This paper examines Subway's sustainability practices within the context of the fast food industry. Beginning with an overview of the company's franchise model and global reach, the paper applies a PESTLE framework to identify the political, economic, social, technological, legal, and ecological drivers shaping Subway's environmental policies. It then surveys Subway's actual sustainability initiatives — including eco-stores, supply chain efficiency, and waste reduction — and benchmarks these against industry peers such as McDonald's and Starbucks. The paper concludes with an evaluation of program effectiveness and a set of practical recommendations for improving Subway's sustainability culture, supplier standards, and public reporting.
Subway was founded in 1965 when a medical student named Fred DeLuca opened a submarine sandwich shop in Connecticut to help pay for his education. The business became a full-time venture, and the company began to expand. Soon, the franchising model was adopted. Forty years later, Subway had grown to 34,000 locations around the world and had become one of the world's largest fast food restaurant chains (Subway.com, 2011). Most of the company's locations are in the United States (24,152) and Canada (2,616), but the company's global reach also creates interesting issues with respect to sustainability. Subway operates in a total of 98 countries.
Almost all Subway restaurants are franchised operations. The company supplies nearly everything that the franchisee needs, save for the labor. Subway provides its restaurants with frozen bread as well as packaged meats, cheeses, sauces, and vegetables, so that the individual restaurant only needs to bake the bread and assemble the sandwiches. The food is provided by an approved vendor, and all franchisees must order from the list of approved vendors (Subway.com, 2011). The company's other activities include national and regional advertising campaigns, franchisee support, and training. Because Subway franchisees receive standardized store designs, the company also bears some responsibility for the waste management practices of its outlets, as it has the means to initiate recycling and other sustainability-related programs.
This paper examines sustainability at Subway. It provides an overview of what Subway does with respect to sustainability, benchmarks those practices against industry best practices, and analyzes the company's sustainability program in that context. The paper also discusses the prevailing legal and regulatory environment in which the company operates, focusing on US operations since two-thirds of all Subway stores are located in the United States.
Sustainability is a broad concept, so this paper focuses on the key areas most applicable to fast food restaurants: waste management, water usage, ethical food sourcing, ethical treatment of workers, and public relations. Subway's policies with respect to each area are analyzed in the context of the prevailing regulatory environment and industry benchmark best practices.
The PESTLE analysis is a tool by which an organization's prevailing external environment can be understood. The analysis essentially provides an overview but does not in itself interpret the information presented. The interpretation of material contained in the PESTLE analysis is therefore left to the analyst. The elements of the PESTLE framework are the political, economic, social, technological, legal, and environmental aspects of the external environment (QuickMBA.com, 2010).
Political: The political environment is largely favorable to Subway's operations. The prevailing political sentiment in the United States is oriented toward minimal regulation of normal business activities, including restaurant operations. Politicians at various levels may at times emphasize environmental issues, but the prevailing political climate has effectively sidelined that debate. Internationally, the issue may be more prevalent. Even so, Subway's business is not typically subject to stringent environmental regulations, as the main concern of the political community is food safety — generally the purview of local politicians. Environmental regulations are highly variable; in some markets, notably those in Europe, these regulations may be stricter than in the domestic market.
Economic: The economic environment is important for Subway's business but is perhaps less central to sustainability issues. Subway is a low-cost provider of lunch and dinner, as with most of its fast food competition. Like other restaurants, Subway represents a discretionary expense for most consumers, giving the industry a unique dynamic with respect to price sensitivity. During the most recent economic downturn, many fast food chains saw their revenues decline. While some customers traded down from casual dining restaurants, others traded down from fast food to eating at home (The Economist, 2010). Subway is not a publicly traded company, so its sales figures are not published, but it is generally assumed that Subway's revenues track roughly in line with the broader industry. This suggests the company may have experienced revenue and profit declines during the recessionary period of 2008–2009, followed by a likely increase in both revenue and profit in 2010.
Social: The social environment is important with respect to sustainability. Corporations often take their lead on corporate social responsibility from Milton Friedman (1970), who argued that earning profits for shareholders is the paramount responsibility of business. As a result, social sentiment on sustainability is most important when it begins to affect profit. A firm's reputation with respect to social initiatives therefore matters. If Subway were to earn a poor reputation on sustainability and customers responded, the company might be compelled to act. At this point, however, there is little evidence to suggest that the social environment on sustainability is such that the profitability of Subway restaurants would be meaningfully impacted — positively or negatively — by its social responsibility reputation.
Technological: The technological environment is important to sustainability because most sustainability initiatives are fueled by technological innovation. As technology that contributes to waste management, energy and water use reduction, and similar efficiencies becomes more affordable, it is expected that more companies will adopt such measures.
Legal: The legal environment is important for Subway with respect to sustainability. The company must comply with the laws in each jurisdiction, particularly regarding its outputs such as waste, water, and energy. Subway leaves most of this compliance to its suppliers and franchisees, though it holds a high degree of bargaining power over both groups. The laws to which Subway restaurants are subject form a patchwork of regulations, which can at times create unique challenges for the company and its partners. Legislation that affects sustainability initiatives is generally increasing around the world, compelling companies to make frequent adjustments. Most laws are built around the premise that reducing the usage of inputs is desirable, so even where specific laws vary, Subway can build its strategy proactively around this general trend.
Ecological: The ecological environment is central to sustainability. Subway must understand the prevailing environmental issues and the different means of measuring its ecological impact. At present, climate change, energy usage, water usage, and waste management are arguably the four biggest issues for the restaurant industry. The relative importance of each varies by region. In the United States, waste management is probably the most pressing concern. In Europe, climate change is prominent. In the Middle East, water usage is of heightened importance.
There are several key drivers that can shape Subway's sustainability policies. The first is company leadership. All organizational change initiatives, including those grounded in sustainability principles, must be driven from the top down, or at least supported by organizational leadership. If the will of the company's leaders is to improve sustainability, the company will act accordingly.
The second key driver is the public, or the social environment. As noted, financial impact is the most important policy driver. Subway can be expected to perform a cost-benefit analysis with respect to any strategic initiative, including those relating to sustainability. The public can essentially vote with its dollars on Subway's social responsibility record. If the public does not care, Subway probably will not either; if the public does care, that provides direct financial motivation for the company to respond.
The third key driver is the legal environment. Even if the company chooses not to pursue proactive initiatives, it must react to changes in the law. Subway may be compelled to perform certain activities by regulation, and civil legal action could also prompt policy changes.
The fourth key driver is the franchisees. Franchisees are at the front line of the business and maintain the most direct contact with customers. Subway's franchise owners therefore have some bargaining power over head office. If they wish to see the company engage in more sustainability measures or improve its sustainability image, franchisees have the means to shape corporate policy on the matter.
With these internal and external drivers in play, Subway must read the external environment and set its policies accordingly. There are some issues that the company is well positioned to address, and Subway's sustainability policy should be measured against those issues, particularly in relation to industry standards.
On its website, Subway highlights several sustainability initiatives. The company works with Energy Star to reduce the energy usage of its stores by installing more efficient light bulbs, a project undertaken in partnership with Philips.
Subway has also developed a new store concept known as the eco-store. The first Subway eco-store opened in Kissimmee, Florida in 2007, and two more are open in Oregon. The eco-store is built according to standards set by the US Green Building Council, including Leadership in Energy and Environmental Design (LEED) certification. Features of these stores include high-efficiency HVAC systems, remote condensing units for refrigeration and ice-making, high-efficiency lighting, low-flow water fixtures, and décor made from sustainable resources, including recycled materials. While only three eco-stores were in existence at the time of writing, the company was developing more. Subway could also take the additional step of offering financial incentives to franchisees who open eco-stores, as most franchisees have opted not to pursue this format voluntarily.
Subway also has initiatives to address waste in its supply chain. The company worked with its main logistics supplier, IPC, to reduce the number of stages that goods pass through on their way from the vendor to the restaurant. By reducing goods handling, the carbon footprint of the process is lowered, and less inventory space is required (SCB, 2011). This is especially significant from an ecological perspective given the amount of Subway's inputs that are either frozen or refrigerated. According to Subway's website, this initiative has saved 1.7 million gallons of gas per year and eliminated 10,491 truckloads annually. This also saves Subway money — aligning financial incentives with environmental benefit. Additionally, Subway works to ensure that all delivery trucks are fully loaded, further maximizing distribution efficiency and eliminating waste (Subway.com, 2011).
As one of the world's largest fast food chains, Subway inevitably generates a large volume of waste. One of the company's sustainability goals is to reduce that waste on a product-by-product basis. Napkins are made from 100% recycled materials, saving an estimated 147,000 trees annually. Changes to the materials used for its plastic cutlery save 610,000 pounds of resins annually — the equivalent of 13,000 barrels of oil. The company has also made improvements in several other product areas (Subway.com, 2011).
"Comparing Subway to McDonald's, Starbucks, and niche chains"
"Financial, reputational, and community impact assessment"
"Reporting, sourcing, energy, and culture change proposals"
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