Subway Company Strategy Analysis

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Introduction

In the United States, the fast-food restaurant industry is well-developed and includes numerous companies that compete over customers and business performance excellence. Subway is one of the largest fast-food restaurant chains that operate within the USA and abroad. The company has a relatively long 50-year history of operating as a submarine sandwich shop that provides fresh and affordable food for customers promptly. The first restaurant was launched by Peter Buck and Fred DeLuca in 1965 and has expanded to “the world’s largest submarine sandwich chain with more than 40,000 locations around the world” (“Subway history,” n. d., para. 7). The strategic development of the firm depends on the industry environment, competition, and the decision-making approaches utilized by the company management to obtain a competitive advantage. This report is aimed at analyzing the fast-food restaurant industry in the USA with the assessment of Subway’s strategic positioning among its competitors, its segmentation strategies, and currently faced challenges.

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Industry Analysis

The industry of fast-food restaurants and sandwich shops constitutes a large market share in the United States. The firms operating in this industry specialize in preparing and selling quick food and beverages. In fast-food restaurants “patrons pay for quick-service food products before eating;” the food might be “consumed on-site, taken out or delivered” (“Fast food restaurants industry in the US – market research report,” 2020, para. 6). Non-alcoholic beverages are also served in such facilities. No snack shops or coffee shops are included in the fast-food restaurant industry. The dominating industry activities include “operating quick-service restaurants, operating fast food services, and operating drive-thru and take-out facilities” (“Fast food restaurants industry in the US – market research report,” 2020, para. 7). Thus, the restaurants provide easy-to-access affordable food for people who live busy lives.

The economic statistical data demonstrates the industry scope and its major characteristics. The market size of the industry is estimated at approximately $240bn, which is a large share of the US economy. 280,030 businesses are operating in the fast-food industry in the USA with an employment rate of 4,334,326, and the majority of the competing firms obtain a market share greater than 5% (“Fast food restaurants industry in the US – market research report,” 2020). The statistical data indicates that competitive advantages are distributed evenly across the industry. The popularity of fast-food restaurants grows, old constituents solidify their positions among competitors, and new entrants introduce new competition to the sphere. However, the recent epidemic-related events that caused a lockdown on a global scale have disrupted the rapidly growing business revenue. The market size decreased by 13% in 2020, which is a significantly low indicator in comparison to the continuous increase observed throughout the latest decade (“Fast food restaurants industry in the US – market research report,” 2020). For a particular company to succeed in obtaining a competitive advantage, it should identify and validate its strategic positioning.

When evaluating the overall attractiveness of an industry, one might apply Porter’s five forces model. According to Oneren et al. (2017), the five major forces that predetermine the perspectives and opportunities of a firm in the industry include new entrants, suppliers, buyers, substitutes, and competitors. New entrants are not a significant threat to the industry since the dominating chains have occupied a solid place in the industry. A wide range of suppliers allows for rapid development and a sufficient supply of resources to the food industry. Buyers are likely to use the services of the firms in the fast-food industry due to the popularity and convenience of such kinds of facilities. Subway competes with such fast food restaurant chains as McDonald’s, Wendy’s, KFC, Burger King, and others (“Subway – statistics & facts,” 2019). Consequently, either of these large competitors might be considered a substitute for Subway. Nonetheless, the industry is rather attractive for the company since it provides multiple opportunities and limited threats.

Strategic Positioning

The high number of competitors and the overall popularity of the industry among customers impose the need for companies to validate their strategic positioning. To analyze the strategic positioning of Subway among these competitors, one should conduct a PEST analysis to investigate the interplay of the main influential forces (Sammut‐Bonnici & Galea, 2015). Since the Subway worldwide chain of fast-food restaurants functions in multiple countries, it complies with the legal regulations and laws about business and food production. Economic forces also play a significant role in Subway’s operations since the trends in the US, and global economies trigger corresponding decisions inside the company. The latest economic crisis caused by the COVID-19 pandemic has diminished the revenue of the whole industry and imposed the need for differentiating services to meet the demands of time (“Fast food restaurants industry in the US – market research report,” 2020). Subway is flexible in addressing meeting customers’ preferences and adjusts its service to obtain a competitive advantage.

Social factors are essential to business operations in the sphere of fast-food restaurants. According to Sammut‐Bonnici & Galea (2015), “demographics, psychographics, and lifestyle, consumer perception of brands, consumer purchasing behavior,” and other aspects have a substantial effect on advertising, pricing, and marketing in general (p. 5). In response to the social environment and to obtain a competitive advantage, Subway’s strategic positioning is characterized by a flexible pricing system, where the cost of menu items differs depending on the area. Also, the menu is developed to incorporate the tastes and preferences of consumers of all ages and demographic groups to enhance customer flow. The loyalty of consumers is ensured by the franchised corporate culture that is maintained throughout the worldwide chain and the high-quality services (“Subway history,” n. d.). Finally, technological factors are addressed through innovative business solutions and product development based on the recent evidence on fresh and nutritious foods that appeal to consumers and allow for winning competitive advantage.

Structural, Industry-Level Features, and Strategic Positioning

Within the structure of the industry, Subway functions as a leading chain of submarine sandwich shops and occupies a solid competitive place among its competitors. The strategic positioning, therefore, is manifested through the continuous integration of improvement policies to exceed the expectations of the customers and win their long-term loyalty. The company creates the value of atmospheric places where affordable and nutritious food is served quickly. The integration of continuous quality improvement and price adjustment allows Subway to occupy its unique place in the structure of the fast-food restaurant industry.

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Market Segment with the Largest Competitive Advantage

The company does not display a wide range of separate services or product categories that differ across target populations. However, despite the lack of extensive market segmentation techniques, Subway differentiates its menu toward the needs and preferences of its largest segment. Indeed, the share of American consumers visiting Subway restaurants does not significantly differ among age groups, where individuals aged 18-29, 30-49, and 50-64 constitute approximately one-third of the general visitors each (“Subway – statistics & facts,” 2019). However, to the analysis of the menu of the firm, its marketing techniques, and the overall image, the market segment that provides Subway the largest competitive advantage is young working adults who do not carry home-cooked meals and need quickly served food to consume during their busy days. Moreover, they constitute relatively the largest age group of Subway’s visitors, which is 1-2 percent higher than the others.

Market Segment Analysis

The company’s marketing techniques using the Internet and social media contribute to business growth worldwide. The statistical data indicate that Subway is a strong competitor among top fast-food competitors in the United Kingdom, the USA, and Canada (“Subway – statistics & facts,” 2019). Therefore, regular advertising and the utilization of social media benefit the business. As for the activities that impact the cost of the products served by Subway, they include discount systems, loyalty rewards, and special offers that alter the cost and increase the likelihood of clients returning to Subway. When comparing menu differentiation for different market segments and advertising techniques with the dissemination of quality improvement strategies and discount systems, one might identify some complementarities between them. Firstly, menu differentiation and advertising aim to satisfy the customers’ needs and attract as many buyers as possible. Secondly, the quality improvement policy and discount systems are similar in the attempt to obtain a competitive advantage by guaranteeing competitive prices and high quality of service.

When comparing the segmentation strategies for adults with those utilized for children, one might observe some differences in competitive advantage. Indeed, when targeting children, Subway, like the majority of the firms operating in the industry of fast-food restaurants, uses visual appeal, a variety of menus, and messaging about the nutritious properties of the served food (Dalton et al., 2017). Overall, the competitive advantage does not significantly differ between the two analyzed market segments. In general, the analysis of the firm’s strategies and achievements, the franchise of the interior, production, and service allow Subway to eliminate the threat of being imitated by competitors or substitutes (“Subway – statistics & facts,” 2019). Nonetheless, the overall similarities between all the fast-food competitors expose Subway’s initiatives to others, which is why the firm must strive for continuous improvement.

The Challenges the Firm Currently Faces

Given the conducted analysis of the fast-food restaurant industry and the performance of Subway in the competitive environment, the firm has occupied a strong competitive position. However, there are several threats that the firm currently faces. Firstly, growing competition from large companies operating in the industry of fast food imposes a threat of being substituted or imitated. Also, the COVID-19 pandemic causes a decreased flow of customers and sets additional challenges to finding alternative ways of food distribution and delivery while preserving social distance and other epidemic preventative interventions. Therefore, Subway should maintain a policy of a high-quality, affordable, and customer-oriented business that finds sustainable solutions for enhanced competitive advantage across all market segments.

References

Dalton, M. A., Longacre, M. R., Drake, K. M., Cleveland, L. P., Harris, J. L., Hendricks, K., & Titus, L. J. (2017). Child-targeted fast-food television advertising exposure is linked with fast-food intake among pre-school children. Public Health Nutrition, 20(9), 1548 – 1556.

Fast food restaurants industry in the US – market research report. (2020).

Oneren, M., Arar, T., & Yurdakul, G. (2017). Developing competitive strategies based on SWOT analysis in Porter’s five forces model by DANP. Journal Of Business Research-Turk, 9(2), 511 – 528.

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Subway history. (n. d.).

Subway – statistics & facts. (2019).

Sammut‐Bonnici, T., & Galea, D. (2015). PEST analysis. Wiley Encyclopedia of Management, 1 – 7. Web.

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