SUBWAY MARKET RESEARCH, Study notes of Marketing

Download SUBWAY MARKET RESEARCH and more Study notes Marketing in PDF only on Docsity!

Saimaa University of Applied Sciences Business Administration Lappeenranta Corporate and Financial Law

Riina Liutu

SUBWAY MARKET RESEARCH

Bachelor‟s Thesis 2010

ABSTRACT

Riina Liutu Subway Market Research, 114 pages, 7 appendices Saimaa University of Applied Sciences, Lappeenranta Degree Programme in Business Administration Corporate and Financial Law Bachelor‟s Thesis 2010 Instructor: Sari Jokimies Manager of Degree Program

The main goal of this thesis is to find out whether Danish entrepreneurs can become successful in the Danish market as Subway franchisees. Three specific cities, namely Århus, Horsens and Vejle, are looked at in depth. In the thesis, these three cities will represent the Danish market. An evaluation of the most suitable location for a Subway restaurant is made. To reach the above objective, the Subway franchising concept, the market situation, the customers and the competitive situation will be analyzed and evaluated.

In order to understand the market in which the franchisee would operate, the size of the market, historic growth, potential growth, trends and macro environmental factors will be analyzed. The analyses will show that the fast food market is mature, and that it still holds some growth potential.

To find out who the potential customers of the Subway franchisee might be, a survey was made. A questionnaire was used as a main tool to analyze customer preferences and the prospects of opening a Subway restaurant in Århus, Horsens or Vejle. After evaluating the results of the questionnaire, Horsens was pointed out as the most attractive and suitable city to open a new Subway restaurant.

The competitive situation is also analyzed. In doing so, the overall competitive situation within the fast food industry is assessed. Furthermore, three main competitors, namely McDonald‟s, Burger King and Sunset Boulevard, are analyzed in depth.

The findings in the thesis show that the competition is fierce. There are many players within the fast food industry, and Subway is not well represented since it currently has only two restaurants in the Danish market. In addition, due to the expected slowdown in market growth, the competition can be expected to increase.

Keywords: Denmark, Subway, Market Research, Competition, Customers

CONTENTS

• 1 INTRODUCTION
  • 1.1 Background of the research
  • 1.2 Purpose........................................................................................................
  • 1.3 Research method
    • 1.3.1 Quantitative and qualitative research
  • 1.4 Limitations and structure
• 2 THEORETICAL FRAMEWORK
  • 2.1 PEST-Analysis
  • 2.2 7-S framework of McKinsey
  • 2.3 AIDA
  • 2.4 SWOT-analysis
  • 2.5 Marketing mix.............................................................................................
  • 2.6 Porter‟s five forces
• 3 SUBWAY AND THE FRANCHISING CONCEPT
  • 3.1 History of the Subway chain.......................................................................
  • 3.2 Current product portfolio
  • 3.3 Key competences
  • 3.4 Subway‟s current strategies
  • 3.5 Franchisee benefits from Subway
  • 3.6 Advantages and disadvantages of the Subway franchise concept
• 4 THE FAST FOOD MARKET
  • 4.1 Market size.................................................................................................
  • 4.2 Market growth
  • 4.3 Trends
  • 4.4 Macro environmental factors
    • 4.4.1 Political Environment
    • 4.4.2 Economical Environment
    • 4.4.3 Socio-Cultural Environment
    • 4.4.4 Demographical Environment
  • 4.5 Attractiveness of the Danish fast food market
• 5 THE QUESTIONNAIRE
  • 5.1 Test of the questionnaire
  • 5.2 The final questionnaire
• 6 COMPETITIVE SITUATION
  • 6.1 Main competitors........................................................................................

6.2 Strength of the competition ........................................................................ 44 6.3 Competitor analysis ................................................................................... 46 6.4 Conclusion of the competitive situation ...................................................... 51 7 THE CUSTOMERS............................................................................................ 52 7.1 Buying behavior ......................................................................................... 52 7.2 Target group .............................................................................................. 57 7.3 Data analysis ............................................................................................. 61 7.3.1 Horsens ................................................................................................. 61 7.3.2 Vejle....................................................................................................... 66 7.3.3 Århus ..................................................................................................... 70 7.4 Marketing-Mix ............................................................................................ 74 8 CONCLUSION AND RECOMMONDATIONS .................................................... 80 8.1 Conclusion ................................................................................................. 80 8.2 Recommendations ..................................................................................... 81 REFERENCES ......................................................................................................... 83

APPENDICES Appendix 1 The old questionnaire Appendix 2 The final questionnaire Appendix 3 Forecast Sales in Fast Food by Subsector: sales in DKr million Appendix 4 Forecast Sales in Fast Food by Subsector: in terms of value growth Appendix 5 Fast Food by Subsector, sales in DKr million Appendix 6 Fast Food by Subsector, in terms of value growth Appendix 7 Fast Food Denmark, Euromonitor international

1.2 Purpose

The purpose of this thesis is to find out how attractive the Danish market is for entrepreneurs to take up the Subway franchise concept. This means that the focus of the thesis will be to analyze the Danish market and the opportunities that Subway offers the entrepreneurs. The objective of the thesis is to find out which is the most attractive location for a Subway restaurant. Three different cities are analyzed namely Århus, Horsens and Vejle. The topic was chosen because it is interesting that Subway is not well-represented in Denmark.

This thesis is made to find an answer for the following main question: Can entrepreneurs take up the Subway franchise concept and become successful in the Danish market?

The franchising concept of Subway :

A company needs to know which strings it can play on, meaning that it has to know what its key competences and its overall capabilities are. By having this knowledge, the company can decide on doing business within areas where it is most capable. To find out the benefits of doing business with Subway, the following main question could be asked:

What are the pros and cons of cooperating with Subway?

External analyses:

The market

For a company it is important to know the market it is operating in. Knowing the possibilities for entering the market and the potential customers are vital. Furthermore it is a good idea to look at the macro environmental factors that are influencing the market. To get a better knowledge about a market, the following main question is asked:

How attractive is the market for fast food?

Customers

A company needs to know who its customers are. To know the target group and its preferences can be a huge advantage. Knowing this would make it easier to make decisions concerning products, service and promotion. To get to know the customers and their buying behavior, there is one main question namely:

What is the target group?

Competition:

It is important to know something about the competition within a given market, as it serves as an indicator as to how difficult (or easy) it is to operate within that market. Fierce competition will undoubtedly affect for example marketing expenses, thus it is useful to know what kind of competition one can be expected to face within that market. To cover this area the following main question is asked:

How is the competitive situation?

1.3 Research method

Market research is about gathering information about customers, competition, market and its trends. Discussions, surveys and questionnaires are some of the tools for market research. Many people confuse market research and marketing research. Market research is simply a research into a specific market. It is a very narrow concept. Marketing research is much broader. It not only includes 'market' research, but also areas such as research into new products, or modes of distribution such as via the Internet. ( Marketing teacher)

The market research process has seven stages. First stage is to define the marketing problems such as low awareness of the company or company image problems. Second stage is to set objectives, budget and timetables. The researcher has to know how much money and time he is willing to spend and also what the main goal of the market research is. The next stage is to select the research types and methods. There are two ways to do it, either secondary research which involves analyzing information that has been gathered already or primary research which involves collecting brand new information. Primary research can be qualitative or

natural/environmental factors will not be covered, as they are not considered to be of importance in this context.

In the field of competitors, the analysis will narrow down the competitors to the three most important ones; Mc Donald‟s, Burger King and Sunset Boulevard. Generally these are the three competitors that pose the biggest threat. Obviously, there are a lot of smaller competitors like pizzerias, hot dog stands, kebab houses, Chinese take-away etc. but these will not be covered.

The three cities Århus, Horsens and Vejle will in this thesis represent the Danish market. There are not enough resources available to look at every major city in Denmark.

The thesis is divided into eight chapters, introduction, theoretical framework, Subway and the franchising concept, the fast food market, the questionnaire, competitive situation and the customers, which all leads to conclusion and recommendations.

2 THEORETICAL FRAMEWORK

In this chapter the theoretical framework of the thesis will be looked at. This will give the reader a better image of what models and different theories are used in this thesis.

2.1 PEST-Analysis

It is a huge advantage for a company that it considers its environment before beginning the marketing process. Letters PEST comes from words political factors, economic factors, social factors and technological factors. Although it is quite hard for companies to control or influence the macro-environment, PEST is one of the tools that help with becoming acquainted with the macro-environment. There is also a PESTEL analysis which includes environmental factors and technical factors but these two factors are not covered in this thesis.

Political factors can have either a huge impact or low impact depending on the way business operates. It includes areas like tax policies, employment law and consumer

protection. Political factors include government‟s decisions and legal issues. (MindTools, PEST analysis)

Economic factors have an effect on all businesses, nationally and globally. Economic factors affect the purchasing power of the customers and the firm‟s cost of capital. It includes areas like exchange rates, economic growth and inflation rate.

Social factors include also demographic changes. There are many factors that affect our lifestyle since we live in a society. Some important factors are family, religion, education and locality. Population growth rate, age distribution and career attitudes are all included in social factors.

Technology is driving the businesses and reduces time to market. Some technological factors are research and development activity, automation and stakeholder expectation.

2.2 7-S framework of McKinsey

McKinsey‟s 7-S model was found out in the early 1980s. It has been a widely used tool and well-known among people since it was created. This model includes seven factors; strategy, structure, systems, shared values, style, staff and skills. The first three factors are called the hard elements and the four last ones the soft elements. Hard elements are easily identified while soft elements are fuzzier. The 7-S model is used when current situation and future situation need to be analyzed. (McKinsey 7S Framework)

2.3 AIDA

Aida stands for attention, interest, desire and action. It is a process of getting customers to purchase products and services. It is believed that a consumer has to pass these steps before buying a product or service. First the concept has to get customers‟ attention by advertising and promotional campaigns. After they have gotten the attention the interest rate has to rise. This is one of the most difficult tasks during the process. When the customer finds out something interesting he wants to take a closer look at the product or service. The product or service must be packaged and priced right. If everything goes how the company wants, the customer will act on his desire and buy the product or service. (Hollensen 2003, 565)

can promote their products or services, like newspapers, Internet and television. Promotion is one of the most important marketing mix tools. (USC Marshall)

2.6 Porter’s five forces

Michael Porter came up with a framework called Porter‟s five forces. Porter wanted to clarify that an industry is being influenced by five different forces. They are rivalry, buyer power, threat of entry, supplier power and threat of substitutes. This framework helps companies understand the strength of current competitive situation and also the strength of a position the company likes to move into. (Hollensen 2003, 74-79)

It is important to a company to know how many competitors there are in the market. If there are only few competitors, then you have a lot of power and vice versa, the more competitors there are the less power you have. It also depends on what competitors are offering to their customers. Customers do not come to you if they do not get a good deal from you. (ibid. 74-79)

The number of buyers has a huge effect on this one but also how powerful a buyer is. In this kind of market situation the buyers are the ones who set the price. (ibid. 74-

New companies are entering the market all the time. Every company should be able to enter and exit the market whenever they want. In reality there are some factors which can make the entering really hard, for example, the cost of entry vary from business to business, the competition in the market and the government which creates barriers. (ibid. 74-79)

Suppliers play a big role also. Production companies need raw materials and they get them from suppliers. This involves a relationship between the buyer and the supplier. If there are only few suppliers in the market, suppliers can sell their materials at a high price and buyers cannot do anything about it. (ibid. 74-79)

In this model, substitute products or services refer to products or services in other industries. Companies have to think about how easily their products or services can be substituted. So in other words, companies‟ owners have to look at also what their

competitors are doing and what other types of products or services customers could buy from them instead. (Hollensen 2003, 74-79)

3 SUBWAY AND THE FRANCHISING CONCEPT

In the following chapter, a closer look will be taken at Subway. First the history and the current product portfolio will be discussed and later on the key competences, current strategies and franchisee benefits.

3.1 History of the Subway chain

Subway, the world‟s largest restaurant chain, was founded in 1965. The founder, 17- year-old Fred DeLuca, wanted to go to college, but he could not afford it. A friend of DeLuca‟s, Peter Buck, suggested him to open a small submarine sandwich shop so he could earn some money. At first Deluca was not excited about the idea, but after thinking about it for a while, he became more interested. Buck promised to invest 1000$. In the summer of 1965, Pete‟s Super Submarines opened in Connecticut, USA. (Subway History 2009, Subway Studentguide)

Ten years later, in 1974, DeLuca and Buck decided to turn their business into a franchise. Due to the lack of time and financial restraints, they did not want to hire any consultants. They were determined to start finding franchisees by themselves. Brian Dixon, a friend of Fred DeLuca‟s, was the very first Subway franchisee. The restaurant was located in Wallingford, Connecticut, and it was opened in the summer of 1974. The first international Subway restaurant was opened in Bahrain three years later in 1977. During the last 44 years, Subway has expanded rapidly. Nowadays there are more than 30,000 Subway restaurants in 90 countries (1st^ june 2009). (Subway History 2009, Subway Studentguide)

The year 1974 was a big change for Subway. Turning into a franchise company opened many doors. 35 years ago when DeLuca and Buck decided to go into franchising, Subway was a small restaurant company. It was a big risk, but they wanted to take it and it was worth it. As it can be seen on the chart below, Subway keeps growing and it was the world‟s fastest growing fast food chain in 2009. (Subway History 2009, Subway Studentguide)

clubs for its members, the sub club and the subway card; here subway card refers to a club name. In the sub club people earn a different amount of stamps depending on what they order. Being a subway-card owner, people earn a different amount of points depending on how much money they spent. (Subway History 2009, Subway Studentguide)

The franchise chain Subway employs many people. There are already more than 600 workers in Connecticut where Subway‟s headquarters and Doctor‟s Associates Inc. (the franchisor of Subway restaurants) are situated. Approximately 150, people worldwide work for Subway. In 2006 Subway‟s revenue jumped to 9.05 billion dollars (€ 6,85 billion), and it still keeps growing rapidly. Fred DeLuca has been a leader of the chain for 44 years. (Subway, history 2009)

Chart 2 Subway restaurants in the world (Subway, Around the world)

As can be seen on the graph, most of the Subway restaurants are located in North America. The second largest amount is situated in Europe. Here most of the Subways are located in United Kingdom (1,322 restaurants), and the Subway chain aims to have more than 2,010 restaurants in the United Kingdom and Ireland by

2010. Africa is the continent with the least restaurants. In Denmark, Subway was represented in the 1990s. There were more than 20 Subway sandwich restaurants around the country, but 10 years ago, they withdrew all the restaurants from the

Danish market. In 2009 two Subway restaurants have been reopened in Denmark, one in Aalborg and one in Sønderborg. (Subway, history 2009)

3.2 Current product portfolio

Subway offers customers a wide selection of sandwiches also called “subs”. Sandwiches are always freshly baked, and customers can choose if they want their sandwiches toasted or non-toasted. There are two different sizes of sandwiches, a six inch. (15cm) and a foot long (30cm). Subway also serves soft drinks along with the sandwiches. Cookies, chips, coffee and chocolate can be ordered as accompaniments.

In Denmark, there are four types of bread to choose from, the Italian white bread, the honey oat bread, the parmesan/oregano bread and the 9-grain wheat. The 9-grain bread is the only bread, which contains animal product if honey is considered an animal-derived ingredient. Wheat free bread cannot be found in Danish Subways. All of the breads are milk free except the parmesan/oregano bread, which contains cheese. (Subway menu 2009)

Subway has a huge sandwich selection. There are more than two million different sandwich combinations. Healthy and light subs can be enjoyed in Subway restaurants as well. This fast food chain offers sandwiches, which contain only six grams of fat or less. These sandwiches became more famous after “a Subway guy” Jared S. Fogle lost weight of 240 pounds (109 kilos) due to the Subway diet (check chapter 3.1 – history of the Subway chain). On the Danish menu, customers can find 15 different sandwiches. In the following, a variety of the menu will be presented. (Subway menu 2009)

Customers decide what they want their sandwiches to include. The filling can be ordered double or some things can be left out. The Subway chain also has a wide range of dressings that can be chosen from. The customer can choose between take-away and enjoying the meal at the restaurant. Any sub can also be turned into a salad. Salads were added to the menu in 1980.In Denmark, Subway does not have any special menu for children.

The Analysis

Strategy

The main goal of the Subway chain is to be ranked the number one restaurant by consumers and in every market that Subway serves. Furthermore, Subway does not specifically select the new countries it enters. All Subway restaurants are owned and operated by local business people, who choose the place for their Subway restaurant. The franchisee buys the right to run a Subway franchise according to Doctor‟s Associates Inc contract. A development team will work with the new entrepreneur to provide assistance in opening and running a Subway restaurant within a new market. Subway will continuously provide assistance to make sure that the franchisee gets all the basic information. (Subway‟s Marketing strategies 2009)

Structure

The Subway chain is the biggest franchise chain in the world, and it employs about 150.000 people in more than 30,000 locations in 90 countries around the world. Due to the size of the operation, Subway has more than 700 development and support people employed at the chains world headquarters in Milford, Connecticut. The company is divided into the following departments, franchise sales, new business development, Subway real estate Corp, store design, franchisee services, operations, creative services, customer care, public and community relations, publications, profit building and local marketing, meeting and events, research and development and Subway franchisee advertising fund trust. (Subway Departments and Organizations 2009)

Subway is a registered trademark of Doctor‟s Associates Inc. (DAI). DAI owns the operational business concept and trademark of Subway restaurants. From this organization, the franchisee buys the right to operate with the Subway concept.

Systems

During a two week training, Subway provides the new franchisee with the required information. The Subway franchise fee is exceptionally low for a chain of this size.

Subways franchise fee:

$15,000 (Local currency) in the United States & Canada, $12,500(Australian) in Australia, $10,000(US dollars) for all other international countries (including Denmark)

Danish restaurant owners have the opportunity to lease and/or get a loan from Subway. (Subway How we compare our competitors 2009)

Shared values

Shared values are the fundamental ideas of Subway; these can be identified by the following key words:

Simplicity: Subway has an easy-to-run operation. Support: Subway has systems and information resources to assist the franchisees. Control: Subway teaches methods to help run the business efficiently.

Shared values of the Subway chain:

Subway provides the tools and knowledge to allow entrepreneurs to successfully compete in the quick service restaurant (QSR) industry worldwide.