Subway Operations
The largest food chain restaurant in the world undergoing a constant downward spiral and most especially in its home country for several years is generally unimaginable and unexpected, considering that it is facing stiff competition from other surrounding small business franchises under the same business category. Subway has been a top-selling and most popular quick-service restaurant having the greatest number of branches after surpassing McDonald’s in 2011, which had the highest number of operating branches before the subway came to be, offering fresh and nutritive fast foods and mainly submarine sandwiches and salads. The main ideas covered include; the main reasons for the success of Subway throughout the 1970s to 2013, the main reasons for the crisis of the Subway between 2013 and 2018, and the recommended strategies that Subway could follow to regain market share.
Reasons for the success of Subway between the 1970s and 2013
Subway experienced tremendous growth in several years without undergoing recessions in terms of new restaurant openings, and profit-making as well as new customer attractions. Several factors contributed to its growth, as displayed below. Subway was a restaurant that worked on providing wholesome and healthy foods and mainly custom-made sandwiches consisting of fresh meat, fresh vegetables, and freshly baked bread. It majored in serving lunch but was open all day long, so customers could access the products even off lunch hours, and thus creating convenience for them. It was the first known Quick Service Restaurant to offer open – kitchen services where customers could choose the ingredients they wanted to be added to their sandwiches. The choice of ingredients and provision of healthy fresh food increased its popularity to a level of opening up more successful branches.
Between 2007 and 2009, Subway and was able to expand rapidly when other restaurants were undergoing a recession. The secret behind this growth was the introduction of a foot-long sandwich, an idea generated by one of the franchisees in Florida who had also realized that the cost reduction of a sandwich to $5 led to the flooding of his store with customers during weekends. This idea was then implemented to all other restaurants, and so with a low price offer and sizable sandwiches, accompanied by the introduction of catchy jingles, helped increase the sales volume and the general success/ growth of the Subway corporate.
Good leadership was another booster for the success of the subway operation. DeLuca, who was the founder of this corporation, got diagnosed with leukemia in 2013, so he handed over his responsibilities to Greco. Greco had been in operation with the organization since its inception, and this meant that she knew all the rules, regulations, and requirements for the success of the company. Greco was instrumental to Subway by setting up a cooperative that was run by a franchisee to supply food to Subway restaurants. She was also an active product developer, for she introduced the sweet onion teriyaki sub, toasted bread, breakfast menu, and a line of low-fat sandwiches, among other things. This displayed the potentials that she had to drive the company forward after the new responsibilities. Don't use plagiarised sources.Get your custom essay just from $11/page
Subway stores were set up in favorable positions such as malls, zoos, collages, riverboats, car dealerships, appliance stores, and even places of worship. The placement of the stores in such positions attracted the highest number of customers, for these places are mostly highly populated on a daily basis, and it’s in these places where the people would want to have some refreshments after or in the course of their daily activities. The costs needed for set-up, space leasing, renovating and buying food and necessary equipment were very low, and on top of that, their operations were very simple. Additionally, Subway took revenues that were much higher compared to other restaurants. These factors favored the success of these Subway stores to a great extent.
The head office coordinated most of the major activities about the successful running of the business, including menu, product sourcing, strategy, store design, arrangement for food supplier deals, and coordination of national advertising. Extensive surveys for finding new locations and franchisees were handled by development agents who were assigned responsibilities to run a region as independent contractors. The development agents were given targets for opening new stores and were penalized for not reaching those targets, and they were also responsible for training and supervising the newly acquired franchisees. All these demonstrated the strong and reliable management system that was in place, and therefore the success of the Subway was of no doubt.
Reasons for the crisis of Subway between 2013 and 2018
Since the year 2014, Subway lost its top position and began declining due to weaknesses that it had developed. The weaknesses were as follows. Subway concentrated on opening new stores at more locations through which it could obtain more royalties and franchise fees, and thus neglected the operations of the older stores. The franchisees blamed the founders for focusing on opening new stores even at close proximity to existing ones, and not putting economics into account. The enormous expansion adversely affected the unit economies and cannibalized sales, but the owners were not affected by this, for they still got their starting fees and royalty on all revenues. This caused Subway to have a decline in sales and a drop from its top position by 2016.
Opening new restaurants also resulted in the closure of several other existing stores and ended up closing more stores than those that were opened. For example, there was a decline of 359 stores in 2016 compared to 2015. According to the data displayed in table 1, Subway had the least average sales, (Refer to Table 1 for average store sales per year), and Subway traffic fell by 25% between 2011 and 2016. Even with the drop in sales and traffic, the headquarters still paid more attention to opening more stores instead of being concerned about the reasons behind the decline. The top management had failed to listen to franchisee concerns and more so on food quality, discounts, and restaurants nearby. The focus on expansion took a toll on the company’s ability to innovate, and these were evident causes of failure of Subway because, unless the problem that was causing failure was first solved, there was no way success and growth would occur.
On economic improvement, Subway decided to raise the cost of a sandwich to $6, and this made the customers who had thronged due to low price, to seek an alternative for healthier and higher quality foods. Again, the key ingredients lacked freshness due to franchisees’ problem of food supply, for they were forced by the headquarters to only buy from the suppliers they specified. Before the management brought changes in the corporate office, the franchisees used to buy local produce daily, which enabled them to maintain product freshness. The management wanted ingredient procurement to be conducted only once or twice a week when prices were high, which made it hard to maintain product freshness, as some ingredients were unpalatable on reception. If a franchisee decided to secretly order fresh ingredients from local suppliers, they would immediately lose their franchise once discovered. Subway began facing stiff competition from other restaurants, as many customers shifted in search of fresh and tastier foods.
Considering that today’s customers are highly educated on nutrition, they prefer organic foods and with cleaner labels, GMO-free, sourced transparently and ethically, and meats that are freshly cut. They wanted the same to be applied to the products they consumed from Subway. An investigation by the CBC marketplace in 2018 brought forth a realization that the chicken used to make Subway sandwiches was halfway meat and halfway soy. Subway refused the allegation, but customers were not convinced because previously in 2014, they had been found using in their bread, a chemical found in products like shoe rubber and yoga mats, known as azodicarbonamide, which was proved to be similar to flour whitening agents by USDA and FDA. This dented the name of Subway, and customers developed a perception that this company was selling foods that were un-fresh and unreal. The informed spread on social media, and the company faced a public backlash.
Recommended strategies that Subway would follow to regain market share
Technological changes and modernization are strategies that can help a business that has lost its market share to regain it back if the changes are done in ways that attract customers from simple first appearance to other complex activities. The success of applying these strategies is manifested by the outcomes. When Subway applied them in their revitalization plans, that was; establishment of new-technology equipped stores with facilities like USB charging ports and location-based Wi-Fi, and establishment of new stores with remolded décor, ordering kiosks, a self-service counter, digitalized menu displays, and overhauled uniforms, menus, and packaging, Subway reduced their turnover rate by half and improved customer service response by 30% during the same period as a result.
Another method of regaining market share successfully is the introduction of programs that can monitor the loyalty of customers and offer awards according to their loyalty level. This encourages customers to buy more from the business so they can receive the awards on offer. For example, Subway introduced a new royalty program known as Subway My Way in 2018, where customers could enroll for the program online through an app or in the store and earn points for every purchase made. Customers would earn four tokens for every $1 spent, and on the accumulation of 200 tokens, a reward of $2 would be awarded, which was redeemable for any item on the Subway menu. On top of that, customers would receive surprise gifts from time to time. This attracted many customers to start buying from the store, and this meant that this strategy would help Subway regain its market share on attracting huge customer numbers.
Professionalizing revival operations and making organizational changes, and especially at the top management, can be of great importance in regaining market share. On top of that, linking business with other parties/organizations that can assist in offering better ideas of reviving a fallen business to regain its lost market share is very important. This is because the prevailing management during a business failure has little contribution to reviving the business and placing it at a more profitable position when compared to new competent management, for it makes revival easier. Greco, the Subway CEO was said to surround herself with people who would not challenge her in turning the company around. Therefore, the resignation of Greco and appointment of a new CEO, as well as hiring Bain and Co. consulting firm would help in refining operations, positioning success franchisees, introducing improved products, transforming the brand, creating a better customer experience and making it attractive to customers and thus attracting a greater market share.
The other strategic way of regaining market share was by providing fresh ingredients and freshly baked bread, all assembled with great care, and providing offerings that were genuine and different from those of competitors. These strategies should have been well planned and implemented, even if it meant taking more time and expenses for implementation. Failure to apply this strategy is what led Subway customers to move away; therefore, proper implementation of them would entail attracting the lost and new customers back. On top of that, plans to consider and strengthen franchisees to successfully run their business and especially on choosing the best positions where the stores would be set up should have been considered, because the success of franchisees in making huge sales would mean success to the whole company.
From the analysis case study on Subway, it is evident that the success and failure of the company were highly lying in the hands of the top management as well as the franchisees, so if both worked together as one team, the great failure of the company would most probably not have been experienced. The top corporate management staff should have considered the success of the company from all dimensions but not from one side of view. This would render the company into maintaining top position even without the open-up of new stores, but with proper management of the existing ones for the highest profits.