Subway_Strategic_Management

Executive Summary Subway Company would like to penetrate Malaysia marketplace. Their target audience age is between 14 – 35 years old. Subway has do analysis on Malaysia market condition. Through PEST analysis, the political stability, competition among the food industry and the 10th Malaysia plan is the attractiveness for Subway to enter this market. Besides, the growth in GDP and increase in both disposable income as well as food consumption also encourage Subway to go in this market. Social trend such as change in culture and demographic, it becomes a potential market which generating preferable lifestyle. Health conscious issue create an advantage for Subway to target heath-conscious group of people by providing nutritious fast food with fresh ingredient. In the value chain analysis, marketing and sales as well as service bring value to Subway by their functional activities. In order to target on Malaysia marketplace, there are three strategy options is recommended. First is joint venture with hospital as it is the best way to focus on heath conscious group of people. Second option follow by develop delivery system, 24 hours operating hours and Wi-Fi in the distribute outlets in order to cater those young working adult and student who having busy lifestyle. Lastly, increase in numbers of distribution outlet will helps to increase awareness and sales performance of Subway Company. After all the evaluation, joint venture with hospital is still the best strategic to conduct as it bring up strategic advantage for both company in the long term basis. Table of Contents 1. Introduction……………………………………………………………………………...5 2. Company Background…………………………………………………………….......5 3. PEST Analysis……………………………………………………………………….....6 1. Political analysis.…………………………………………………………….....6 1. Political stability………………………………………………….……..6 2. Competition among food industry………………………………….…6 3. 10th Malaysia plan…………………………………………………..….6 2. Economic analysis……………………………………………………..………7 1. Economy growth in Gross Domestic Product (GDP)……………….7 2. Increase in disposable income………………………………..………7 3. Increase in food consumption…………………………………...…….7 3. Social analysis…………………………………………………………..………8 1. Demographical change……………………………………….….…….8 2. Health conscious issue……………………………………….….…….8 3. Culture change……………………………………………….…….......8 4. Technological analysis……………………………………………….…….….9 1. Technological advancement……………………………….……........9 4. Value Chain Analysis……………………………………………………….…….……9 1. Inbound logistics…………………………………………………….……........9 2. Operation…………………………………………………………………..…..10 3. Outbound logistics……………………………………………………….…...10 4. Marketing and sales…………………………………………………..………11 5. Service……………………………………………………………….….….….12 5. Strategic options…………………………………………………………..….………12 1. Joint venture……………………………………………………..…………...12 2. Delivery service and 24-hours operation………………………….………13 3. Increase numbers of distribution outlets………………………….……….14 6. Best available strategic option…………………………………………….………..14 1. Consistency…………………………………………………………………..14 2. Suitability……………………………………………………………………...14 3. Feasibility……………………………………………………………………..15 7. Conclusion………………………………………………………………...………….15 8. Referencing…………………………………………………………………………...16 9. Appendix………………………………………………………………….…………..17 1. Introduction The Subway brand was started in the summer of 1965 in Bridgeport, Conneticut. Their goal is to be the largest fast-food franchise in every market. Subway distinguished themselves from they are not everyday fast food outlet. They do not sell hamburgers or greasy French fries; they served fresh, delicious, made-to-order sandwiches to delight customer. Besides, Subway is the world’s largest submarine sandwich franchise which provides a great opportunity in business growth globally. With low costs and 40 years of experience, over 70% of our existing franchisees have bought additional Subway franchises. The healthier food and simple operations have helped grow the Subway franchise to over 22,000 locations in 78 countries and with the dedicated support structure keeps it smoothly running. 2. Company background Subway is the world’s largest sandwich chain which operates in 73 countries with more than 16,242 separately owned. It is the leader in the “non-traditional branded fast food” category and restaurants provide wide range of submarine sandwich which consists of 7-under-6 sandwiches, salads as well as snacks and beverages. Subway Restaurants is a franchise business operated by Doctor's Associates, Inc., a private corporation owned by Fred DeLuca and Peter Buck. Its first operates in Bridgeport, Connecticut, opened by a young man who called Pete's Super Submarine. Firstly, they began with franchising concept and it worked well for Subway chain and the operation began to grow rapidly. As a result, Subway pursues an aggressive international growth strategy. They expand their business through the strategy of co-branding smaller Subway units with convenience stores in Central and South America, Europe, Australia, New Zealand, and Asia. Although Subway expand their market into different countries, they are able adapts the menu to the cultural or religious variations of the regions in which it operates. By 2001, Subway was named "number one" franchise opportunity and tts fare was also named with some choice recognitions: Subway won the gold award for the sandwich category in the Restaurants and Institutions Choice in Chains Award and earned the MenuMasters Award for best menu/line extension. In terms of Subway’s current trend, they have further address in promoting the story of Jared Fogle, a 425-pound man who reportedly lost 245 pounds through what he called his "Subway diet." Although Subway did not officially endorse this diet, no doubt for possible liability considerations, it nonetheless broadcasted Fogle's success. 3. PEST analysis 1. Political analysis 1. Political stability As Malaysia confronts the challenges of the second decade of the 21st century, the nation can look back upon its rapid development, political stability and the peaceful co-existence of its different groups with some pride. Malaysia has avoided most of the more tumultuous upheavals that its regional neighbours have faced. Political stability provides a safety environment for Subway to run its business. 2. Competition among food industry The competition among food industry was intensive. There are many competitors existing likes, Mcdonalds, KFC, Burger King and so on. Competitive environment enable them to come out with more strategies. As the competition keeps moving on, it helps to create awareness to the public. This would be one of the advantages for Subway to penetrate Malaysia market without difficulty. 3. 10th Malaysia Plan Malaysia Prime Minister Datuk Seri Najib Razak mentioned that Malaysia Plan in Parliament which targets a higher income nation, full employment, a private sector-led economy, strong support for an innovation-led growth and the restructuring of subsidies. Moreover, he also announced that Malaysia will strive to become top five competitive countries in the world and this is achievable as Malaysia has been placed in the top 10 competitive economies which was achieved within a year. Based on the speech was given by Malaysia Prime Minister and the 10th Malaysia Plan, it proved that Malaysia strive to become a developed country and it is a good time for Subway to exploring this market with their competitive advantage. 2. Economic analysis 1. Economy growth in Gross Domestic Product (GDP) Since year 2000, Gross Domestic Product (GDP) in Malaysia has reached an historical high of 5.70 percent in September 2010. Malaysia is a rapidly developing economy in Asia. Malaysia has transformed itself from a producer of raw materials into an emerging multi-sector economy. Besides, Prime minister of Malaysia Najib Razak, noted that developing Islamic finance industry helped this growth, the worth mention that Najib wants to boost economic growth to an average of 6.5% annually in order to turning Malaysia into high income with developed economy. Hence, high GDP create an opportunity for expanding businesses in food industry. Subway would be able to distribute more franchises in Malaysia in a profitable way. 2. Increase in disposable income As increasing in disposable income, the tendency to spend is derived from the income of individuals. According to Appendix 1.0, Malaysian will have higher purchasing power and more willing to spend. Thus, it helps to boost up the economic when people are willing to spend, and Malaysia becomes the ideal country for Subway to target. 3. Increase in food consumption Since 2006, there is a growth in expenditure on food consumption (Appendix 2.0), so it can be shown that there is a golden opportunity for Subway to enter Malaysia market as well as expanding their businesses. In the long term basis, Subway will be able to apply their specific strategic marketing plan in order to build up their business and sustain their market share in the future. 3. Social analysis 1. Demographical change According to Appendix 3.0, it has shown that majority of Malaysian are between ages 15 – 65. It becomes a pleasant phenomenon for businesses to operate in a long run as the young target market has the potential for exploring. Therefore, Malaysia offers a good condition in Subway’s target audience selection. 2. Health- conscious issue Ministry of Health has been educating Malaysian to be more health conscious towards lifestyle. They motivate Malaysian to appreciate health as valuable asset and sustain their health status to enjoy a better quality of life. Subway allows its franchisees to choose own suppliers to ensure the assessment of freshest ingredients from local markets. It gives Subway a competitive advantage by enabling them to produce nutritious sandwiches. Promoting health conscious minded will beneficial Subway in expanding business in Malaysia. 3. Culture change Nowadays, an average Malaysian works for 42 hours per week. Depending on the type or industry, typically works up to 12-16 hours per day. In these situations, eating-out is an accessible way of life. Besides, many families in Malaysia are dual-income. In such a circumstance, nobody will prepare home-cooked meals. Thus, the changing role of woman’s economic activities in Malaysia is a topic of particular importance, not only because woman represent a significant resource of much underutilized labour in the non-household sector but it also because woman’s activities are immediately tied to the structure of the family. The numbers of dual income families are significantly increase in Malaysia; it directly has an impact on the eating pattern. This significant change could be an advantage for Subway to target on family basis and be a replacement of woman’s role in a family. 4. Technological analysis 1. Technological Advancement The food industry has seen significant technological advancement in the recent decade, ranging from the areas of agricultural technology, food processing, preservation and distribution. Advanced technologies are used in all the stages of fast food production. For instance, computer ordering system reduces the waiting time and enhance on providing good customer services. Moreover, Malaysia government is more willing to invest in technology innovation such as the Green Technology recently. The technology advancement in Malaysia increases the maximum efficient production levels and benefits fast food industry by eliminating limitations in quality, quantity and reducing costs. As a result, Subway could be simply relying on the convenience of technology advancement to increase their sales performance. 4. Value Chain Analysis One of the most important concepts to strategic management theory is contributed by Michael Porter. Porter’s main objectives were on how companies can build competitive advantages and understand their performances better (WEC). Textbook defines the concept as a chain of activities that gives the products more added values to consumers and these primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and services. This is complimented with support activities such as firm infrastructure, human resource management, technology, and procurement. Firms undergo tests such as ISO 9000 by accreditation and certification bodies to officially state to the public that formalized business processes are being applied. This is a form of assurance that firms give their consumers. 1. Inbound logistics Inbound logistics are activities associated with receiving, storing and delivering input to the product (WEC). Subway can focus on warehousing, inventory management, scheduling and returns to supplier. Having the right raw materials at the right time and right location is extremely crucial for Subway. Subway is a chain of retail outlets that experiences uneven traffic flow through the day, thus Subway would want to avoid situations where there are not enough food supplies to cater to demand. As Subway is dealing with perishable food, they should not order excessively so as to reduce wastage and in turn, additional costs to the firm. Having a warehouse located nearer to the outlets is a strategic move because it can lower transportation cost, and bypass secondary suppliers while at the same time gaining tighter control over the delivery time of raw materials to the outlets. As mentioned before, as there are uneven traffic flows to the outlet throughout the day/week, Subway should schedule their workers in respond to their demand. For example, getting more employees to work in an outlet during peak periods in the morning and lunch and reducing the number of people working when business is slow. Returns to supplier should also be monitored because products that they are handling are perishable food. 2. Operation Operations is the transforming of inputs into products/ services such as processing, machining, assembly, packaging, equipment maintenance, testing, printing and facility operation (WEC). Daily operations for Subway flow smoothly because each employee is stationed at a particular segment of handling food when customers are ordering and has a task. Subway should do regular checks on their machinery such as the ovens and freezers to ensure that their operation continues to flow smoothly. 3. Outbound logistics Outbound logistics includes the collecting, storing and physical distribution of products and services to consumers such as order processing, delivery procedures and storage (WEC). Collecting supplies from suppliers and storing of the supplies must not be undermined because it is a part of the supply chain. Managing supply chain well means overall profitability for the firm. Having good relationships with suppliers can help Subway because in times where demand are especially strong, having good relations with suppliers means Subway can get the supplies faster. Choosing to locate nearer to a warehouse to store supplies is advantageous too. In Singapore and many other countries, Subway offer delivery of their sandwiches to consumer’s doorstep. This is an added value for consumers that they appreciate. Subway in Malaysia can also adopt such strategies to create value for consumers. Personal delivery of food can be further enhanced by order processing. For example, allowing either cash or credit payment allow consumers to have more options. Order processing should be as simplified as possible to prevent confusion for the consumers. This can be done in their website where consumers order food online by showing them a few steps diagram on how they can order their food. 4. Marketing and sales Marketing and sales are activities which consumers are encouraged to purchase products through mediums such as advertising promotion and pricing (WEC). These activities help Subway to increase their sales exponentially. A few great examples are the student priced meals, sub of the day, and subway fresh fit meal. These promotions are done in a way that they are consistent as a whole to the image of Subway. Sub of the day features a particular sandwich on a particular day (such as roasted chicken breast on Monday) at a special price. Such promotions drive a need in consumers to purchase more of their sandwiches because it comes at a lower price than usual. Subway further enhanced the fact that they are selling healthy food compared to other fast food restaurants by providing healthier choice to complement their sandwiches such as yoghurts and nutritional drinks. In the European countries, Subway is making bigger waves as compared to the Asian countries outlet by participating in activities such as sponsoring events. For example, Subway sponsor Debra Flinn in her walk to slim down by providing lunches, dinners, and t-shirts along her route from Florida to Tennessee  (Doctor’s Associates Inc 2010).  She even handed out Subway Cash Cards donated by family and friends to people in need after her walk.  It serves as a great marketing strategy because not only does this gain public attention, it also fits into Subway’s image of being healthy. Another marketing activity Subway took part in was the partnership with Clear Channel Radio to give one talented unsigned music artist/band the chance to open for the Goo Goo Dolls at an upcoming concert (Journalistic Inc 2010). Such partnerships not only help Subway gain extensive public attention but also let consumers know that they are a brand that provide opportunities. All these activities create a good brand image in consumer’s mind. 5. Service Service is activities that provide service to consumers to maintain or enhance the value of the product such as customer services, training, and service enhancement (WEC). Subway logos of “Eat Fresh” and “You Create It, You Enjoy It with your choice of toppings” tell consumer directly that their food is healthy. Journalistic Inc, 2010 supports this when they featured a survey by Decision Analyst Inc that 24.2% of 16,000 respondents said that they completely trust Subway’s nutritional claims. This links back to service because Subway is bound to continually serve healthy food to consumers as consumers trust them.  Subway introduced “The Subway Card” to consumers first in U.S. and Canada (Doctor’s Associates Inc 2009). Outlets in Singapore have also recently started using “The Subway Card” as a service enhancement for their consumers. Malaysia outlets should also adopt this as this would help increase customer retention and loyalty. As Subway adopts a line ordering process, waiting time for consumers is greatly reduced and at peak periods, consumer would only need to wait maximum 8 minutes to get their food. 5. Strategic Options 1. Joint venture Malaysian government is focus on the health issue and encourage their people to be wiser in choosing healthy food. Joint venture with hospital would be one of the strategic options for Subway to expand their market shares. Subway offer nutritious fast food instead of burger and fries. Unlike its competitors such, as McDonald’s, Subway allows its franchisees 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’. Joint venture with hospital is a strategic option for expanding business as majority of the customer are patient, doctor, nurse and workers. Besides, hospital is a capable firm which allows Subway to continue their business growth in Malaysia through the high demand of healthcare systems. The joint venture has the strategic advantage for both partners. For Subway, by increasing number of people visiting hospital, Subway would be able to expand their target market by targeting the potential group of people at the right place which is value added. They mainly target on health conscious people by offering healthy option which is made to each person specifications and also enhanced on customer’s preference by offering options that include regular sub sandwiches. For hospital, Subway provides a wide range of food variety is also a way to enhance customer services in hospital. Joint ventures present new opportunities with risks that can be share. However, it limits the discretion, control and profit potential of partners, while demanding managerial attention and other resources that might be directed toward the firm’s mainstream activities. 2. Delivery service and 24-hours operation As the competition among fast food industry become more intensive, Subway has to develop with provision of convenience service to customer in order to be more competitive. Convenience service itself is no longer enough to distinguish the firm. At this time, Subway has to emerge delivery options and 24 hours operation time in order to create a satisfying experience for consumers. The delivery option is to cater those families with two working parents at home whereas 24 hours operation is to cater those workaholics who work more than 12 hours a day. Technology innovation is also bringing convenient by using Wi-Fi access. Wi-Fi enabled the outlet to cater student community. It also aims to penetrate student market by providing more networks accessible and also a study environment. Those three recommendations on providing convenience services have bringing the highest chance of reach different target segments as well as to boost up the sales performances. With increasing chances to exploring new market, threat of substitutes is also one of the areas to concern as competitor might follow the strategic option in their business plan. 3. Increase numbers of distribution outlets Stability in political issues provide a safety environment whereas the 10th Malaysia plan help to boost up economic and become a developed county in the coming future. These two factors are really a benefit point for Subway to increase in numbers of distribution outlets in Malaysia. Subway could expand their business throughout different state of Malaysia to increase the brand awareness. Increase in numbers of distribution outlet reduces the distance between target audience and Subway because it also helps to increase the numbers of people to see and keep in mind. As a result, it will slowly become top options from the eating lifestyle. 6. Best available strategic option The best available strategic option will be the joint venture with hospital. According to Johnson and Scholes (WEC, 2005) has identified six broad criteria against which to evaluate options. 1. Consistency Joint Venture between Subway and hospital will be executed in a long run basis. The strategic advantage for both companies has been made up a perfect match as a business partner. Hospital is one of the best business partners to liaise with as they have high credibility and reliability in terms of financial. 2. Suitability Suitability of joint venture between Subway and hospital are measured from different aspects. In the life cycle analysis, this strategic option is able to fit with the early and middle life cycle stage. Through the joint venture tactics, Subway will be able to position them in selling nutritious food and further enhance the image of healthy. Subway will increase in their business profile by achieving their competitive advantages. 3. Feasibility Hospital is supported by a big capital investment, with advanced technology and equipment firm. It is capable in skills and expertise, technical expertise, information and appropriate communication systems and so on. Hospital is capable to implement the strategy plan together with Subway as they are able to provide useful information and expertise. In addition, staff who working in hospital and total visitor are more than thousand people per day. This group of people would have the potential of buying Subway sandwiches as it is nutritious fast food which can cater to patient’s need and staff who only have a quick and packed lunch time. Therefore, joint venture between hospital and Subway is workable and feasible. 7. Conclusion Subway competitive advantages create opportunity to expand business in the marketplace. With all the good condition in Malaysia such as political stability, economic growth, shift in culture and technological advancement has bring advantage to Subway marketing strategy. Hence, Subway would able to cater their target audience and build a healthy brand image to the public easily. In addition, simplicity of concept and strong brand has proven to be cornerstones of Subway’s success. In the long term basis, Subway has the potential to be a leader in fast food industry as well as to sustain their market share in Malaysia. 8. References |Charles,Hirschman &Akbar,Aghajanian (1980) Journal of Southeast Asian Studies. Cambridge University Press on behalf of Department of History, | |National University of Singapore. Vol.11,No.1. Page 30 | |Doctor’s Associates Inc, 2009. Available at: [Accessed 22 September | |2010]. | |Doctor’s Associates Inc, 2010. Available at: [Accessed 22 September 2010]. | |Hiscott, G. (2005) Salt level in food overtakes poisoning as main concern of shoppers, The Independent, 17 March, p.8. | |History of Subway. [Accessed 20 August 2010] | |Journalistic Inc, 2010. Available at: [Accessed 22 September 2010]. | |Journalistic Inc, 2010. Available at: | | [Accessed 22 September | |2010]. | |Marhalim Abas Shahrim Tamrin (2010) PM unveils 10th Malaysia Plan, Malay Mail, 10th June 2010. | |Simply Subs Pte Ltd, 2010. Available at: [Accessed 22 September 2010]. | |WEC. (2006).Strategic management. WEC | Appendix 1.0: http://www.euromonitor.com/factfile.aspx'country=MY | |2006 |2007 |2008 |2009 |2010 | |Population Aged 65+: January 1st ('000) |1,149.51 |1,187.28 |1,227.83 |1,271.86 |1,320.51 | |Population Density (people per sq km) |81.08 |82.71 |84.12 |85.52 |86.90 | |GDP Measured at Purchasing Power Parity (million |329,381.31 |359,626.76 |384,327.26 |382,332.20 |410,765.85 | |international $) | | | | | | |Real GDP Growth (% growth) |5.85 |6.18 |4.63 |-1.72 |6.70 | |Inflation (% growth) |3.61 |2.03 |5.44 |0.58 |2.00 | |Consumer Expenditure (US$ million) |69,391.06 |83,900.41 |98,700.73 |94,713.42 |99,993.27 | |Annual Gross Income (US$ million) |108,721.22 |132,275.26 |156,880.35 |150,357.45 |158,764.44 | |Annual Disposable Income (US$ million) |81,803.24 |99,159.37 |117,040.64 |112,585.88 |119,107.38 | Appendix 2.0: http://www.euromonitor.com/factfile.aspx'country=MY |Lifestyle indicators | | |2006 |2007 |2008 |2009 |2010 | |Consumer Expenditure on Food (US$ million) |9,291.22 |10,875.77 |12,461.76 |11,703.98 |12,203.74 | |Internet Users ('000) |13,474.80 |14,792.70 |16,902.60 |18,155.97 |19,312.28 | |New Registrations of Passenger Cars ('000) |374.20 |370.00 |372.40 |355.96 | | Appendix 3.0 http://www.malaxi.com/population_size_age_structure2001_2010.html |  |Average annual Growth rate (%) | |  |2005 |% |2010 |% |8 MP |9MP | |Citizens |24.36 |65.9 |26.79 |100 |2.0 |1.9 | |Bumiputera |16.06 |25.3 |17.95 |67.0 |2.3 |2.2 | |Chinese |6.15 |7.5 |6.52 |24.3 |1.3 |1.2 | |Indian |1.83 |1.3 |1.97 |7.4 |1.6 |1.4 | |Others |0.32 | |0.35 |1.3 |2.6 |2.2 | |Non-citizens1 |2.39 | |2.17 | |11.0 |-1.8 | |Age Structure | | | | | | | |0 - 14 |8.72 |32.6 |9.18 |31.7 |1.7 |1.0 | |15 - 64 |16.88 |63.1 |18.42 |63.6 |3.0 |1.8 | |65 and above |1.15 |4.3 |1.36 |4.7 |4.3 |3.4 | |Dependency ration (%) |58.5 | |57.2 | | | | |Median age (years) |23.3 | |24.2 | | | | |Total fertility rate |2.76 | |2.48 | | | | |Bumiputera |3.18 | |2.80 | | | | |Chinese |2.19 | |2.04 | | | | |Indian |2.34 | |2.15 | | | | |Urban (%) |63.0 | |63.8 | | | | |Rural (%) |37.0 | |36.2 | | | | Source : Department of statistic and economic planning unit.