This is actually a WordPress function when you create your menus, which also means you need to create one first. Then the submenus are created by dragging and dropping the menu items under the one you want to have it as a submenu.
Menu User Guide
By the way, I will be discontinuing this theme once the review team here at wordpress.org approves my new one that is going to replace Preference Lite. The new one is based on it, but is called Preferential Lite and offers better functionality. If interested, contact me HERE to get a copy of it.