Dive Brief:

• Jersey Mike's is undergoing a systemwide renovation of its restaurants that is expected to cost the company $150 million, according to Restaurant Business. The franchisor has agreed to cover the $75,000-per-store costs for its franchisees, who make up a majority of the system. 
• CEO Peter Cancro told Restaurant Business the renovations are expected to yield a 10% increase in sales, which would provide the company with more royalties and enable franchisees to develop more stores. 
• The renovation will include tablet ordering devices and customer-facing kiosks as well as menu changes like bowls and a plant-based grilled Portobello sandwich. 

Dive Insight:

This initiative comes as Jersey Mike's is on a growth tear. From 2010 to 2017, Jersey Mike's average growth in new franchise locations was 16%, bumping up to a 19% growth rate from 2016 to 2017, according to Franchise Grade. This growth has been reflected in its sales, which also accelerated from 2015 to 2017. It grew U.S. sales by 22% in 2016 to $825 million, growing another 18.2% in 2017 to $974 million, surpassing $1 billion in sales in 2018.

The company currently has about 1,700 stores and has agreements in place to add another 800 units. Cancro said he expects Jersey Mike’s to hit the $2 billion sales mark once it has 2,000 restaurants, which would catapult the chain into the top 36 restaurant chains by sales, behind sandwich giants Subway, Panera, Arby's and Jimmy John's, according to Technomic data and reported by Restaurant Business. 

Chains have been turning to remodels to drive more traffic and boost sales. Subway too is granting $10,000 to thousands of franchisees to accelerate remodels across its system, with the goal of remodeling 10,500 by the end of this year. The chain, which has seen declining sales and store counts for several years, has strained relations with its franchisees compared to Jersey Mike's, so it is unclear how profitable these remodels will go for Subway.  

Other restaurant remodels have already begun generating a material lift in sales. During Denny's Q4 call, for example, CEO John Miller said his company's new prototype is yielding mid-single-digit sales lifts due to an improvement in guest traffic across all dayparts. During Dunkin's Q4 call, President Scott Murphy said its new "NextGen" restaurants represent "our best comp and traffic driver in our system."

"The lift in sales and traffic has exceeded our initial targets. Speed, customer satisfaction and, importantly franchisee profitability, are all better than previous remodel cycles," Murphy said during the call. 

It's this anticipated franchisee profitability that Jersey Mike's is banking on to provide additional growth tailwinds. By picking up much of that remodel tab, it should at the very least create favor among franchisees. The company has long massaged this relationship, for example, creating a mentorship program (called STAY, or sweat, tears and years) where franchisees can mentor managers interested in becoming shared owners of a Jersey Mike's franchise. 

This focus on mentorship and culture has helped turnover rates too, which are below the industry average, President Hoyt Jones told Forbes. The company has also garnered the highest staff friendliness scores and composite loyalty scores in Market Force's recently-released consumer study.