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Subway, in attempt to go upscale, tests cafes

Subway is testing a new café concept with upscale décor and an expanded menu.
/ Source: The Associated Press

The spacious restaurant with its chic lighting, flat-screen TVs, stuffed chairs, pastries and bistro sandwiches is not typical of Subway.

The bright images of vegetables that line the sandwich counter have been replaced by strands of wheat, the artwork is more sophisticated, and the smell of fresh-baked bread is gone. The decor and expanded menu are part of cafe concept being tested by the nation's largest sandwich chain that aims to steal a portion of the breakfast market, lure coffee drinkers from its competitors and get customers to stick around for a while.

"Sometimes in our Subway locations, we want people to get up and go," said Mark Roden, who opened a Subway Cafe in Flagstaff on Wednesday. "Here, we want people to stay."

Roden is following a path few other franchise owners have so far. The first of the cafes opened in Washington, D.C., to fill a request from a landlord who was looking to serve tenants in an office building, said Subway spokesman Les Winograd. About 15 others have opened up since, and the company plans to expand on a case-by-case basis.

Blueberry crumb cake and chocolate chunk muffins are displayed along with marble pound cake and key lime Danishes at the Subway Cafe, while the menu advertises espresso drinks, Panini sandwiches and chicken Caesar salads, among other things. A seating area equipped with electrical outlets was built with business people in mind, who are looking for a place to sit and work with Wi-Fi access while they eat, Roden said.

Those elements are in line with offerings at Starbucks and McDonalds, making the target of the Subway Cafes clear, said Nima Samadi, a restaurant industry analyst with IBISWorld, Inc.

"They're using this as a litmus test to see if there's an opportunity to combine their traditional offerings with this expanded breakfast market, see if people are willing to abandon their traditional allegiances with McDonalds and Starbucks," Samadi said.

Roden is eyeing the customers from a Starbucks tucked inside a grocery store in the same plaza, employees who work in the surrounding businesses and the high school students across the street who have an open campus. He said he has poured more than $250,000 into the space that has an industrial feel with open ceilings and exposed duct work, hoping the environment and prices will convince people his store is the best option for food and coffee.

"Flagstaff is a good coffee town," he said. "The hedge for me is how do you get people to come in and try your coffee?"

Terry Balentine, a real-estate agent who works nearby, gravitates toward making his own coffee at home or at the office. But he says he was impressed with the Subway Cafe's mocha drink after he tried it Wednesday but didn't downplay the quality of the Starbucks, either.

"If it's good quality but cheaper, I would definitely go with the cheaper," he said.

Those familiar with Starbucks might recognize the Seattle's Best Coffee being sold at the Subway Cafe as a subsidiary of Starbucks, which Samadi said is not uncommon and might even help Subway because some people already have a taste for it.

For Margaret Newell, the decision on where to get coffee comes down to convenience. She was shopping for groceries Wednesday and stopped by Starbucks — as she does once or twice a week — for two double chocolate chip Frappuccinos and a berry hibiscus refresher.

"I just like coffee and am happy as long as I'm getting it, and really looking for flavor variety," she said.

It's highly unlikely that the Subway Cafes would surpass Starbucks in coffee sales or McDonalds in the breakfast market, Samadi said. But he said that's not necessarily the goal of Subway, which introduced its breakfast sandwiches two years ago and recently topped McDonalds with the most restaurant locations but lags in sales. McDonalds led the industry with $32.4 billion in U.S. sales last year, followed by Subway's $10.6 billion and Starbuck's $9.1 billion, according to Technomic Inc.'s 2011 Top 500 chain restaurant report.

"This is an opportunity where they (Subway) can leverage an established brand name and really make inroads into a new meal time that was otherwise a weakness for them," Samadi said.