Subway Restaurants Small Business- Subway Restaurants Amidst

Subway Restaurants

Small Business- Subway Restaurants

Amidst the depths of the Great Recession, one restaurant chain managed to grow their revenues and bottom line with a unique marketing concept created by a franchise owner. The now famous "Five Dollar Foot Long" was launched by a Stuart Frankel, a Miami Subway Franchise owner, and is "a national phenomenon that has turbocharged Subway's performance" (Boyle, M. November 5, 2009). Subway restaurants with 2010 revenues of 15.2 billion, is the global leader in locations with 33,959 topping McDonald's 32,373 locales (Brandau, M. March 9, 2011). The Subway story is instrumental in analyzing the costs and benefits of the franchise concept, but also is useful in explicating the three fundamental questions of economics: what product or service to produce, how it is produced, and for which customers it is produced for (Mankiw, G.N. 2004).

What does Subway Produce?

Subway is the ninth best global franchise according to Entrepreneur magazine's 2011 rankings (Entrepreneur.com. Subway. 2011). Subway has evolved over the past decade from the simple sandwich shop around the corner into the industry's "undisputed leader in fast, healthy food" (Subway.com. 2011). Subway's basic tenant is "easy-to-prepare sandwiches made to order right in front of the customer, precisely the way they want - using freshly baked breads, select sauces and a variety of delicious toppings" (Subway.com. 2011). Since 2000 and the Jared Fogle phenomenon which saw an everyman lose 200 pounds on a Subway only diet (Colon, D. October 17, 2011); the restaurant chain has been "cemented in the American mindset as a healthier alternative to other fast-food restaurants" (Peterson, K. March 7, 2011). Add the healthy menu choices to Subway's recent emphasis on value, with the Five Dollar Foot Long; and Subway continues to prosper during a slow global economic recovery "at a time when other fast-food restaurants struggle" (Peterson, K. March 7, 2011). Interestingly, the Five Dollar phenomenon accounted for "$3.8 billion of Subway total sales and placed it among the top 10 fast-food brands in the U.S." (Boyle, M. November 5, 2009). A Subway franchise then offers its customers a compelling alternative to their competitors; a cost conscious, healthy, fast food alternative which is open for breakfast, lunch, and dinner.

How does Subway Produce?

How to produce, is really a question of strengthening the company's value chain; "the specific activities through which a firm can create a competitive advantage" (Quick MBA.com. N.D.). These actions: inbound logistics, operations, outbound logistics, marketing/sales, and service work together "to create value that exceeds the cost of providing the product or service thus generating profit margin" (Quick MBA.com. N.D.). Subway's value chain focus falls predominantly on the marketing/sales and service aspects; logically so because the sandwich transaction occurs in a short time frame and must result in satisfaction and produce repeat visits. In marketing/sales the Subway tag is fresh, healthy, and value for the money all of which have catapulted the company to financial success. "Subway spends $290 million per year on television advertisements" (Canter, L. February 10, 2011), in order to boost brand awareness for the company and generate foot traffic into their locales.

Once in the store the task for the Subway franchise owner is simple; customer satisfaction through delicious, made to order sandwiches, and excellent service. The focus on sales/marketing and service offer Subway the best opportunities for value chain augmentation and competitive advantage in a tough industry.

Who uses the Subway Product?

This third economic question is really tangential to the first question of what to produce? Succinctly, what product or service can an organization provide to the public that will drive customers into the store and result in a sale? Subway has answered this question since 1965 when Fred Deluca and Peter Buck opened their first sandwich shop, and ten years later when they began franchising the Subway name; provide great tasting food at a good value for customers (Entrepreneur.com. Subway. 2011). Subway for the last decade has developed this long-time theme, even more so with their health conscious choices and the seemingly recession proof Five Dollar Foot Long. Customers appreciate a brand that can offer a value added proposition, and with Subway the customer is buying a low cost, yet satisfying and healthy food choice. Subway has taken the most fundamentally basic food option and given it a boost; "sandwiches can be branded in many different ways to change with the times, Subway now emphasizes fresh food and value" (Peterson, K. March 7, 2011).

Franchise Benefits and Costs

A franchise in many ways is an entrepreneur in a box; the owner is in control of their own destiny, they must take risks to succeed, and the opportunity to make profit is available. The Subway franchise is not just for the independently wealthy as many restaurant chains tend to be. The start-up costs are relatively low with total investment between $84,800 and $258,800, the franchise fee of $15,000, ongoing royalty of eight percent, and a net worth requirement of $30,000 to $90,000 (Entrepreneur.com. Subway. 2011). Compare those figures with a McDonald's franchise which requires as an example $1,068,850 - $1,892,400 in total investment (Entrepreneur.com. McDonald's. 2011).

There is considerable upside to a Subway franchise including a strong brand, parent company advertising, and a growing presence around the globe. That said the Subway franchise does involve tradeoffs; notably that all ventures assume some risk of capital, the potential loss of investment, and the business not drawing enough customer traffic. These risks though are what define the entrepreneur's passion, the opportunity to succeed as a greater incentive than the potential pitfalls of failure. A Subway franchise provides a platform to capitalize on these opportunities for growth.