The Global Expansion of Subway Sandwich Shops
The Subway story began in 1965 when Dr. Peter Buck loaned Fred DeLuca $1,000 to open a sandwich shop in Bridgeport, Connecticut, which DeLuca hoped would help fund his college education. Since that time, Subway Sandwich Shops has grown to more than 22,350 restaurants in 78 countries, ranking it first in number of outlets in the United States and making its founder a billionaire. Subway remains a 100 percent franchised organization, and all Subway restaurants are individually owned and operated. Opening a Subway franchise store requires a $12,000 franchise fee to acquire the Subway name and $69,000 to $191,000 to build a store, depending on location. The company has been named the number 1 franchise opportunity in every category by Entrepreneur magazine, won a Restaurants and Institutions (Choice and Chains) Gold Award in the sandwich category and received a Nation's Restaurant News Menu Masters Award for the best menu / line extension.
More than 3,700 Subway stores have opened outside the United States. Initially Subway did not seek to expand internationally, but when an entrepreneur from Bahrain approached the company about opening a sandwich shop on the Persian Gulf island, Subway decided to accept the challenge of global expansion. Expanding a food venture into a foreign country involves many issues, such as finding quality supplies for use in making sandwiches. Subway insists on a "gold standard of quality" when adapting to international environments. To properly train new franchise owners in locations around the globe, Sub-way has had to adapt to different languages and cultures. Initially international franchisees were trained in English in the United States; now the company has training facilities in Puerto Rico, Australia, and China.
When Subway enters a new market, the first issues it faces are building brand awareness and learning about potential customers' eating preferences and customs. Rather than second-guessing cultural differences, Subway attempts to adapt quickly to a new restaurant's immediate service area. In Israel, for example, the company omits pork items from its menu to avoid violating religious dietary customs. In countries where people are not used to eating sandwiches, Subway has had to educate consumers about this uniquely American product.
In addition to established markets, Subway is expanding into developing nations. In 2001, Subway opened its first restaurant in Croatia. Located in a 1929 building shared with the Capital Hotel Dubrovnik, the restaurant's entrance faces a busy pedestrian street with many shops and open terraces in one of the most beautiful areas of Zagreb. The franchisees chose to open a Sub-way because they wanted to offer Croatians something new and recognized an opportunity in the dynamic Croatian market to serve a need for affordable fast food with friendly service. The company plans to open additional shops in other major Croatian cities.
Subway also opened its first restaurant in Oman in 2001, where it joins other fast-food restaurants such as Fuddruckers, McDonald's, and Pizza Hut. Oman is one of the fastest-growing economies in the Middle East, with many international businesses in operation. Subway hopes to fill a void for those in the market for health-conscious food. In Oman, Subway offers its traditional menu and plans to include specialized items to meet local preferences.
France became the twenty-third European country to have a Subway
sandwich shop in 2001. France's first Sub-way is situated near the Bastille in Paris. By day, the area's rich history attracts many tourists; at night, the area is renowned for its night life. The French are passion-ate about food, and they like submarine sandwiches. Sub-way believes the restaurant will fill a void for those looking for more health-conscious food choices. Although both Oman and France were slow to embrace the Subway concept, the brand's healthy attributes appear to have been a major factor in this expansion.
Subway had begun to position its menu as a more health-conscious alternative to fast food when it learned about the unique weight loss plan of one of its customers. Jared S. Fogle had been a regular Subway customer, but after reaching 425 pounds, he noticed the store's "7 under 6" promotion, which highlighted seven sandwiches with fewer than 6 grams of fat. Fogle began to eat a 6-inch turkey sandwich (no oil, mayo, condiments, or cheese) for lunch and a 12-inch veggie sandwich (no condiments or cheese) for dinner every day. His initial weight loss reinforced his commitment to eating more of the low-fat sandwiches. Jared Fogle ultimately lost 245 pounds on his "Subway diet." His story turned Fogle into a national celebrity~ with appearances on Oprah and NBC's Today with Katie Couric, an article in USA Today, and numerous TV commercials for Subway. Subway's TV ads make it clear that Fogle's diet was his own creation and may not be appropriate for everyone. Fogle, who has maintained his weight loss, continues to do TV commercials and make special appearances for Subway.
Subway has translated the Jared Fogle commercials into other languages for some international markets. The message is that Subway sandwiches are not only tasty but also healthier than offerings from competing fast-food restaurants. For example, one quarter-pound hamburger at another leading fast-food restaurant contains more than 62 grams of fat, whereas Subway offers a number of items with fewer than 10 grams of fat. Promoting the healthy benefits of its products has helped Subway develop its concept into the largest submarine sandwich franchise in the world.
QUESTIONS FOR DISCUSSION
1. What market opportunities and strategic windows has Subway been able to capitalize on?
2. Based on the facts presented in the case, conduct a brief SWOT analysis for Subway.
3. Describe Subway's apparent marketing mix and target market.
1. What market opportunities and strategic windows has Subway been able to capitalize on?
The global trend towards the consumption of healthier foods, as shown in the following articles, Brits buying more fruit and veg by the BBC News and Food trends and healthy eating by Kathie Smith of toledoBlade.com created a strategic window where Subway was able to position itself as the market leader in supplying healthier food options in the fast food market segment. Even though the original intention was not to enter the global markets, the Subway product lineup of healthy, low cost fast food attracted potential investors from all over the world, and Subway capitalized on this market opportunity to expand its presence globally. The low franchise entry fee also made this expansion more feasible into markets that may not be suitable for other fast food franchises.
2. Based on the facts presented in the case, conduct a brief SWOT analysis for Subway.
Strengths
Customized menu per country
Low franchise fee
Fresh healthy fast food
31,287 Restaurants worldwide
University of Subway training worldwide
Partnership with American Heart Association
Eco Store and environment commitment
#1 Franchise 2009 by Entrepreneur Magazine
Weaknesses
Lack of consistency when sourcing materials
Crowded marketplace with lots of competition from other franchises
Low cost of entry may cause multiple franchisees in a single market
Opportunities
New Eco stores may attract new customers
Partnership with Michael Phelps will attract new customers
New Menu items to attract additional market segments
Global expansion opportunities especially in China
Sponsorship of the Heart Walk
Threats
Global economic crisis
Food safety concerns
Global competition from other franchises
Additional data was gathered from www.subway.com for the SWOT analysis.
3. Describe Subway's apparent marketing mix and target market.
Marketing mix is the “product, pricing, placement, and promotion” of a company. In the case of Subway; their product is the supply of fresh healthy fast food, when a customer wants it, and made how they want it. By sourcing their supplies locally, they are able to ensure quality and keep the prices they charge their customers low. Subway has stores in 90 countries worldwide, and by keeping the cost of entry for a new store low, they are able to expand rapidly into the global market. The Subway brand is managed and marketed by the parent company with the help of Mccarthy, Mambro Bertino Advertising. They have used Jared and his Subway diet to market their products worldwide as a healthy alternative to other fast food franchises. They also partner with local and national health organizations and sports figures to further spread their products and brand name awareness globally.
Subway defines its target market as anyone who is looking for healthy food fast. They focus their marketing efforts towards this market by increasing the brand awareness of Subway products in all the countries where they have a presence, using traditional media advertising as well as sponsorships and partnerships with other health organizations. In addition to its broad product awareness campaign, they also increase their brand awareness through non-profit and charitable work with organizations like, American Heart Association, Conservation International and United Way.