Subway-the World's Largest Fast Food Chain on a Downward Spiral
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Case Code: BSTR597 Case Length: 15 Pages Period: 2009-2018 Pub Date: 2020 Teaching Note: Available |
Price: Rs.500 Organization: Subway Industry: Restaurants Countries: United States Themes: Competitive Strategy, Corporate Strategy, Waste Management |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Operations
The Subway stores were much smaller than other fast food restaurants like McDonald’s. The outlets occupied just around 350 sq.ft. each, of which half was used for making the sandwiches and for storing the ingredients. The operations of Subway were simple. There was no frying, grilling, shaking, or flipping. Subway restaurants were found in locations like car dealerships, appliance stores, riverboats, malls, colleges, zoos, and even places of worship...
The Decline
At the end of 2006, in the US, Subway had 20,721 locations. By the end of 2011, it was operating 25,285 units, a unit growth of 22%. This was when the US economy was experiencing its worst recession in 75 years and the restaurant business across the country was suffering. Subway, in contrast, was on a growth path. In 2013, it was opening 50 stores a week...
Disgruntled Franchisees
The franchisees complained that the headquarters kept adding new stores despite plummeting sales and footfall. Some of the franchisees said that the main cause of the problems at Subway was the conflicting interests between the headquarters and the franchisees. The problems of the franchisees did not affect the owners much as they were getting their starting fees and royalty on all the revenues...
The Products and Quality
Subway relied on the US$5 foot-long sub to generate sales during and after the recession. As the economy improved, consumers who had thronged Subway for a low-priced meal, started to show a preference for higher quality and healthier food. In their perception, Subway remained a low-end seller of sandwiches. After it started experiencing a decline, Subway decided in 2016 to increase the price of the foot-long to US$ 6...
Competition
Post recession, the US witnessed the emergence of restaurants offering fresh, local food. Customers were spoilt for choice. They gave up the age old sandwich for a freshly made salad or had fresh food delivered at home. While Subway focused on expansion, in the process overlooking innovation, consumers started drifting toward restaurants that provided an up-scale feel, better quality, and good food...
Dent to Image
Over the years, Subway's image became severely dented as it faced several scandals that made customers skeptical about the Subway brand and the food it served...
Revival Plans
In 2017, the company came up with a revitalization plan. All the stores were to follow the new fresh forward design, which Subway planned to implement across the globe. The remodeled stores had a new décor, a self-service counter, digital menu displays, ordering kiosks and overhauled menus, packaging, and uniforms...
Looking Ahead
In December 2017, headquarters came out with the idea of reintroducing the US$ 5 foot-long subs. The franchisees started protesting the idea, stating that the deal would only squeeze their already thin margins further and also affect the sale of other products...
Exhibits
Exhibit I: Restaurant Market in the US
Exhibit II: Subway – Competitors
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