Executive Summary

In the following assignment, the fast food industry will be analysed using
the example of Subway. The focus will be on the industry and different
examples of Subway will be given for better understanding.
After describing the organisation Subway, the industry they are operating
in will be defined and described. To get information about the actual
market position of Subway, Porters five forces model will be used to
analyse the fast food industry. Through using Porters five forces a
company can get an overview about their position regarding to their
substitutes, the buyers and the suppliers. The forces inform about the
threat of new entrants and the rivalry between the competitors in the
industry. After describing the forces the assignment will be summarised
with a short overview about what was said before and conclusion which
shows the market position of Subway and their plans for the future.
The aim of the assignment is to get and overview about the actual market
situation in the fast food industry.
Content
Executive Summary.....................................................................................3
1. Company description of Subway............................................................5
2. Identification of the industry..................................................................5
3. Structure of the Fast food industry.........................................................5
3.1 Competitors......................................................................................5
3.2 Market..............................................................................................7
3.3 Suppliers..........................................................................................7
4. Porters five forces.................................................................................8
4.1 Threat of new entrants.....................................................................9
4.2 Power of buyers................................................................................9
4.3 Power of suppliers..........................................................................10
4.4 Threat of substitution.....................................................................10
4.5 Rivalry among the existing competitors.........................................11
5. Conclusion............................................................................................12
Reference list............................................................................................XIII
 1. Company description of Subway
First founded under the name `Petes Super Submarines` in 1965, Subway
is a U.S. based quick service restaurant chain known for its sub
sandwiches. The company is still headquartered in Connecticut and
remains privately held, while all Subway stores today are operated by
franchisees since the 1970s. (Statista, 2017)
The UK is amongst Canada and the United States one of the three biggest
markets for Subway, which counts as one of the most valuable restaurant
brands worldwide with franchises is 111 countries (Statista, 2017)
In 2015 Subway opened its 2,000th store in the UK and Ireland and became
a committed partner to the UK Governments Public Health Responsibility
Deal and the only QSR to endorse all eight nutritionally led pledges. (Anon,
2017)

2. Identification of the industry

The industry Subway finds itself in can be identified in general a s the fast
food industry serving the eating out market in franchised self service
restaurants at low cost and quick supply service. Although competitors to
companies in this sector can also be described as casual restaurants.
In the nearer future, there is expected to be a growing focus on addressing
consumer demands for convenience and diversification. (Fast Food in the
United Kingdom, 2017)

3. Structure of the Fast food industry

To get an overview about the structure of an industry, different points need
to be considered. In the following part of the assignment information about
the competitors, the market and the suppliers of the fast food industry will
be shown.
3.1 Competitors
Besides Subway, there are many other fast food chains for instance
Hungry Jacks, McDonalds and KFC. These companies are considered to be
in the market of fast food, while other casual dining restaurant also pose
as a competitor to Subway. In the next graph the prices for a comparable
meal in each restaurant will be shown and compared. The meals compared
consist of a product similar to the competitors in kcal and a Drink.
 Menu price
12.00

10.00

8.00

6.00

4.00

2.00

-
Subway Burger King Dominos KFC McDonalds Pizza Hut

Figure 1: Menu prices of different fast food restaurants (fastfoodprice.co.uk, 2017)

As shown in the graph, Subway is in the mid-price range among its

competitors with a menu price of 6,69. The cheapest meal compared is
available at McDonalds and comes at a price of 4,69. The highest meal price
in this comparison comes at 9,99 at Dominos. Preferring to the main competitors of
Subway, the bar chart above shows that the current biggest competitor is Burger King
because of the same price level.
 3.2 Market
After comparing Subway to other fast food companies, it is also important
to take a look at the overall market Subway finds itself in. The below chart
shows the UK Eating Out Market Value from 2008-2014 measured in bn.
It is obvious that the market of Eating Out in the UK hasnt changed a lot
in the last couple of years. This makes it even more important for
Companies like Subway to secure their existing consumer base and adapt
their menus and products to generate loyal customers. A stagnating
market means that close to no new customers are entering the market and

Figure 2: UK Eating Out Market Value 2008-2014 (st-ives.co.uk,2017)

the companies in it have to fight over their costumer in order to remain
successful.
3.3 Suppliers
To become and remain a successful competitor in the fast food market, it
is mostly important to acquire good suppliers. The mostly needed supplier
for a company in the fast food industry are food suppliers. Of those there
are many in the UK a company can choose from. Being selective about
those suppliers is mostly important for a fast food company because of the
customers bargaining power and desire of good food, which will also be
discussed later on. The below chart shows the Restaurant Choice Drivers
of a possible customer.
Figure 3: Restaurant Choice Drivers (st-ives.co.uk, 2017)

It is shown that the consumers main focus is on the quality of the food and
consistency of quality. This again states the importance of good suppliers,
as they represent the backbone of any company in the fast food sector.

4. Porters five forces

Harald Hungenberg (2014) says that the analysis with Porters five forces
is an analysis of a certain industry with the aim to get an overview about
the competition by considering various influencing variables (five forces).
A porters five forces analysis should show the development of a market to
help a company getting information about their chances in this market.
Hartmut Kreikebaum, Dirk Ulrich Gilbert and Michael Behnam (2011) add
that this analysis is a requirement to develop an appropriate strategy
regarding to the competitors in the market. Porters five forces are very
important to understand the strategy of a certain industry. The following
five forces describe the attractiveness of an industry and show possible
opportunities or threats. The five forces are meant for analysing a whole
industry and not just a certain company. (Prof. Kar, 2011)
As it can be seen in the chart above the Porters five forces are called
- Threat of new entrants, which describes the ability of new companies
entering the
market,
- Power of buyers, which describes the importance and influence of
customers on the
prices,
- Powers of suppliers, which gives information about the possibility of the
suppliers to
raise their prices at any time,
- Threat of substitution, which depends on the advantages or
disadvantages of possible
substitutes and
- Rivalry among existing competitors, which gets influenced by the other
four forces.
In the following part of the assignment, the five forces will be described
and referred to the fast food industry.

Figure 4: Porters five forces (successfulaquisitions.net)

4.1 Threat of new entrants

The first force, threat of new entrants, is extremely high in the fast food
segment. This is because there are very few barriers to entry, and setup
cost in a fast food eatery is low. In certain cases, typical Subway outlets
could open for as little as $204,030 (Subway Financial Information, 2014).
In addition, the experience dining in the fast food restaurant will define
Subway from its competitors, apart from the food (Bloom, Hummel, Aiello
& Li, 2012). Subway restaurants in the UK pride themselves on their clean
environment, fresh healthy food, quick service and vast varieties of
custom sandwich options. This made dining experiences at Subway very
refreshing and safe (Ottenbacher & Harrington, 2009). Unlike its
competitors like Hungry Jacks, McDonalds and KFC, Subway differentiated
itself as a fresh diet dining experience in an upbeat environment, enabling
it to succeed in the fast food industry easily among the health-conscious
people (Bloom, et al, 2012). Subway has held a remarkable market share
for a long time, but consumers love to try out new cuisines and are highly
likely to try other fast food brands (Min&Min, 2016).
4.2 Power of buyers
The second force, bargaining power of buyers (customers), is strong
because uniformed service and products in Subway will enable many
options for customers to choose from, thus giving more power to buyers.
Consumers of the fast food industry demand high quality food. Unique
dining experience and inexpensive prices (Kisang, Heesup & Soocheong,
2010): If Subway failed to identify customers needs and cultural
preferences, retaining consumers will be very challenging. At this point, to
meet market demands, Subway had come up with value packs, such as
selected 6-inch sandwich and a drink for $5. By providing lower prices,
value adding options and taking care of customers needs with the
introduction of the value pack, Subway was able to attract many more
customer bases (Sun & Nijite, 2012).
Although Subway may raise prices for other products, they must be careful
not to significantly exceed beyond their competitors or disregard
customers expectations (Weyant, 2011). To prevent customers from
leaving for cheaper and better fast food alternatives, Subway must
maintain a lower price than its competitors, yet retaining its refreshing
dining experience and high food quality (Bloom, et al, 2012). These days,
consumers are more inclined to cheaper products instead of being loyal to
one brand, therefore Subway have to work harder to achieve higher
market share, while at the same time manage the effect of strong buyers
& bargaining power.
4.3 Power of suppliers
The third force, bargaining Power of Subways suppliers, is weak, but they
have a huge impact on its market (Ottenbacher & Harrington, 2009). The
main ingredients for Subways sandwiches include meat, vegetables,
fruits, seasoning and sauces. There are many suppliers for these food
products throughout the UK that caters to other fast food brands such as
McDOnalds, Hungry Jacks and KFC as well (Leschewski & Weatherspoon,
2014). Because, these suppliers have little concentration or differentiation.
Thus, Subway could select from many similar suppliers that suit their
objectives best, and this would determine their products selling price
(Leschewski & Weatherspoon, 2014). Because the suppliers are vulnerable
to decision making in terms of price, Subway took the advantage to narrow
down their most efficient suppliers. Also being equipped with a growing
reputation and consumer numbers, they were able to well control their
suppliers power and build strong relationships with them to provide cheap
an quality fresh food in a timely manner (Weyant, 2011). Therefore,
suppliers force in the fast food industry is usually weak.
 4.4 Threat of substitution
The fourth force is threat of substitute, which means products outside the
fast food industry. In the UK, there is a high pressure of this force because
as convenience shops, casual restaurants, ready-made cooked food, and
healthy food stalls are plentiful in the market (Hokey & Hyesung, 2011).
They serve as substitutes to the Subway customers. There are also an
abundance of existing fast food brands such as McDonalds, KFC and
Hungry Jacks, thus the fast food industry is faced with a stiff competition
and high competitive rivalry (Kisang, Heesup & Soocheong, 2010).
According to the Porter model, the threat of substitutes commonly
influences a market with the fluctuations of prices between organisations.
However, the decision to eat at fast food restaurants are not so much
decided by the price factor, but more on the dining experience and foods
taste (Hokey & Hyesung, 2011). The average prices of a meal in a fast
food restaurant ranges from $7 to $11, thus, Subway will not lose
customers as long as they keep to this price range (Min & Min, 2013). The
real substitute threat comes in when consumers decided to eat at home,
or go to another fast food or casual restaurant. Because of these huge
amounts of options to dine at, this force is very high. Unlike fast food
restaurants, casual restaurants offer slightly higher prices, which may
cause consumers to have second thoughts about dining there and turn to
eating at home or at a fast food restaurant instead, in times of economic
crisis (Min & Min, 2013). However, casual restaurants are still the more
preferred dining choice, as they offer better and healthier quality in terms
of food preparation, giving them the advantage over fast food restaurants.
Dining experience was also more casual for family and friends of all ages
to hang out and talk over dinner. Organisations can reduce the threat of
substitutes by adjusting their menus according to what the market
demands. For instance, Subways competitor McDonalds offers spicy
vegetarian burger in India as most Indians are vegetarians and love spicy
food. McDonalds were also sensitive about their Hindu and Muslim
religions, and do not serve pork and beef products in their menu. The only
meat products offered are chicken and fish. By acting on what the market
desires, McDonalds was able to maintain a competitive advantage over
rivalling fast food chains and maintain their customers loyalty instead of
losing them to substitute restaurants such as Subway (Ogaard, Larsen &
Marnburg, 2005).
4.5 Rivalry among the existing competitors
The final force is the competition among rival firms. In the fast food
industry, this force is very high. Organisations can gain competitive
advantage in the following ways: building trust and relationships with
suppliers, increase product differentiation, altering prices and improve
distribution channel performance. Rivalry in the fast food industry
increases with a big amount of firms vying for the same pool of customer
base and market share. They include the fast food restaurant chains that
tried to look like a casual restaurant, and fast food brands that have not
been franchised. The demand for food is expanding with population growth
that needs food, hence the market could grow with numbers of
surrounding residents who moved away. Normally these factors will offset
each other. Fast food restaurants have relatively few high fixed costs, and
many variable costs. They generally pay the same fixed rent monthly.
Variables include wages, utilities and food ingredients. The less volume of
food the firm waste, the more inventory they could save and the more
successful they would be compared to firms that have more wastage.
However, food is perishable and firms would need to sell them off quickly
lest they become spoiled goods. As a result, saving up inventory would
counter the objective of preventing wastage. Firms then have to know the
exact amount to order, so they would counter the objective of preventing
wastage. Firms then have to know the exact amount to order, so they
would not have to face throwing food away or sell them off at very cheap
prices to get back their losses. Additionally, it too little food is ordered
from suppliers, firms may run the risk of losing profit when they could not
provide customers with the orders they desire.
Low switching cost is also a major factor when it comes to deciding which
restaurant to dine in. When a customer decides to have lunch at a
Japanese, Italian or Indian restaurant, he would consider the costs and
value of paying for better food at casual restaurants or stick to low costing
food fast (Sun & Nijite, 2012).
The two important changes that may impact the fast food industry are the
demand conditions and technological advancements. The first change
includes UKs technological development. In times of local production
shortcoming due to poor machineries used or limited resources, Subway
would be forced to develop new methods to improve and result in national
comparative advantage. For instance, the cooked food displayed at
Subway will get stale in 30 minutes if they are not served. If there were a
technological support in the UK that may prevent this issue from
happening, the fast food industry would be able to save a lot of food
wastage (Iqbal, Whitman & Malzahn, 2012). The fries cooked at McDonalds
and Hungry Jacks left unattended in the kitchen will be able to sustain
longer than 30 minutes before they are sold. The second change is
demand conditions. When the fast food product works better in local
markets than overseas, the local firms would commit more attention to
expand locally than overseas. This would result in a competitive
advantage when the fast food brand exports in future. For example, KFC
has proven to be more successful than McDonalds in China because
Chinese people have greater preference for fried chicken than
hamburgers. Hence, McDonalds invests slowly in China and focus their
concentration more on other parts of the world that have wider consumer
base (Qjaowei & Ping, 2014). The success of the fast food industry displays
tremendous competitive power and attractiveness of its market, leading to
worldwide demand for fast food everyday by people of all ages. It has
amplified the fast food identity via the use of marketing channels such as
cultural aspects, geographical and unique dining experiences (Annaraud,
Raab & Schrock, 2008).
In order to maintain its primary market place in an already existing food
sector, Subway has to appoint new expansion technics and modify the
existing structures in this rapidly changing business environment with
large competitors (Ogaard, Larsen & Marnburg, 2005). With its changing
menus and quick service Subway has continuously adapted to the fast
changing conditions. (Ottenbacher & Harrington, 2009)

5. Conclusion
With the high forces of competitors, substitutes, new entrants as well as
buyers Subways main goal should be to strengthen their focus on what
makes them unique. While most of Subways competitors share the same
strengths of hygienic food and quick service as well as a worldwide brand
recognition, only a few of them offer a menu that is close to Subways in
regards of customisation. Subways unique selling point are the vast
options when it comes to customising ones own sandwich. A lot of
varieties in vegetarian as well as non-vegetarian meals is what differs
Subway from its competitors and therefore what should be more
advertised.
Reference list
Books:
Strategisches Management; 2011; Harmut Kreikebaum, Dirk Ulrich Girbert,
Michael Behnam; 7th edition. Germany: Kohlhammer
Strategisches Management im Unternehmen, Ziele Prozesse Verfahren;
2014; Harald Hungenberg; 8th edition. Germany: Springer Gabler
Websites:
Business-fundas.com, Michael Porters 5 forces model. Prof. Kar, (online)
Available at: http://business-fundas.com/2011/michael-porters-5-forces-
model/ (Accessed on July 9, 2016)
Facts, S. (2017) Topic: Subway. [Online]. 2017. www.statista.com. Available
at: https://www.statista.com/topics/2582/subway/. (Accessed: 12 April
2017).
Anon (2017) [Online]. 2017. Available at: http://www.subway.com/en-
gb/aboutus/timeline. (Accessed: 13 April 2017).
Fast Food in the United Kingdom (2017) [Online]. 2017. Available at:
http://www.euromonitor.com/fast-food-in-the-united-kingdom/report.
(Accessed: 13 April 2017).
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Kisang, R., Heesup, H., & Soocheong, J. (2010). Relationships among
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Leschewski, A. M., & Weatherspoon, D. D. (2014). Fast Food Restaurant
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