parts (2.7%). When looking at how Jimmy John’s Fits into these countries in terms of their Sociocultural historical preferences, and technological advantages that might make this chain flourish, we can see that there is a presence of potential. When looking at these very European ethnocentral countries, you might think that putting Jimmy John’s shops in them, would be a very tough thing to do. But the fact of the matter is, countries are full steam ahead on their journeys to westernize, and pop-culture is becoming more like ours every day. When viewing the demographics of these two countries’ populations, diet preferences, and success in their current sandwich shops, we can conclude that they are quite ready to have a few Jimmy John’s locations installed. France and Spain are very densely populated countries both having large chunks of their population in one spot. For Spain, it is their capital, Madrid, with around 5.2 million people,

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and Barcelona with around 4.6 million. And for France, it is the capital, Paris with around 2.3 million people. All these cities are melting pots full of diversity with no signs of halting. So, there is no doubt that Jimmy John's chain could succeed. Still not convinced. No problem. Furthermore, when analyzing the main types of diets held by these countries, Jimmy John’s fits the requirements. According to WebMD, France’s diet consists heavily of bread, cheese, other dairies, and all types of meat. Literally a Jimmy John's sandwich in a sense. The author, Jenny Stamos Kovacs states, “The French diet can be summed up in one sentence; eat small portions of food with high quality less often” (Kovacs 1). She then goes on to talk about how the American people are driven by the opposite motto, which is “eat more often and bigger portions, with bad quality food”. Moving on to Spain, their diet is more fish-based than you might think. However, in the grand scheme of things, once again very heavy on the carbs and dairy, which jimmy John’s offer significant amounts of. According to Live Strong, “lunch is traditionally the biggest meal in Spain”. This is what Jimmy John’s has an advantage in. Jimmy John’s ability to Globalize also depends on the Technological advantages of these countries. As I said, these countries are very heavily westernized. Meaning they have adopted a lot of our technological ideas, micro-cultures, attitudes, and beliefs. That is why American companies, in general, can broaden and globalize. A way that these countries will also enable the chain into its market is by advertising. Spain and France are very technologically advanced, which means that the ease of access to the internet for these countries is very high, thus creating a capability for Jimmy John’s to be properly advertised and grow quickly in their diet compositions, their Socio-culture, and their environment. Two strengths of Jimmy John’s having Spain as a target market would be its popularity as one of Europe's largest tourist destinations. It's full of rich culture, beautiful beaches, and almost year-round warm climates. It’s also very easy to get to from other countries, especially for British

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tourists as well. Another strength is that the country has a good infrastructure. Within the country, it has high-quality transportation, energy, and telecommunications as well. The country has many different high-speed train systems running throughout it and well-built roads and plenty of cell towers to ensure strong cellular signals across the nation. This gives Spain a high quality of living as well as opens them up to newer development opportunities. Some weaknesses are that the country is at a high level of debt, in both public and private debt. This puts a toll on developing the country and accepting new business opportunities due to the government as well as individuals being liable for the country's debt. Spain also has a high unemployment rate, with it previously peaking at almost 25% but now down to 15%, which is still relatively high. With the country being in debt, it’s hard to open a new business which will decrease the unemployment rate. An opportunity for Spain as a target market would be tackling their corruption and tax evasion to further the country's development as well as give the government more to spend. Some threats though would be that there are reduced exports to the UK. With the UK’s recent departure from “Brexit”, this could impact the tourism industry as well as reduce Spain’s income from the exports. Another threat would be the vast difference in income across the country. There has been a very distinct line between rich and poor in Spain leading the country to a lot of disagreements and conflict with economic and political debates. Very similar to Spain, one of France’s biggest strengths is the popularity of its destination. With so many different historical buildings, it has become one of the most popular tourist destinations in the world especially with it being the “city of love”. Agriculturally, France is one of the top countries in Europe making millions in agricultural exports each year. Another strength is that the country is very welcoming to new business opportunities and innovation. This supplies the country with so many job opportunities and it encourages startups for business and

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businesses found elsewhere. One of the weaknesses of France is that people tend to be defined as rude since they only stick to their own culture making it very hard for businesses and people who are from other countries to settle in. Another weakness is that living costs are extremely high. Buying land or property is very tough. A big opportunity though is that the French culture is loving American products. Importing American products has been encouraging foreign business, trading, and partnerships amongst the culture. France, unfortunately, has been the victim of many terrorist attacks. This has become one of France’s biggest threats, especially since it is already associated with a high theft country. The theft ranges from house and vehicle break-ins to a lot of pickpocketing. In France, the consumption of sandwiches is high. The sandwich industry is also growing faster than ever in France. Fast food is taking over France and Subway has taken advantage of this trend. There are now over 400 subway restaurants across France, and they are thriving. Fast food has been devouring the food market in France and is not responsible for 54% of all restaurant sales in France. Cafes were the trend in France, right after WWII there were 200,000 cafes and now there are only 32,000 left due to the dominance of fast food (Guttman). People do not have the time to sit down at restaurants anymore and want their food fast. France is a country where food tends to be healthy, there is an emphasis on fresh ingredients rather than fried food. These factors support Jimmy John’s in becoming a successful business in France. The French are embracing fast food more than ever and the love for fresh ingredients and bread in France could bode very for Jimmy John’s. Jimmy John’s could face competition from other American chains such as McDonald’s and Subway, both firms have the first-mover advantage. It is now said that one in every two sandwiches sold in France is now a hamburger. The hamburger could be the biggest competition for Jimmy John’s and McDonald’s is the largest player in the hamburger

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business (Willsher). Consumers in France will very likely continue with the market trend of consuming more fast food from American fast-food chains. Spain has yet to experience a fast food boom as France has. This means that there is a large amount of growth in Spain for fast food. Spain eats the least fast food of any industrialized country in the world (Romero). The Spanish still prefer proper sit-down restaurants rather than fast food. The fast-food market has been growing in Spain, it is predicted to grow 7-8 percent over the next three years (Foodnavigator). Sandwich fast food outlets are growing and have lifted sales by 10 percent from 2017 to 2018 (Foodnavigator). Jimmy John’s could have a first-mover advantage in the Spanish market. People in Spain also eat relatively healthy, most follow a Mediterranean diet. The Mediterranean diet is a healthy diet that is made up of mostly fruits and vegetables (Romero). Jimmy John’s is also a healthy fast food option when compared to franchises such as McDonald’s and Burger King. Jimmy John’s could face competition from tradition sit-down restaurants because Spaniards still prefer and pick sit-down over fast food. Fast food has great potential to grow in Spain and Jimmy John’s would strive in the country. Culture is an extremely important aspect to consider when potentially scaling a business internationally. It can affect things like demand for your product, managerial relationships, business location, and much more. It is highly important to understand how a different country's culture operates before deciding to do business there. Nigel Holden, author of The Consequences of Culture in International Business, explains that “managerial know-how honed for domestic business operations needed significant readjustment for running internationally operating organizations”. This quote explains that understanding a countries culture is paramount to running a successful business. One of the ways in which we can objectively measure cultural metrics is through Geert Hofstede's dimensions. In his book Culture's Consequences, he

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proposes a four-pronged scale of the most important cultural metrics to analyze a given country. The metrics have since been updated to five aspects, which are as follows: individualismcollectivism; uncertainty avoidance; power distance; masculinity-femininity, and long-term orientation. These dimensions give a clear insight into important aspects of a culture, which can be compared objectively to understand another country. Spain is a country located in southern Europe. Spain has a deep and developed culture that goes back for centuries, as well as a vibrant pride for this culture that still stands today. Looking under the lens of Hofstede's dimensions, Spain scores high in most categories. Spain's score for power distance is high with a 57 (Hofstede Insights). This shows that Spain “accepts hierarchical order with...