List of Figures
Figure 1: Simon Sinek's Golden Circle 4
List of Tables
Introduction
Subway, the world’s largest restaurant franchise, was founded in 1965 by a 17-year old college going kid, Fred DeLuca as a means of fulfilling his dream of becoming a medical doctor. He was looking for a way to earn money to pay for his college and had money only to eat burgers in restaurants. His family friend, Dr. Peter Buck, loaned him a 1000 USD and suggested that he open a submarine sandwich restaurant in Bridgeport, Connecticut. Based on his experience of eating unhealthy burgers, Fred DeLuca wanted to focus on healthy, low-cost, fast-food restaurant. Out of this idea, the fast-food restaurant Pete’s Submarine was born. After owning 16 restaurants, to ensure rapid growth, they started franchising it in 1974. Now, with more than 44,000 fast food franchises around the word, Subway is the largest submarine sandwich chain.
The Golden Circle
According to Simon Sinek, The Golden Circle (Figure 1) is a naturally occurring pattern followed by inspiring leaders. According to him, most organizations know what they are doing, some know how they are doing it, but very few know why they are doing it. By focusing inside-out of the Golden Circle and starting with Why, successful companies are born.
Figure 1: Simon Sinek's Golden Circle
Source:
Fred DeLuca started the Subway as a healthy alternative to the fast-food restaurants existing then. That was the Why. The Why of the Golden Circle provides the vision, the emotion or the heart of the business, gives the business a purpose, cause, and belief. It creates a commitment. Their marketing and advertising communicate this message. How is the mission, provides the guiding principles, and is biased towards action. It provides the infrastructure for the intention. One cannot have a “How” without a “Why”. In the case of Subway, “How” was achieved by offering a healthier, custom made sandwich that was prepared using fresh ingredients right in front of the customer based on the customer’s choice. The customer is also able to calculate the nutrition information of the resulting submarine sandwich based on the ingredients selected. The “What” is embodied by results, has practiced and is dynamic. One cannot have a “What” without a “How” and a “Why”.
The New Golden Circle for Subway
WHAT: Quick Service Restaurant (QSR), Submarine Sandwich, tasty fresh food, excellent customer service, healthy food, good for weight loss, good for everybody
HOW: Committed to using fresh ingredients and served with the best customer service.
WHY: Healthy quick service food that is custom made with fixed calorific value.
Porter’s Five Forces Analysis
The five forces analysis is done to determine the potential in the industry and consequently considers the competitive scenario of the industry, potential for new entrants into the industry, availability of substitutes, the power that the suppliers and buyers have in the industry. The detailed worksheet in Appendix A considered all the factors for the Porter’s Five Forces analysis. They are discussed below in detail.
Threat of New Entrants – Moderate
New entrants can result in reducing the profit potential in the industry and increase its competitiveness. New entrants can be the buyers or suppliers entering the market, new start-ups or foreign companies trying to enter a new geography. Since Subway supplies to the customers directly and buys from the farmers, the threat of them entering the industry is remote. However, the threat of new companies starting up or foreign firms entering into the industry still exists. New entry is difficult as the existing players enjoy economies of scale, have loyal customers and enjoy global recognition as these brands adapt local market orientation so that the locals are not alienated. New entrants have to spend huge amounts on brand promotion through expensive advertisement campaigns, but the existing companies can retaliate through promotional price cuts. This can deter new entrants. The use of social media can level the playing field for new entrants as far as spreading the brand awareness is concerned. To enter the marker, the capital outlay is small so that encourages new entrants .
Competitive Rivalry – Strong
Competitors use advertising, promotions, new offerings, and price cuts to attract new customers and retain the existing customers. As competitors serve the same set of buyers, rivalry can be fierce for Subway in the form of McDonalds, KFC, Burger Kings, and other similar restaurants. No one company rules the industry so there will be cutthroat competition to jockey for position. Since there are very few new customers, firms try to steal each other’s customers, which results in companies competing on price rather than product differentiation. Prices may be slashed to recover fixed costs and there might be excess capacity available so sales must be earned. The exit barriers are high so firms stay and fight rather than exit .
Threat of substitute – Moderate
There are plenty of substitutes available such as cooking at home, eating at a full-service restaurant, grabbing a fruit or a snack or a ready meal. Cooking at home is cheaper but lacks convenience, while a snack or a fruit may not be appreciated by a consumer the way a subway sandwich would be. A ready meal is a possible substitute as it is closer to Subway on convenience and price, but they are not the perfect substitutes as they cannot be used when somebody is on the move and has no access to a microwave. In cases where the time is short, QSR has no substitute. So, in the QSR space, there are no perfect substitutes but many competitors.
Power of Buyers – Moderate
Generally, consumers rarely hold much buyer power as the extent of their power lies in choosing a different restaurant. This is possible as there are many fast food restaurants, the customers are price sensitive, and there are no switching costs associated. To reduce the buyer power, the players try to cater to more than one demographic of buyers by using different categories of products. Using differentiated products is one way for the firms to reduce the power of buyers .
Power of Suppliers - Moderate
Subway uses firms such as Sysco for supplying food to their doors, stores that sell kitchen equipment, and employees that provide labor. These are the suppliers that Subway uses and since the products that the suppliers provide to Subway are not unique and easily available, though there is a cost to switching suppliers, the supplier power is not very high. The number of suppliers who are available in the market is also high so this reduces their power considerably. The soft drinks suppliers are Coca-Cola and Pepsi but due to the fierce rivalry between them, they cannot exert too much pressure on Subway as an alignment with Subway will be beneficial for them too.
Sustainable Competitive advantage
Subway has a menu with “Subs with six grams of fat or less” called the Fresh Fit menu. Most fast food restaurants serve unhealthy, greasy food. By being a healthy alternative to those, Subway had made a name for itself and is hugely successful. Their subs not only have very little fat, they contain no trans-fat, and can be customized with veggies. They taste very good and are relatively low priced and hence affordable. To achieve sustained competitive advantage, not only should the organization provide value to the customers but also ensure that it cannot be copied by the competition. It is the inability of the competitors, both today's and tomorrow’s, to duplicate the strategy that creates a sustainable competitive advantage. Porter, through his five forces model, makes it clear that firms in industries that have high entry to barriers can sustain competitive advantage for a longer time and have an opportunity to achieve high levels of performance.
The competitive advantage has to be derived from intangible resources as any competitive advantage derived using tangible resources can be acquired by the competitors. Subway has an innovative service approach, which is, to let the customers decide on the ingredients that can go into the sandwich and see them being made right in front of them. They have a very aggressive pricing strategy, which is highly competitive. Subway allows its franchise to choose their own food suppliers, to ensure they can access the freshest ingredients from their local markets. This gives Subway a competitive advantage by enabling them to produce nutritious sandwiches with the freshest ingredients. Hence, their catch advertising tagline – “Subway – eat fresh.” The chain has excellent operational excellence due to which it was able to surpass McDonald’s as the largest franchise. The reason for this excellence is that the franchisees are trained well and operations manuals are available. When Jared Fogle lost 245 pounds by eating Subway sandwiches and walking regularly, Subway immediately made use of Jared in their advertisements, which got them enormous publicity. They also responded to increasing scrutiny about salt levels in the food by reducing the amount of salt in the sandwiches by 15% and in the Fresh Fit line of sandwiches by 28%, without any change in the taste and absorbed the extra cost of the ingredients. Subway franchisees do not need heavy equipment so they can fit in unusual spaces resulting in low initial investment requirement. So they are a perfect business where space is tight and real estate is expensive. They have a loyalty card program which results in repeat customers. The loyalty card program software lets Subway the rewards in accordance with the user’s history and potential.
A combination of all these tangible and intangible factors are the reason why subway has a competitive advantage. A comparison with Quiznos brings about this point clearly. Both are about freshness and quality. Quiznos had toasted sandwiches, which differentiated it from Subway which offers only cold sandwiches. Quiznos’ products are priced slightly higher as it has higher quality ingredients and is aimed at upscale clientele and many people believe that it had a better product. However, by positioning itself as an upscale sandwich maker, it had to have its franchisees in upscale locations due to which their rent was higher and they had to sell more constantly. When the recession hit, Quiznos failed immediately and filed for bankruptcy while its competitor, subway, had grown by leaps and bounds.
Value Creation Model
Subway’s value proposition is to make customized sandwiches using fresh ingredients sourced locally. It is a healthy food with a special focus on less fat content, zero trans-fat, and low salt content. The service tends to be quick, efficient, and innovative (custom making the sandwiches in front of the customer). This is especially good for those customers who are on the move, looking for hassle-free quick meals and looking for filling meals. Anybody who is looking for healthy food that is not very expensive and intending to reduce their weight finds Subway a very compelling option. Due to the brand value and the help that Subway provides by training and designing the store, the franchisees are very much attracted to Subway. The stated goal of Fred DeLuca is that they want to increase the profits of the franchisees by $1000 per week. So, the franchisees are also highly motivated.
New Strategy
According to the five forces analysis, the competition is fierce but the other factors are not unfavorable to the industry. As mentioned earlier, the entry barriers are moderate, but the capital requirement for new entrants is low and use of social media and technology has leveled the playing field. However, in the recent times, the competition has imitated Subway and gone one step ahead. New competitors such as Chipotle and Firehouse Sub Grills offer fresher and healthier custom made meals. New categories such as fast casual and QSR plus restaurants are eroding Subway’s revenues and profits. To compete, Subway has to create a new strategy.
The value proposition does not change, it still is aimed at health conscious, on-the-move customer to be provided with healthy fresh food, quickly. The new strategy for Subway involves a redesign of the menu by simplifying it, redefining what it thinks is fresh, and improve the quality of the food, as well as the décor, of the store. The meat has to be antibiotic free, cut in front of the customers rather than unwrapped from a paper package, and the quality of the ingredients should be of higher. The price points can be adjusted upward accordingly. Subway has a brand name that represents, “Eat –Fresh”. Other changes include offering a breakfast menu, which means it can start the stores early so that it can be prepared for the afternoon rush better. Similarly, it can have a dinner menu. By also offering sandwiches bundled with the breakfast, since they are cold sandwiches anyway, those coming for breakfast could buy the lunch. This will increase the sales, by expanding the pie, as well as reduce the lunch time rush. Starting Subway cafes, an upmarket version of Subways in upmarket locations with suitable menus, will help expand the pie further. Simplifying the menu will help it easy for the consumers to choose. Upgrading their stores so that they look better and adding digital displays, using mobile apps so that they can choose how they want their sandwich to be made while they are waiting in the line are some measures that could increase the queue throughput. This can also reduce the boredom that customers face while waiting in the queue.
Metric Plan
Following is the strategy and implementation plan.
The following Metric Plan will be used to measure the success of the execution of the strategy
Works Cited
Berman, J. (2014, March 14). How Subway toasted Quiznos in the sandwich wars. Retrieved from huffingtonpost.com: http://www.huffingtonpost.com/entry/subway-quiznos_n_4966030.html?section=india
Daszkowski, D. (2016, April 25). Fred DeLuca biography - the Subway franchise story. Retrieved from franchises.about.com: http://franchises.about.com/od/mostpopularfranchises/a/Fred-Deluca-Biography-The-Subway-Franchise-Story.htm
Helm, B. (2013, April 30). The sandwich that ate the world. Retrieved from inc.com: http://www.inc.com/magazine/201305/burt-helm/how-i-did-it-fred-deluca-subway.html
Liutu, R. (2010). Subway market research. South Karelia, Finland: Saimaa University of Applied Sciences.
Porter, M. E. (1985). Competitive advantage: creating and sustaining superior performance. New York, NY: The Free Press.
Schaefer, P. (2016, April 27). Healthy fast food: oxymoron or competitive advantage? Retrieved from franchiseknowhow.com: http://www.franchiseknowhow.com/articles/healthy-food.htm
Sinek, S. (2009). Start with why: how great leaders inspire everyone to take action. New York, NY: Penguin Group.
Stensby, M. (2012, April 25). Everybody can make a sandwich – the question is just how you do it! Retrieved from wearedevelopment.net: https://wearedevelopment.net/2012/04/25/everybody-can-make-a-sandwich-the-question-is-just-how-you-do-it/#more-847
Subway. (2016, April 25). The history of Subway: the seventeen-year-old entrepreneur. Retrieved from subway.com: http://www.subway.com/subwayroot/about_us/history.aspx
Tristano, D. (2015, July 8). The strategy that could turn around McDonald's, KFC and Subway. Retrieved from forbes.com: http://www.forbes.com/sites/darrentristano/2015/07/08/qsr-plus-addition-by-subtraction-for-struggling-fast-food-brands/#47abb43814c9
Appendix - A
Porter’s Five Forces Model-Worksheet on Industry Structure
+ Factors (favorable to industry) moderate or - Factors (unfavorable to industry)
