Subway slated to roll out massive gift card program

Subway is readying a fourth-quarter rollout of dual-use electronic gift and cash cards to all of its nearly 21,000 U.S. and Canadian locations, a move the company characterizes as the "largest gift card deployment in retail history."

If the Milford, Conn.-based sandwich chain completes the rollout as envisioned, it will have the leading electronic gift and cash card program among U.S.-based foodservice operators, in terms of sheer number of locations accepting the branded-payment device. The current standard bearer is the Starbucks Card from Seattle-based Starbucks Coffee.

Starbucks representatives recently reported that 52 million Starbucks Cards have been activated since the launch of that program in late 2001. They said the branded cash and gift card is taken at nearly 8,000 company-operated and licensed Starbucks outlets in the United States and Canada, and country-specific Starbucks Cards are accepted at locations in six other countries as well as in Taiwan. In November 2004 Starbucks declared that an aggregate $1 billion in value had been loaded onto the cards since their debut.

The Subway Card developed by Subway parent Doctor's Associates Inc. of Milford, Conn., and technology services provider Chockstone Inc. of Portland, Ore., can by loaded with a dollar value of up to $100 at a time and given as a gift. It also is a reloadable, cash-replacement card that consumers can use like a credit card when they make purchases in branches of the chain, which had U.S. systemwide sales of $6.27 billion for the year ended last December.

Tests in about 600 Subway units in nine markets found there were "higher average tickets through the use of the card" and that card transactions were faster than cash purchases, reported Carman Wenkoff of Independent Purchasing Cooperative Inc. Wenkoff is director of electronic card services for IPC of Miami, the Subway chain's franchisee-controlled purchasing group.

Wenkoff said the tests also revealed that consumers using the card responded favorably to targeted promotional messages printed on their receipts. Those messages and the incentives they offered were based on programmed rules linked to the buying habits of each cardholder as cataloged in a database of transaction details captured through card usage, he indicated.

That database is maintained by Chockstone and does not track user spending detail by cardholder name or other personal information, but rather by a unique string of numbers assigned to each card, Subway and Chockstone sources indicated.

"Even though the cards are largely anonymous, we can communicate to the customer's receipt with offers or messages that are directly relevant to what they enjoy about visiting Subway," said IPC's Wenkoff. "We will collect and analyze complete purchase information so that we can cater to individual tastes and purchase patterns in a very nonobtrusive way."

Subway Card carriers who are not shy about having their names associated with their purchasing activity at the chain will be able to register their cards online. That registration will entitle them to occasional promotional offers and protection of the balance on their card, if that card is stolen.

The card's smaller size, ability to be reloaded with value remotely, such as online, and the perceived coolness of the high-tech features of the new cards apparently make them more attractive to the gift givers among consumers, officials said.

"In test markets the sales of the electronic cards are significantly higher than the sales of paper certificates that traditionally are available only during the holidays," Wenkoff noted.

He said chain officials believe such higher sales are linked strongly to an appreciation of the convenience afforded by the new card format among consumers, such as parents who want to help out with food purchases by children away at college.

According to Wenkoff, the fourth-quarter rollout will require systemwide, unit-level software upgrades of middleware to point-of-sale systems and some hardware changes, such as the addition of magnetic-stripe-card reading terminals, in a relatively small number of restaurants. The distribution of the cards themselves and the launch of related marketing initiatives also will take place in this "condensed time period," he said.

The idea, Wenkoff said, is to get as many of the chain's nearly 21,000 U.S. and Canadian restaurants up and running with card sales and acceptance by the holiday season. However, given the size of the undertaking, he noted that it would not be surprising if the rollout "spilled into 2006."

Subway will offer the card in the chain's outlets and online at the www.mysubwaycard.com website, which, after being used for the card tests, will be revamped in time for the official launch of the program. But Subway also plans to sell the cards through third-party grocery stores and other major retailers, Doctor's Associates officials announced.

Wenkoff said the Subway Card has been in development since mid-2002. Apart from the sheer scale of the initiative and the fact it involves a chain made up entirely of franchisees, he said the Subway Card endeavor is impressive, from a technology standpoint, in its relative simplicity.

Thanks to the middleware software long in development, Wenkoff said, card-transaction handling is expected to be fully integrated with the numerous different POS systems in use by Subway's thousand of franchisees. "No separate terminals or double-keying amounts will be required to load or use a Subway Card," he explained.

Though Subway officials are not detailing fee levels, they have said franchisees would pay for the program by paying a small amount for each card transaction processed.

Wenkoff said a majority of Subway franchisees voted to make the gift and cash card program mandatory systemwide. He said franchisees would vote on a market-by-market basis to determine if they want to use the card for a loyalty program, possibly along the lines of the long-running Sub Club paper card-and-stamp program. The chain recently canceled Sub Club because of fraud and administrative challenges.

It remains to be seen if franchisees will vote in large numbers to offer an electronic version of the Sub Club, which, in essence, gave participants a free sandwich or some other item based on a set number of purchases.

That's because many operators industrywide question the wisdom of using such simplistic "giveaway" strategies to build sales or traffic. Why give free food to regular customers when emerging electronic marketing tools, such as is represented by the Subway Card, may make it possible to offer on the fly more strategically beneficial incentives, such as a discount on a purchase during a slow daypart, some operators argue.

Supporting the notion that such flexible and targeted marketing is desired by Subway operators, IPC chief executive Jan Risi recently remarked, "In Chockstone we discovered an opportunity to offer a gift card program to our franchisees that supports customer marketing campaigns that drive frequency and improves efficiency at the POS."

Chockstone chief executive Jeffrey Lipp has said that among the traits that helped his company land the Subway business are Chockstone's support of cash card functions and its ability to capture and parlay consumer transactional details into customized promotional messages on receipts. Those abilities, he explained, enable Chockstone's clients to touch much more than the small percentage of customers who might be interested only in gift card transactions.

The technology company's vast array of card activity and liability reports available online to Subway executives and storeowners also was seen as a plus, Lipp indicated.

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