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Transcript of Subway 1
Jonathan Daugherty, Heather Brice,
Daina Ribotti, Maria Coello, & Silvia Chavez
Subway is an American fast food restaurant franchise that primarily sells submarine sandwiches (subs) and salads.
Subway is one of the fastest growing franchises in the world with 40,229 restaurants in 102 countries and territories as of 11 September 2013.
It is the largest single-brand restaurant chain and the largest restaurant operator globally.
Market: $200 Billion quick-service restaurant industry
Subway Revenues : $17 Billion
Growth: 3% 2012 thru 2017
Locations: 35,954 in 98 countries
Cost: $84,000 - $250,000
In 1965, Fred DeLuca borrowed $1,000 from friend Peter Buck to start "Pete's Super Submarines" in Bridgeport, Connecticut, and in the following year they formed Doctor's Associates Inc to oversee operations of the restaurants as the franchise expanded.
The holding company derives its name from Fred DeLuca's goal to earn enough from the business to pay tuition for medical school, as well as Peter Buck's having a doctorate in physics. Doctor's Associates is not affiliated with, nor endorsed by, any medical organization. In 1968, the sandwich shop began using the name "Subway" for the first time.
2013 Net Worth
2013 Net Worth
Subway uses franchising to enter foreign markets. How does this choice help Subway to expand its international business? What are some of the potential problems with this choice, which Subway should be aware of?
Subway is one of the fastest growing franchises in the world. As of September 2013, Subway has 40,229 restaurants in 102 countries. Subway was started with $1,000 by a 17 years old guy. So how did Subway became the successful international business that it is today? Selling franchises was the key to this!
Franchising sometimes could be an excellent way to expand a company’s international business. Selling franchises helps to provide goods in different parts of the world and avoid investments and liability of the chain. When Subway sells franchises, it expands the number of locations without risking its own capital or without having to get a loan from the bank.
Subways franchises have a low startup cost compare to other restaurants. The initial franchise fee is only $15,000 and the restaurant can be opened with $78,600 to $250,000 depending on the location. This factor is very favorable to Subway, since it makes first time entrepreneurs consider Subway over other restaurants. Based on Milford, CT-based company reports, only from 2008 to 2010, Subway sold over 6,000 franchises, which would come to a total of 90 million dollars.
Another positive aspect about franchising is that it can give you high monetary returns for relatively little risk. Subway royalties are 8% of gross sales per week.
Last but not least, franchising give you the chance to find great talented people, aspiring people that can get the most out of a business. Usually people that decide to invest on their own business are ambitious people that will work hard to finally see that investment turn into something big.
At first glance, franchising sounds like a great idea to expand the international business. However, certain problems can come along with this decision. And unfortunately, Subway has many of them.
Subway has operations in 74 countries. What do you think is the impact of cultural or religious
differences at the firm? What is the impact of economic differences?
Although the chain tries to keep the menu consistent, it has been hard to build a specific brand because cultural and religious differences make it a challenge. Depending on the region, Subway caters to specific dietary needs.
The franchise boasts 37 million different sub variations worldwide. In India, no beef products or pork products are served due to the Muslim and Hindu Religions. Substitutes such as “Chicken Ham” and “Lamb Pepperoni” are used instead. Subway has also recently started opening strictly vegetarian restaurants in India as well.
In Israel, all pork based products are made beef based, and cheese isn’t served on the sandwich with the meat. On the plus side, since Subway subs are made to order, they can be made to fit anyone’s dietary needs.
Subway is famously known for their five dollar foot longs. Five dollar foot longs are served daily nationwide in the United States. However, economic differences globally make it hard to have the same specials from nation to nation.
Another economic issue would be the sourcing of products. Sometimes, depending on the region, they are not able to get certain food products locally.
Therefore, Subway will have to either import items from the United States or another country. This however, becomes a little bit pricey.
What are some of the potential influences that economic communities (for example, the EU or NAFTA) can have on international businesses, such as Subway? How has Subway responded to these influences?
The potential influences that economic communities like the EU (European Union) or NAFTA (North American Free Trade Agreement) can have on international business such as Subway are the abilities to reduce or eliminate trade barriers among its members. Trade relationship between countries can either benefit or damage international business.
With so many different controls on international trade such as quotas, which limits the number or value of goods; tariffs which is a tax collected on goods shipped across national boundaries; and export restrain agreements, which are designed to convince other governments to voluntarily limit the volume or value of goods exported to or imported from a particular country, foreign business face a difficult challenge when they try to compete against domestic business.
"NAFTA was designed to promote economic growth by spurring competition in domestic markets and promoting investment from both domestic and foreign sources" (Teslik, 2008). Subway has responded to these influences by increasing the number of stores around the world, therefore increasing the number of workers who might have been unemployed if it was not for subway.
NAFTA and the EU, help foreign business overcome this challenge by eliminating many of these trade barriers. Gary Clyde Hufbauer and Jeffrey J. Schott, two experts at the Peterson Institute for International Economics and the authors of NAFTA Revisited: Achievements and Challenges, say that on a basic level, NAFTA's impact on North American companies is clear.
List some of the management challenges Subway faces as it expands globally. Include challenges in planning, organizing, leading, and controlling.
Teslik, L. (2008, Mar). NAFTA's Economic Impact. Retrieved Sep, 2013
Teslik, L. (2008, Mar). NAFTA's Economic Impact. Retrieved Sep, 2013
Some of the challenges that management faces as it expands globally involve: the Economic environment, the Political/Legal environment, and the Cultural environment.
When planning, organizing, leading and controlling the organization at a multinational level, the organization must understand and be aware of: what kind of economic system they use in the country? What natural resources are available in the country?
Does the country have a good infrastructure? Does it have a stable government? Do they offer incentives to attract foreign business? What about controls? Quotas? Tariffs? What are the culture, behavior and attitudes from the people in this country? All of this needs to be taken into account when deciding to expand and go global.
Retrieved from www.forbes.com/companies/subway.
Retrieved from usa.chinadaily.com.cn/epaper/2011-06/14/content_12693033.htm.
Some of the issues managers might have encountered while organizing the global expansion are: store designing, changes to be done in the menu in order to adapt to the tastes and preferences of the customers, dealing with the human resources who come from a different culture, who will be the suppliers,etc
“ Business Media COCA-COLA Co., plucking a major fountain customer away from PEPSICO, signed a 10-year deal to supply all of SUBWAY RESTAURANTS' global business. For the past seven years, Pepsi handled 85% for Subway and Coke 15%. Subway has 20,000 locations worldwide” Brandweek Dec 1, 2003 v44 i44 p5(1)
“To allow for cultural and religious preferences, the standard Subway menu has been altered for Indian consumers. "There is no pork or beef products used in any of the sandwiches that we serve here," says Gulri. "In India, the population is predominantly Hindu, who do not eat beef, and Muslim, who do not eat pork. We have substituted these ingredients with lamb, chicken, and turkey." (www.qsrmagazine.com/news/subway-restaurant-opens-india )
“Another significant adjustment made by Subway for India is the addition of several vegetarian sub varieties, such as hummus and falafel, with a separate counter and area for their preparation. Gulri says he's confident Subway will be a great hit in India, and says there are goals of opening fifty-five outlets in Mumbai and the National Capitol Region of Delhi over the next seven years. "India has the potential of becoming the largest market for Subway outside of North America," he says, "and this is an opportunity to promote a world-class brand and, at the same time, work with something I really enjoy.”
Finally managers also need to have control of the organization. To be in control of a global organization is much more challenging because of language barriers, cultural differences, distance, time zones, etc.
For our example Subway’s operations management, quality, productivity, information systems and technology provides the organization with a good control technique. They have to be constantly monitoring and evaluating the success of the organization in the specific global context.