UNIVERSITY OF THE EAST – CALOOCAN CAMPUS COLLEGE OF BUSINESS ADMINISTRATION

CASE STUDY: THE RISE AND FALL OF SUBWAY

Submitted by
Jean Louis R. Samaniego

Submitted to
Maria Victoria Guevarra
Marketing Management
4th year 1M

1| Page
Table of Contents
Executive Summary ........................................................................................................ 3
Problem Statement .......................................................................................................... 5
Data Analysis .................................................................................................................. 6
Key Criteria ..................................................................................................................... 8
Alternatives analysis........................................................................................................ 9
Recommendation .......................................................................................................... 15
Action and Implementation Plan .................................................................................... 17
Exhibits.......................................................................................................................... 20
References .................................................................................................................... 22

2| Page
 Executive Summary

They started as Pete’s super submarines in Connecticut in 1965. Just after 3 years,

they rebranded it into “Subway”, which is what we know today. They redefined the fast

food industry as they pioneered the open kitchen format as the consumer can see how

their food is made. In1981, there were over 200 stores across the US and soon after, it

went international and started open stores on other countries. The foremost reason is that

it is one of the cheapest chains to franchise in the United States. It costs between

$100,000 to $200,000. Between 1990 to 1998 the expansion and opening of stores

skyrocketed from 5,000 to 13,200. Subway was ahead of its time by offering low carb

products in a relatively unhealthy industry. One of the most successful marketing tactic of

that decade.

In 2008, the whole world suffered a great economic recession. As a precautionary step,

they started to offer a cheap product that is the $5 foot-long. This move kept them afloat

during the recession. The dropping of sales started on 2014 and has been declining ever

since. The once unhealthy competitors started to offer healthier alternatives. Other

competitors were innovating while subway were stagnant. Another reason for their decline

was there were too many stores. The royalty fee stayed the same but the sales of each

stores were divided and that forced some of the stores to close down. The annual average

revenue dipped. One other reason, maybe the biggest one, was the face of subway was

charged with possession of child pornography and having intimate relations with minors.

People started buying from their competitors due to this atrocity. From 2016 – 2018 over

2,000 stores closed nationwide.

3| Page
As a way to salvage the franchise, in 2017, they started offering grants to the stores who

applied and qualified. The grant offers up to $10,000 for the purpose of remodeling of the

stores to attract more customers. At the end of 2020, over 10,000 stores across the United

States were remodeled and now part of the rebranding process. They also partnered with

Tastemade to offer new products. They started innovating flavors such as southern style

French dip, cheesy garlic bread, and so much more. They were testing over 100 flavors

each month and reevaluating 6 or 7 flavors to release to the public.

4| Page
 Problem Statement

The following statements are the issues or problems that Subway are facing:

1. Subway is an easy-to-franchise food chain with a cheap franchise fee, with this,

they have a lot of stores in one location that resulted in cannibalizing sales.

2. Subway lacks adaptability and innovation of the stores, marketing strategies, the

product offered, coping up with trends, deliveries, etc.

3. Mr. Jared Fogle (promoter/advertiser), the face and former spokesperson of the

company faced the crime of having intimate relations with minors and distributing

and receiving child pornography that leads them to loss of sales and closing

franchise stores.

4. Subway doesn’t have its own signature that is not easily copied by the

competitors resulting in

5. Subway’s ingredients are not unlike before and unlike competitors that are fresher

because Subway’s company decided that they are the one who should give the

ingredients to the franchise stores unlike before that they bought it to local stores.

5| Page
 Data Analysis

According to Statista, Global quick-service restaurant (QSR) Subway generated

around 10.2 billion U.S. dollars in sales in 2019 in the United States, a decrease of 210

million from the previous year (2020). Along with a decline in their sales comes a

decrease in the number of Subway stores from 27,000 stores in the U.S in 2015 and

became 23,800 stores in 2019. Subway lost a lot of sales in just 1 year and closed many

franchise stores in 4 years because of their lack of adaptability and innovation. If this will

continue and will not show any improvement, Subway will be bankrupt.

For many years, McDonald's has been a fierce rival to Subway as a chain of fast

food restaurants. According to Statista.com, the McDonald's Corporation operates more

than 39,198 restaurants across 113 nations. On the other hand, Subway is a popular

quick-service restaurant with 41,000 locations across 103 countries as of 2019. Both

businesses grow their businesses through franchising. According to McDonald's, 93%

6| Page
of restaurants are owned and operated by independent local business owners, whereas

all Subway locations are franchised.

7| Page
 Key Criteria

Before deciding what alternative is the best one to choose from, the following are

the criteria in making a decision:

1. Adaptability - To keep up with the trend and to a changing environment, Subway

should adapt to what is new. By this, they will gain more consumers and increase

their sales.

2. Remodeling - To have an appealing store, Subway should update its store's style

to satisfy its consumers. Consumers nowadays prefer to find a place that is

aesthetically pleasing for their social media pictures, etc.

3. Product quality - To be able to satisfy consumers, store owners must produce

product quality; fresh and healthier ingredients.

4. Product promotional advertisement - In order to increase their market, Subway

should hire an influencer and enhance the post on social media so that

consumers are aware of the products that they are offering.

5. Franchise store - Having a lot of franchise stores in an area resulted in

cannibalizing sales. To avoid this to happen, it is better for Subway to have a low

number of stores in one area and so that it will gain consumers equally and

properly.

8| Page
 Alternatives analysis

SWOT Analysis

Strengths Weaknesses

● No online presence and weak

● Health benefits
promotions
● Attainable starting of the franchise
● Outdated themed restaurant

● Satisfaction on Level of Service

Opportunities Threats

● Drive-through ● Competition

● Health Consciousness ● Damaging Reputation

● Home Delivery ● Overwhelmed Market

Strengths
● Health Benefits

They provide popular and superior healthy sub sandwiches compared to those

sold by other fast-food companies, such McDonald's. McDonald's and KFC prioritize

fried and oily dishes, which is the exact opposite of what Subway promotes. The quick

growth of Subway can also be attributed to the rising health issues associated with

consuming fast food, as consumers have begun to turn to healthier alternatives.

9| Page
 ● Attainable starting of the franchise

Franchisee staff training is organized, concise, and created to ensure quick

onboarding for new employees. All of this is done by the company that has been engaged

to represent the Subway brand. This assures that new restaurants can be opened without

difficulty in remote regions and that operations will run without interruption from various

restrictions.

Weaknesses
● No online presence and weak promotions

The company's absence online presence and promotions. Online presence is

crucial in today's digital age. In this area, Subway falls short.

● Outdated themed restaurant

The styles of Subway's restaurants have not been modified to reflect the times.

Customers experience low levels of satisfaction as a result, which causes them to

gradually change their preferences.

● Satisfaction on level of Service

There is no guarantee that all Subway locations around the world will provide

customers with the same level of service because staff training is outsourced to those

who have franchised. All establishments cannot share the same commitment.

10 | P a g e
Opportunities
● Drive-through

Additionally, one of the services provided by its competitors is a drive-through

location for working-class customers who need something fast. This is something that

Subway's restaurants also need to implement.

● Health Consciousness

In today's environment, people are becoming more and more health-conscious.

Therefore, Subway may take advantage of this and improve its reputation as a brand and

restaurant.

● Home Delivery

The majority of popular restaurants offer services like home delivery. Subway must

capitalize on this development and begin serving potential clients who enjoy home

delivery.

Threats
● Competition

Competitors like McDonald's, KFC, Taco Bell, and Wendy's, who also have

devoted customers, could pose a severe threat to Subway. Additionally, starting to offer

low-fat food options might drastically hurt Subway's consumer base.

● Damaging Reputation

Regarding the stale and unhealthy food that was being supplied to customers, the

brand has been the target of some lawsuits. People become hesitant to try the brand

again as a result, damaging its reputation.

11 | P a g e
 ● Overwhelmed Market

The Subway restaurant model is being adopted by new restaurants. As they can

better influence locals and meet their requirements in the regional basis, this could harm

the customer base.

Based on the SWOT analysis of Subway we come up with the alternatives that

Subway should consider to solve the problems/issues.

1. Innovating their Stores and Adapting Changes and Trends

To please its consumers, Subway should modernize their stores to make them

more appealing and Instagram-worthy. They should provide more comfortable seats, as

well as chairs for the elderly to make the furniture and general designs better. People's

preferences are changing as a result of the changing times; therefore, Subway needs to

adapt. Following trends helps keep your consumers happy. Instead of hiring a celebrity

who is only recognized to a small portion of the world's population, Subway should go for

someone who is well-known to the majority of people, like what McDonald’s did with

licensing with BTS, hence the BTS meals. Another significant adaptation they need is

that they need to implement drive-thru sections on stores for the travelling consumers.

Most of their competitors are implementing this, they should too.

2. Fresh Ingredients

Subway should permit franchise owners to purchase their ingredients in the local

store they are partnering with in order to maintain a consistent taste and fresh product.

Since there are so many franchise stores, Subway required that ingredients be should

ordered to them and it resulted in less-than-fresh ingredients because franchise owners

12 | P a g e
must wait at least a week to receive them. Since its primary offering is fresh and healthful

foods, Subway is likely to lose customers if it continues.

3. Online Promotion

We can see that Subway is currently active on social media, yet there is still

something lacking. They aren't doing a good job of boosting their posts; despite having

millions of Facebook and Instagram followers, the number of individuals who really "like"

their posts is quite small. To increase their market and connect with their target audience,

Subway should enhance their post and hire some relevant celebrities to the area.

4. Minimizing Franchise Stores

To avoid cannibalizing sales, Subway should limit the number of its franchise

outlets to only one or two and compete exclusively with other franchisees, not with its

co-franchisor. Reducing the number of stores will increase sales and consumer traffic

since they will have a greater perceived value, unlike earlier when there was a store one

block away and 10 within a half-mile. The individuals tasked with inspecting the location

should confirm that it is okay for the store to be placed there.

5. Good Brand Image

To ensure they don't have a past that could harm the reputation of the company,

those who should be using their items for advertising should be well profiled or have

their history checked. A good brand endorser will have credibility, charisma, and

knowledge of the product they will be promoting. Customers may be attracted by

choosing a reputable and positive endorser.

13 | P a g e
6. Quality Service
Before opening their location, Subway must have taught the franchisee. It ensures

uniformity across all franchise stores, enabling them to deliver high-quality services that

satisfy customers and have a consistent flavor

14 | P a g e
 Recommendation

These recommendations are what I believe Subway should do in order to grow

their consumer base, sales, and market share. I recommend Subway to include a drive-

thru so that consumers who are traveling or don't want to get out of the car may quickly

place an order. Additionally, the majority of fast food establishments offer drive-thru.

Fresh and healthful food is what Subway mostly offers, and its headquarters are in the

United States. People there are concerned about their health, and kids will pick up on

that too if their parents eat as well. Therefore, I believe that recommending a kids' menu

with a smaller sandwich size for the younger crowd. And with that, they also instruct the

kids to eat nutritious meals.

Another recommendation that best addresses the issues raised is for franchise

owners to downsize their stores to avoid cannibalizing sales. This will enable all

franchise owners to boost sales and profits. The next most crucial factor is their brand

image. Because they represent Subway and carry the name and image of the company,

any problems with the company or the endorser would negatively affect the entire

company. To avoid this, find the celebrity or person they believe is most suited to market

their products and the one who doesn't have a negative reputation; thorough profiling is

the method to do this.

The quality of the goods and services they provide should be put into practice in

order to please the clients. All Subways franchises will have consistent products and

services if franchise owners receive adequate training for at least two to three months

15 | P a g e
prior to establishing their locations. Customers will be satisfied as a result, which will

encourage brand loyalty

16 | P a g e
 Action and Implementation Plan

Promotional Tool Expenses

Activities Description Budget

Facebook P 100 per day can reach P 100 x 5 months = P

900-1,300 people. 15,000

Instagram P 1,500 per month, can P 1,500 x 4 months = P

reach up to 800-1,200 6,000

people per day.

17 | P a g e
 Influencers P 120,000 per post on P 120,000 x 3 Instagram

Instagram (Anne Curtis- post x 3 months =

Smith) with 18.5 million

P 1,080,000
followers in Instagram

Implementation Plan Schedule

Activities Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec TOTAL

Facebook P3, P3, P3, P3,

000 000 000 000
P3, P
000 15,000

Instagram P P P 6,000
1,50 1,50
P P
0 0
1,50 1,50
0 0

Influencer P P P P
360, 360, 360, 1,080,000
000 000 000

18 | P a g e
TOTAL P P P P P P P P P P P P P
360, 360, 360, 3,0 1,50 3,0 1,50 3,0 1,50 3,0 1,50 3,0 1,101,000
000 000 000 00 0 00 0 00 0 00 0 00

The implementation plan is composed of activities that Subway will do on an

annual basis. Subway will pay Facebook advertising that will cost P 3,000 a month and

it will do so for the 4th,6th, 8th,10th, 12thmonth of the year. That will have total of five (5)

months. Subway will also use paid advertising on Instagram and it will cost up to P 1,500

a month and it will run for the 5th, 7th, 9th, 11th month of the year and a total of four (4)

months. Lastly, Subway will pay influencers with 18.5 million followers on Instagram that

will cost P 120,000 per post, for a total of P360,000 or 3 posts per month. It will last up

to the 1st three (3) months of the year. In my chosen influencer, I chose her because

they are popular and known both locally and internationally. Also, she is a fit working

mom and it will be in line with her as she is a health conscious individual.

19 | P a g e
 Exhibits

These exhibits are proposing to Subway to launch the software application of the

company and their drive-thru concept.

Subway Mobile Application

Since most people live in the digital age and the Subway app is only available

internationally, it will be simple for local customers to place orders if they release it locally.

This application offers a brief description of the business, its items and prices, coupons,

contact details, and a list of its most recent products.

20 | P a g e
Drive-thru

Every franchise location that offers a drive-thru must have one so that customers

who are in a hurry and don't want to get out of their cars to enter the restaurant can do

so. For the benefit of the customers, the drive-thru design should also have an appealing

and contemporary concept. If you have a large space, you should have three steps: the

first step is for taking orders, the second is for payments, and the third is for receiving

the order. Small businesses should have two steps; the first step should be used for

taking orders and collecting payment, and the second step should be used for receiving

the order. Depending on the size of the order, the time allotment for receiving it should

be under five minutes

21 | P a g e
 References

Lock, S. (Aug 25, 2021). Subway restaurant sales US 2019 | Statista. Retrieved from

https://www.statista.com/statistics/464277/subway-us-sales/

Lock, S. (April 8, 2021). McDonald's: number of restaurants | Statista. Retrieved from

https://www.statista.com/statistics/219454/mcdonalds-restaurants-worldwide/

Lock, S. (June 22, 2021). Number of Subway stores worldwide | Statista. Retrieved from

https://www.statista.com/statistics/469379/number-of-subway-restaurants-

worldwide/

Knoema (November 27, 2020). McDonald's vs Subway: Which Has the Bigger Restaurant

Chain? - knoema.com. Retrieved from

https://knoema.com/infographics/yhawhcb/mcdonald-s-vssubway-which-has-the-

bigger-restaurant-chain

McDonald’s (n.d). Franchising Overview. Retrieved from

https://corporate.mcdonalds.com/corpmcd/franchising-overview.html

Lewis, R. (n.d). Subway | History & Facts. Retrieved from

https://www.britannica.com/topic/Subway-restaurant-chain

22 | P a g e