Subway is part of the of the newer healthier looking fast-food franchises which rather then offering the more unhealthy option of burgers and chips, are selling sandwiches to supply the market with its shift in demand from the old style on the food on the move to its new more heath conscious demands.
Subway is now one of the largest franchises in the American market, it also has stores in 75 other countries including the U.K. and recently received a Gold Award in the sandwich category of the `21st Annual Outlets and Institutions Choice and Chains Awards’ in the US . Subway works like most other fast-food chains, its makes a legal contract with a local business, which allows the local business to set up using the name, logo and trading methods of Subway, for the fee of 8% of profit minus tax in royalties and 3.5% for advertising. It has start-up fees of as little as £2700, which is much lower then most other franchises.
Who their main competition is:-
However the sandwich market already has one major leader that being Greggs plc which had pre-tax profits of £40.5m which is an increase of 10.4% of its annual profits for 2003. It has stores in most high streets through out the country, along with a now very well known name, and the fact it offers the same high quality product means that this will be the biggest competitor to Subway.
Other problems Subway shall face:-
Another problem is that even though this is a large increase in profits for Greggs, the market is becoming mature which means that increasing profits will drop from super-normal profits to normal profits. A reason for the market maturing is due to the super-normal profits themselves, which is making as other companies consider entering the market making it become saturated, this increase in competition also means that the market is contestable.
Also unlike in America, Subway is not a well-known brand in the U.K. therefore does not have the same power that McDonald’s or KFC have of being instantly recognizable when a store is seen in the high street. This therefore means that even though it is a powerful franchise in the U.S. it will find it a lot more difficult to get a firm grip of the U.K. market due to this.
Currently there is a job shortage due to the business cycle, which therefore may increase the costs of wages so that the company can bring in enough staff to help it become competitive.
What subway have done to gain an advantage:-
Subway have tried to make the market less contestable now that it has entered it, and by making it less contestable it gets monopolistic powers. It is doing this by offering a high quality product, and adding value to the product by making it a healthier option then other fast food out there. One way it is doing this is by advertising the fact that an American student lost over 17 stone just from eating Subway’s 6″ range twice a day. This is quite a useful for marketing which can be used to add value and make the company well known to the Subway range and make it less contestable. This is one of the main parts of the marketing mix as it is informing consumers about the products benefits.
It also has a high quality-training program to help make shore the same high standards are kept, training also leads to job enlargement, this can help increase the interest that people have in the work they are doing, which is vital if the product needs to be made at a high standard. With aspect to this job rotation can also be useful in this, especially for low skilled jobs such as those at Subway. All this also helps to make the company more competitive.
What else the company could do:-
What else the company could do is try predatory pricing trying to force Greggs out of business, even though it is the market leader it does not have the same financial resources as a multi-national company such as Subway, or have a loss leader on the most popular sandwich.
Another potential idea is rather then organic growth, is inorganic in the form of a take over bid for Greggs as this to would take its main competition out of the market, however this could be very expensive as due to how well Greggs is performing as a company it has a very high share price, it also could not be allowed to happen if the competition commotion feel that it is not allowing fair competition.
Subway could also grow is through new product development, therefore offering something its competitors can not making it more non-contestable.