MGG3401 – Strategic Management

Elizabeth Camilia Lee Shixin
23773057

Subway is an American fast food restaurant chain that mainly sells long sandwiches
and salads. It is the biggest single-brand food chain and one of the fastest
growing franchises in the world with 42,070 restaurants in 107 countries
and territories as of June 28, 2014 (Subway, 2014). There are many Subway branches
existing throughout Australia.
Subway’s mission, vision and values concentrate on freshness and consumer
happiness, in order to generate an excellent Subway experience and spread the word
among friends and family. They also have a bigger vision for its many overseas
restaurant operations, to be the number one quick service restaurant franchise
globally, while providing delicious, fresh sandwiches and a unique experience
(Subway, 2014).
To conduct the food industry analysis, Michael Porter's five forces model will be used
to help managers in their mission to analyze competitive forces to the chosen
company, Subway. The model’s theory illustrates the competitiveness of the industry
being derived by five distinctive forces. The analysis will help to determine the
organization’s current or potential risk existing in its market. The five forces are 1)
Threat of New Entrants, 2) Threat of Substitute Products or Services, 3) Bargaining
Power of Buyers, 4) Bargaining Power of Suppliers, 5) Competitive Rivalry Among
Existing Firms. The following discusses and apply the five forces analysis of Subway
Company in relation to its market attractiveness.
The first force, threat of new entrants, is extremely high in the fast food segment. This
is because there are very few barriers to entry, and setup cost in a fast food eatery is
low. In certain cases, typical SUBWAY® outlets could open for as little as $204,050
(Subway Financial Information, 2014). In addition, the experience dining in the fast
food restaurant will define Subway from its competitors, apart from the food (Bloom,
Hummel, Aiello & Li, 2012). Subway restaurants in Australia pride themselves on
their clean environment, fresh healthy food, quick service and vast varieties of custom
sandwich options. This made dining experiences at Subway very refreshing and safe
(Ottenbacher & Harrington, 2009). Unlike its competitors like Hungry Jacks,
McDonalds and KFC, Subway differentiated itself as a fresh diet dining experience in
an upbeat environment, enabling it to succeed in the fast food industry easily among
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unique dining experience and inexpensive price (Kisang. If Subway failed to identify customers’ needs and cultural preferences. retaining consumers will be very challenging. being equipped with a growing reputation and consumer numbers. Therefore. but consumers love to try out new cuisines and are highly likely to try other fast food brands (Min & Min. 2011). et al. 2009). is strong because uniformed service and products in Subway will enable many options for customers to choose from. seasoning and sauces. 2010). and this would determine their product’s selling price (Leschewski & Weatherspoon. The main ingredients for Subway’s sandwiches include meat. Thus. value adding options and taking care of customers’ needs with the introduction of the value pack. At this point. 2011). 2012). Heesup & Soocheong. they were able to well control their suppliers’ power and build strong relationship with them to provide cheap and quality fresh food in a timely manner (Weyant. Subway has held a remarkable market share for a long time. Subway was able to attract many more customer bases (Sun & Nijite. suppliers’ force in the fast food industry is usually weak. Although Subway may raise prices for other products. 2014). By providing lower prices. The second force. they must be careful not to significantly exceed beyond their competitors or disregard customers’ expectations (Weyant. thus giving more power to buyers. fruits. Subway took the advantage to narrow down their most efficient suppliers. vegetables. to meet market demands. 2014). Consumers of the fast food industry demand high quality food. 2013). bargaining power of customers. However. such as selected 6-inch sandwich and a drink for $5. Also. To prevent customers from leaving for cheaper and better fast food 2 . Hungry Jacks and KFC as well (Leschewski & Weatherspoon. The third force. Because the suppliers are vulnerable to decision making in terms of price. is weak. There are many suppliers for these food products throughout Australia that caters to other fast food brands such as McDonalds. Subway had come up with value packs. 2012).MGG3401 – Strategic Management Elizabeth Camilia Lee Shixin 23773057 the health conscious people (Bloom. but they have a huge impact on its market (Ottenbacher & Harrington. Subway could select from many similar suppliers that suit their objectives best. these suppliers have little concentration or differentiation. bargaining power of Subway’s suppliers.

According to the Porter model. 2013). ready-made cooked food. Unlike fast food restaurants. the threat of substitutes commonly influences a market with the fluctuations of prices between organizations. Heesup & Soocheong. However. McDonalds were also sensitive about their Hindu and Muslim religions. There are also an abundance of existing fast food brands such as McDonalds. which means products outside the fast food industry. thus. 2011). this force is very high. These days. Organizations can reduced the threat of substitutes by adjusting their menus according to what the market wants. Subway must maintain a lower price than its competitors. The fourth force is threat of substitute. while at the same time manage the effect of strong buyers’ bargaining power.MGG3401 – Strategic Management Elizabeth Camilia Lee Shixin 23773057 alternatives. The average prices of a meal in a fast food restaurant ranges from $7 to $11. KFC and Hungry Jacks. They serve as substitutes to the Subway customers. The real substitute threat comes in when consumers decided to eat at home. Subway’s competitor McDonalds offers spicy vegetarian burger in India as most Indians are vegetarians and they love spicy food. consumers are more inclined to cheaper products instead of being loyal to brand. However. giving them the advantage over fast food restaurants. or go to another fast food or casual restaurant. In Australia. 2010). the decision to eat at fast food restaurants are not so much decided by the price factor. therefore Subway have to work harder to achieve higher market share. and healthy food stalls are plentiful in the market (Hokey & Hyesung. in times of economic crisis (Min & Min. The only meat products offered are 3 . casual restaurants are still the more preferred dining choice. yet retaining its refreshing dining experience and high food quality (Bloom. Subway will not lose customers as long as they keep to this price range (Min & Min. 2013). there is a high pressure of this force because as convenience shops. 2012). which may cause consumers to have second thoughts about dining there and turn to eating at home or at fast food restaurants instead. Dining experience was also more casual for family and friends of all ages to hang out and talk over dinner. and do not to serve pork and beef products in their menu. et al. thus the fast food industry is faced with a stiff competition and high competitive rivalry (Kisang. as they offer better and healthier quality in terms of food preparation. For example. Because of these huge amounts of options to dine at. casual restaurants. 2011). but more on the dining experience and food’s taste (Hokey & Hyesung. casual restaurants offer slightly higher prices.

MGG3401 – Strategic Management Elizabeth Camilia Lee Shixin 23773057 chicken and fish. 2012). Italian or Indian restaurant. these factors will offset each other. When a customer decides to have lunch at a Japanese. firms may run the risk of losing profit when they could not provide customers with the orders they desire. The demand for food is expanding with population growth that needs food. saving up inventory would counter the objective of preventing wastage. Additionally. The less volume of food the firms waste. so they would not have to face throwing food away or sell them off at very cheap prices to get back their losses. this force is very high. increase product differentiation. food is perishable and firms would need to sell them off quickly lest they become spoiled goods. Organizations can gain competitive advantage in the following ways: building trust and relationships with suppliers. Rivalry in the fast food industry increases with a big amount of firms vying for the same pool of customer base and market share. and many variable costs. he would consider the costs and value of paying for better food at casual restaurants or stick to low costing food fast (Sun & Nijite. utilities and food ingredients. However. and decline with deaths of previous consumers or residents who moved away. They include the fast food restaurant chains that tried to look like a casual restaurant. and fast food brands that have not been franchised. 4 . Larsen & Marnburg. Variables include wages. McDonalds was able to maintain a competitive advantage over rivalling fast food chains and maintain their customers’ loyalty instead of losing them to substitute restaurants such as Subway (Øgaard. Low switching cost is also a major factor when it comes to deciding which restaurant to dine in. Firms then have to know the exact amount to order. In the fast food industry. They generally pay the same fixed rent monthly. By acting on what the market desires. Fast food restaurants have relatively few high fixed costs. if too little food is ordered from suppliers. 2005). As a result. altering prices and improve distribution channel performance. hence the market could grow with numbers of surrounding residents in each state of Australia. The final force is competition among rival firms. the more inventory they could save and the more successful they would be compared to firms that have more wastage. Normally.

The fries cooked at McDonalds and Hungry Jacks left unattended in the kitchen will be able to sustain longer than 30 minutes before they are sold. 5 . The first change includes Australia’s technological developmen. 2005). leading to worldwide demand for fast food everyday by people of all ages. the fast food industry would be able to save a lot of food wastage (Iqbal. Whitman & Malzahn. For example. Larsen & Marnburg. This would result in a competitive advantage when the fast food brand exports in future. McDonalds invest slowly in China and focus their concentration more on other parts of the world that have wider consumer base (Qiaowei & Ping. Subway has continuously adapted to the fast changing conditions with its changing menus and quick service (Ottenbacher & Harrington. In a rapidly changing business environment with large competitors. Subway have to appoint new expansion technics and modify the existing structures in order to maintain its primary market place in an already established food sector (Øgaard. For example.MGG3401 – Strategic Management Elizabeth Camilia Lee Shixin 23773057 The two important changes that may impact the fast food industry are the demand conditions and technological advancements. 2008). Subway would be forced to develop new methods to improve and result in national comparative advantage. If there were a technological support in Australia that may prevent this issue from happening. The second change is demand conditions. The success of the fast food industry displays tremendous competitive power and attractiveness of its market. KFC has proven to be more successful than McDonalds in China because Chinese people have greater preference for fried chicken than hamburgers. the local firms would commit more attention to expand locally than overseas. 2014). Raab. In times of local production shortcoming due to poor machineries used or limited resources. 2012). It has amplified the fast food identity via the use of marketing channels such as cultural aspects. geographical. the cooked food displayed at Subway will get stale in 30 minutes if they are not served. When the fast food product is works better in local markets than overseas. & Schrock. Hence. and unique dining experiences (Annaraud.

MGG3401 – Strategic Management Elizabeth Camilia Lee Shixin 23773057 2009). strategies should be thoroughly analyzed and applied throughout different levels within the firm. Subway’s strategy at corporate level defines the business. 6 . In huge organizations like Subway. It is important these different levels of strategies are related and mutually sustaining one another. in which they will compete for their market share and competitive advantage.

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