Have you read this week’s business headlines? Subway restaurant chain officially has more locations worldwide than McDonald’s. Surprisingly and without a lot of fanfare, the sandwich shop surpassed the world’s largest hamburger chain by number of U.S. stores in 2002, and now has outpaced McDonald’s in the number of global locations as well. Subway said it had 33,749 restaurants worldwide at the end of last year, which eclipsed McDonald’s 32,737 locations. However McDonald’s can take comfort in maintaining the title of revenue champion. The company reported $24 billion in income for its last fiscal year, whereas Subway only generated an estimated $15.2 billion. (This is not surprising though, since the average size of a Subway restaurant is considerably smaller than that of a McDonald’s store.)
Independent insurance agents can take comfort in Subway’s formula for success. While Burger King touted the idea of “having it your way” to differentiate itself from other hamburger franchises, customers were limited to indicating which condiments they wanted on their burger. Subway’s foundation was built on customization of the meal, starting with type of bread, meat or vegetarian ingredients and then a number of toppings, allowing customers to tailor their meals. Also, Subway was ahead of the curve, portraying its offerings as a healthy alternative to a burger and fries lunch. And, who can forget the iconic Jared, who showed how much weight he dropped by following a diet that included Subway sandwiches?
By now, it’s readily apparent that the insurance distribution analogy for Subway is similar to that of independent insurance agents—but with one key distinction. Subway offers a variety of choices—as do a number of restaurants—but what uniquely distinguishes the company is customer interaction and meal customization. In an examination of their success, it is important to not lose sight of the fact that the customer is directly interacting with their meal preparer (which is different than the typical restaurant model of Burger King and McDonald’s). This affords the customer the ability to also calibrate the amount (“a lot or just a little”) of their toppings, a feature that does not go unappreciated. Since independent agents offer choice and customization (as well as advocacy during the claims process), why don’t consumers just flock to independent agents in a similar fashion as they do for their meals?
The answer is the key distinction referenced above: Most consumers do not understand the difference between independent agents versus captive and direct writers. GEICO has spent $900 million over the past year alone convincing consumers that insurance is a basic commodity and that a single company is the right solution for the insurance-buying public. If independent agents can individually and collectively tout their “brand” as the trusted choice for consumers, as well as tailor their agency’s capabilities to meet the evolving consumer preferences to research their insurance needs (including getting a representative cost), then other successful business models demonstrate that a winning recipe for future success is out there.
Dave Evans (dave.evans@iiaba.net) is a certified financial planner and an IA l-h contributing editor.