Subway Retail Expansion Analysis - Case Study Example

Subway Contents Executive Summary 3 Introduction 4 Environmental Analysis in UAE 5 i.Demographic environment 5 ii.EconomicEnvironment 7 Socio-Cultural Environment 7 iii.Political and Legal environment 8 iv.Technological environment 8 v.Natural Environment 9 Competitor analysis 9 Competitive Advantage 10 Market Research 11 Customer Analysis 12 Needs Analysis 12 The Decision Making Process Analysis 12 Segmentation and Marketing 13 Positioning strategy 15 Product Strategy 16 Conclusion 17 References 17 Executive Summary Subway was started four decades ago and has become a world leader of sandwich outlets offering a healthier substitute to the conventional fast foods. Subway has more than twenty thousand outlets across the world and its growth across the world has attracted a lot of investments (Al-Hamar, 2o11). The growth of Subway in United Arab Emirates has been attributed to a favorable business environment. The UAE has a diverse population with a population estimate of eight million. There is a high population in the cities within the region and a high number of expatriates, who have contributed to the high population in the region. The UAE also has a high population among the youth between age 25 and 36 and are working. Additionally, because of the presence of oil and natural gas, the region is economically vibrant. Because of the high obesity awareness in the region, people are health conscious and eat what is healthy. The region’s political environment also is stable and offers a favorable environment for its growth. The primary competitors include KFC, Pizza Hut, Greggs, McDonalds, Wendy’s and Eat. McDonalds and KFC are the primary competitors. However, Subway has a competitive advantage based on the healthy products offered and the opportunity offered to customers to choose what to put in in the sandwich. Subway carries out market research on numerous aspects of customer satisfaction. The primary reasons why customers may opt to eat at Subway is because of the healthy products offered by the brand and they undergo a decision making process with five stages. Subway has segmented its market into geographically, psychographically, behaviorally, and demographically. Subway’s primary target markets are the young professionals aged between 26 and 35 who have no time to cook and students and pupils. The company has also positioned itself within the market through the freshness and healthy platform created by its slogan and adverts. With such positioning, it is estimated that Subway will open 100 more outlets within United Arab Emirates in the next three years. Introduction Subway is one of the largest fast food restaurants in the world. It was established in 1965 by De Luca when he was just 17 years old (Al-Hamar, 2011). The first restaurant was established in Connecticut where its headquarters is presently located. Currently, there are more than thirty thousand outlets in more than 90 countries worldwide. It is one of the fastest growing franchise chain and its opening new restaurants in new regions. Subway offers its patrons distinct fresh submarine sandwiches which are referred as subs. Subway gives the customers the freedom to choose the way they want the sandwiches to be served. In many of its adverts, it capitalizes on its “freshness”. Its slogan “eat fresh” sends the message that the company only uses freshly baked bread and ingredients (Subway, 2014a). Subway has a high presence in the United Arab Emirates and has a total of 105 outlets in the region. The company plans to increase its presence in the region with new outlets in the area (Al-Hamar, 2011). This expansion is part of the company’s plans to expand globally and surpass the rest of the fast foods outlets to be the food chain with the most outlets in the world. Subway plans to open new outlets in hospitals and universities. The stand-alone areas are the most profitable followed by malls and the gas outlets (Subway, 2014b). It is this diversification that has allowed Subway to expand and grow in UAE. The increased infrastructure development in Dubai and Abu Dhabi is anticipated to promote the economy and offer a suitable environment for the growth of Subway. This is expected to reduce the rent rates, which affects the development of the organization. However, the outlets in the region face distinct rent rates and therefore they charge their prices differently (Simms, 2011). Environmental Analysis in UAE It is advantageous for an organization to consider its environment before setting up its operations. This gives the company an inkling of the possibilities of entering the market. UAE is a cosmopolitan, with a massive infrastructure development and a multinational workforce. It consists of Dubai, Abu Dhabi, Fujairah, Umm al-Qaiwain, and Sharjah (United Arab Emirates, 2010). i. Demographic environment Reports from the UAE National Bureau of Statistics (International Markets Bureau, 2010) indicate that the population of the region attained a population of 8 million by 2010. Though the United Nations has indicated that the population of the region may be just under 5 million, there is an approximately 75% of transient expertise-based workforce that has been increasing over the past few years. The high presence of workers has increased the number of males in the region and tilted the gender ration to 2.2 males per female. In spite of this, it is evident that the population growth of the UAE is higher than the rest of the countries in the world (CIA, 2014). The most populated nation in the UAE is Abu Dhabi followed by Dubai and Sharjah (International Markets Bureau, 2010). UAE’s rapid economic growth and development in the past four decades has enticed increased population in the cities and presently it is estimated that 86% of the population lives in the cities. It is anticipated that the increased population in the cities will provide market to Subway’s products. Having a high concentration in the cities offers a huge market for Subway products and offers new opportunities for the growth of the organization in the region. Additionally, the high number of expatriates in the region offers a market for Subway’s products (International Markets Bureau, 2010). Additionally, the increase number of expatriate women in the region implies that Subway has a wide target market, since most expatriates have little time to cook or get home when tired and have to buy take-away food. The region’s culture is grounded on its Middle-Eastern core. Although English is widely spoken in the UAE, Arabic is the national language in the area with Islam being the main religion. However, the UAE accepts and widely adopts other cultures as a catalyst to the developing economy of the region and has accommodated the new requirements for food, language, lifestyle, entertainment and religion. India, Bangladesh and Pakistan make up the largest group of expatriates (International Markets Bureau, 2010). The rest of the workforce in the region is composed of communities from China, Philippines, Sri Lanka, Iran, Thailand, European nations, Africa, North and Latin America and Australia. The UAE emphasizes equal rights for women and men. This implies that education is availed to both boys and girls, which is compulsory and free to all the nationals through primary school to University level. The literacy levels in the UAE have improved and have been enabled by the extensive presence of adult education programs. The literacy levels in the region were 90% in 2010 and the number of women in higher institutions was higher than that of men by 25% (United Arab Emirates, 2010). The households in UAE are categorized into three types which include, national, expatriate and single. The nationals live in extended family groups of six members in homes. The expatriates live in rental houses. There has been a change in the lifestyle in the region recently where young people of ages 25 to 35 live alone before marriage. This increases the number of people who eat in take-outs and eat out since they have no time to cook (International Markets Bureau, 2010). ii. Economic Environment The United Arab Emirates has become a significant oil and natural gas producer and is classified the seventh oil producer in the world. The revenue obtained from the natural resources in the region has allowed significant economic and social development in the UAE. Such progress has been seen in housing, transportation, health, business and finance. The federation of United Arab Emirates has instituted a series of “free zone” within UAE with numerous economic benefits such as exclusions from corporate tax and import/export duties, in order to promote commercial development of investment. In 2012, the UAE had a per capita income of $38, 900 (International Markets Bureau, 2010). Socio-Cultural Environment The highly assorted population has generated an environment focused on entertainment. The lifestyle of UAE is typified by shopping, eating out, going to cinemas and enjoying the vibrant night life of UAE. The cities in UAE have a wide range of foodservice to serve the tourists, nationals and the international workers. It is estimated that there are ten thousand restaurants in UAE. The expatriates prefer quick service restaurants that are centered on national cuisine. This has made eating out a significant element of UAE life (International Markets Bureau, 2010). Additionally, the increase in obesity rates within UAE has captured the attention of the government and the media and has triggered an influx of information on nutrition and healthcare. This offers an opportunity in the food sector to the restaurants that offer healthy meals as the patrons will make food choices that will assist them satisfy their health needs. Almost 58% of UAE consumers note that they are health conscious and would only eat what they feel is healthy to them (United Arab Emirate, 2010). Additionally, a great number of consumers have reduced on their portion sizes. This makes snacks the next option for the people in UAE as they seek to reduce the portions of food that they take. Additionally, portion-controlled food offerings are more appealing to a huge number of people in the region (International Markets Bureau, 2010). iii. Political and Legal environment The United Arab Emirates economic development dates back to the British colonial era when the first crude oil was exported in the 1960’s. The modern UAE was created in the 1971 and the political structure of the region was developed. The region has been politically stable and has passed numerous legislations to allow the thriving of businesses in the region. For instance, the government passed an act that establishes “free zones” that have numerous economic benefits such as tax exemptions and are duty free. Additionally, the UAE requires every worker to go through medical tests every two years (International Markets Bureau, 2010). iv. Technological environment Technology has an impact in the operations of restaurants in UAE. UAE has made great advancement in its technological environment. The advent of mobile phones and cloud computing have made great impacts in the restaurant and fast food industry within UAE (United Arab Emirates, 2010). This allowed the use of mobile phones to make reservations and order food and make payments. These advancements have improved the experience of the patrons and created opportunities for companies such as Subway in the region (Simms, 2011). Restaurants and fast foods in the UAE allow the patrons to make orders through their mobile devices. v. Natural Environment The United Arab Emirates is committed to sustaining and protecting the environment in all facets of life. The region has clear legislations that set a path for sustainability of the environment. Dubai’s strategic plan 2030 conforms to international environmental standards and offers a framework that preserves the natural beauty and resources (International Markets Bureau, 2010). The United Arab Emirates expects every organization within the region to conform to numerous health and safety ethics that include promotion of a safe work environment that reduces health risks and the use of suitable technology that protects and preserves the environment (United Arab Emirates, 2010). Competitor analysis Competitor analysis assists in evaluating and assessing what they do. This allows the organization to respond accordingly and gauge its competitive advantage. In this case, Subway is not without competitive forces. The primary competitors include KFC, Pizza hut, McDonalds, Greggs and Eat. KFC and McDonalds are the largest competitors with more than thirty three thousand outlets across the world (Subway, 2013). McDonald Corporation is the world’s largest fast food outlet in the world with more than twenty thousand outlets across the world. In United Arab Emirates, McDonalds has more than 300 outlets in United Arab Emirates. It holds a market share of 12% in the region and its brand is the most recognized in the fast food industry in the region. Additionally, McDonalds only offers the most renowned bands in its outlets such as coca cola, Heinz Ketchup and Dannon yogurt. McDonalds also targets young children through playgrounds and toys with its meals. However, McDonald has been widely criticized for offering unhealthy food to its customers, increasing obesity among its patrons. Although McDonalds has made attempts to introduce unhealthy foods in its menu, its menu is hugely made up of unhealthy drinks and meals, which have prompted protests from organization s that are against obesity in the region. Additionally, McDonald sources for lowly skilled employees and pays low wages for the services rendered by the employees. This results in high employee turnover and low employee performance. Additionally, McDonald does not differentiate itself from the rest of the food chains in the United Arab Emirates and only competes on the basis of prices rather than additional services or products (McDonalds, 2014). Kentucky Fried Chicken (KFC) is another competitor to Subway. It is the second largest fast food brand in the world and has presence in more than 100 countries because of its franchising expansion strategy. KFC has a total of more than 250 outlets in United Arabs Emirates. It is widely renowned for its 11 spices and herbs recipe that has been its competitive advantage against competitors. KFC has also partnered with other fast food companies such as Pizza hut and Taco Bell in order to gain advantage through offering products that they do not have and satisfy their patrons. KFC has diversified and concentrated on chicken products, thus positioning itself as the major chicken fast food outlet. However, KFC has hit the headlines numerous times for serving contaminated chicken and serving high calorie foods and drinks, which have prompted protests in UAE. Just like McDonalds, KFC employs low skilled staff that is lowly paid and result to low employee performance (KFC, 2014). Competitive Advantage Subway’s competitive advantage rests in its healthy meals that are an alternative to pizza, fries and burgers. Subway offers low calorie, nutritious and fresh products (Subway, 2013). Additionally, Subway gives its patrons an opportunity to customize their meals where they choose what should be included in their sandwiches (Liutu, 2010). Market Research Subway has a research and development team that focuses on developing and test marketing of the products served by the organization. It was in 2007 when the research and development team came up with the low-fat products such as Fresh Fit meals with apple pieces, low-fat milk and Dannon yogurt. Additionally, Subway uses market research to identify the customer preferences and how they can attain customer satisfaction (De Long, 2012). Notably, the progress of Subway has not been without intense research on its patrons. Subway carries out research through questionnaires where it tries to identify numerous aspects of its patrons. For instance, Subway tries to find the time of the day when customers are likely to eat, and therefore look for ways on how to reach out to such customers in order to gain more of them (Barda, 2011). Additionally, through this study Subway is able to determine their primary customers and target them effectively (Al-Hamar, 2011). However, though Subway strives to collect information on its customers, it has failed to collect information on numerous aspects of its service delivery. One of the areas that Subway has failed to look at is its outlets look. In most instances, Subway has been criticized for its lack of concentration on the interior design and quality of its outlets across the world. In UAE, the outlets lack interior designs that are appealing to all. Interior designs play an imperative role in the comfort that customers feel and should suit the standards of the customers. In this case, Subway should strive to gain information on customer’s comfort within the UAE cities. Additionally, it seems that the services offered in numerous Subway stores in United Arab Emirates are not consistent. In this case, Subway should strive to look for information on the numerous aspects that customers feel should be improved. This should seek to identify the differences in the outlets within the cities in the seven regions within United Arab Emirates and use such information in improving and standardizing quality of service to the customers. Customer Analysis Needs Analysis Understanding the buying needs and behaviors of customers is essential. There are numerous reasons why people opt to eat in fast food restaurants and not at their homesteads. However, the needs of customers have changed over time (Al-Hamar, 2011). Currently, the buyers are not only concerned with losing weight with eating healthy low-calorie foods served in the restaurants, but they view health as a way of life that integrates unprocessed foods through environmentally sustainable practices (De Long, 2012). In this case, the customers seek to satisfy rational and symbolic needs. The customers are not only concerned with surface-level fixes such as fruit smoothies and salads but meaningful additions that portray the customer’s apprehension of health. The Decision Making Process Analysis Customers undergo a five-stage decision making process when purchasing items. Therefore, this process is significant for marketers because it covers more than just the buying decision that the customer makes (Boone & Kurtz, 2011). The customers in United Arab Emirates undergo these processes as they purchase the product. The first stage is the need identification and problem awareness. Each of the buying process is triggered by internal or external stimuli. In this case, the customers of Subway are driven by internal stimulus that is hunger caused by a smell or kind of marketing such as radio or TV advert (Hollensen, 2003). The second step is information search where the customer searches for information to satisfy the need (Harrell, 2008). In this case, a walk through the cities may draw attention to food adverts by subway. Additionally, the customers may look for information actively through distinct sources such as family and friends, posters and mass media. After gaining the information, the customer now centers on his food of choice. The choice depends on how the company advertises its products in order to be among the customer’s consideration set. The third stage involves the evaluation of the available alternatives (Hollensen, 2003). In this case, the customer identifies the perceived advantages of each alternative and chooses based on the personal experience. In this case, the customers consider the competitive advantages of Subway, making it the best among the fast food outlets. In this case, the customer will consider the health benefits attached to Subway products. The fourth step involves making the purchase decision through considering the brand image, the payment method and the convenience of the store (Kotler & Keller, 2008). In this case, the UAE consumers will choose Subway because of its heavy presence in the area and the quality food and service offered. The last step is the post purchase behavior where the customer’s satisfaction or dissatisfaction arises (Hollensen, 2003). In this case, other aspects such as cleanliness, interior design and customer service will impact their satisfaction. Segmentation and Marketing The year 2013 saw an increase in the number of people into United Arab Emirates. This together with increase in tourists in the region led to economic boom of the region. The fast food industry is rapidly growing. There are more than nine players in the market with five international brands and four brands that have majored in the UAE market alone. McDonalds has the largest market share of 12%, KFC with 8% and Subway 7% (Subway, 2013). The UAE market is particularly big and it is for this reason that segmentation of the market is essential. Subway segments its customers demographically, geographically, psychographically and behaviorally. Subway has segmented its customers demographically by targeting male and female customers within the 18 to 39 year age bracket (Liutu, 2010). It also targets kids through the kids’ meals that it offers. In addition, Subway also targets the single parents who are too busy to prepare meals. It also targets students in colleges and universities and every economic subgroup because of the relatively low prices of its products. Additionally, it targets its customers geographically by targeting the customers in the cities and urban areas within the United Arab Emirates such as Abu Dhabi, Dubai, Sharjah, Al Ain, Ajman, Ras Al-Khaimah and Umm al-Quwain (Liutu, 2010). Subway also targets its customers psychographically through the healthy food products. This is because most of the people in UAE have become health conscious. Lastly, it segments its customers behaviorally through targeting occasions such as breakfast, lunch and dinner and take-away (Liutu, 2010). Targeting engrosses the description and choice of the most attractive market segment. The two primary target groups of Subway include the trendy United Arab Emirates students and pupils who desire to enjoy quick and low priced foods and the people between the ages 26 to 35 (Liutu, 2010). The people between 6 and 35 years are the young professionals who have hedonistic lifestyles and are concerned about their appearance and do not have time to cook their food (Liutu, 2010). Positioning strategy Position entails the perceptions of the customers towards the products or services of a company in relation to its competitors (Kotler & Keller, 2008). According to Boone and Kurtz (2011), positioning is linked to the responsibility of guaranteeing that the company’s products occupy a prearranged place in selected target markets. Subway positions its products in the United Arab Emirates by continuously building on the brand’s “freshness” platform. Subway positions its outlets as the place for healthy and tasty food. This is communicated through effective marketing campaigns that ensure that Subway is among the UAE consumer’s daily consideration set. For instance, Subway has had a tour to schools within Abu Dhabi and Dubai emphasizing the significance of eating healthy and exercising. Subway developed the “One body! One life! Eat Fresh! Get Fit!” weekly reader aimed at assisting teachers to instill proper eating habits among the students. Below is a perceptual map of KFC compared to other international brands with presence in the United Arab Emirates. Product Strategy Subway centers its strategies towards penetration to markets they are currently operating in. Subway targets the UAE market through development of new products in order to maintain their competitive advantage. Product development is one of the primary strategies by Subway, particularly through introduction of healthy menus. Subway launched the Fresh Fit juice for children, which is healthier with apple slices, low calorie milk and bottled water. This has assisted the company to gain competitive advantage. Additionally, Subway also introduced Juicy Fruitti which is a mixture of salad that consists of mango, honeydew, grape and apple. Conclusion Subway seems to be a company that does well in the market. The company offers fresh, quality and healthy foods through its outlets across the world. The company has more than twenty thousand outlets across 100 countries. In United Arab Emirates, the Political, economic, demographic and legal environments offer opportunities for its growth. Additionally, the company faces stiff competition from renowned competitors such as McDonalds, KFC, Wendy’s and burger king. Both KFC and McDonalds have a market share of 21% while Subway holds a market share of 8%. The healthy products and the freedom offered to customers to customize what is put in their sandwiches are the primary competitive advantages that Subway relies on in expanding in United Arab Emirates. Subway segments its markets geographically, behaviorally, demographically and psygraphically. It targets students and pupils and the people within the age bracket of 26 and 35 years. This is because they have little time to cook. However, this report offered numerous recommendations in the way Subway should conduct its market research. In order to ensure standard service quality, Subway should focus on gaining information on aspects that need to be improved in all the outlets and also focus on improving the interior designs of some of its outlets. References Al-Hamar, M. (2011, May 28). Super Subway rules the fast food world. Retrieved December 7, 2014, from http://www.hoteliermiddleeast.com/11324-super-subway-rules-the-fast-food-world/1/print/ Barda, T. (2011, April 3). 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