A Brief Analysis of Subway Restaurant and Its Franchising System
Entrepreneurship: Subway Restaurant has a history that extends over forty three years now. It has had an amazing history that seems like a fairy tale to the admiring observer. There is an important lesson for young and aspiring entrepreneurs in the Subway story. The lesson is that when opportunity presents itself, one should grab it with both hands and then work hard to turn that opportunity into success. That is exactly what Fred De Luca did forty three years ago. Fred De Luca was a teenager when his family got a call that Dr. Peter Buck, a family friend had changed residence and moved within an hour’s drive from their place.
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Fred’s family went to the Buck family’s new residence to meet them. Fred wanted to seek guidance from Dr. Buck about his future education prospects, so he asked him for some advice. The words Dr. Buck said to Fred De Luca changed both their lives forever. Dr. Buck said, “I think you should open a submarine sandwich shop” (SUBWAY® Restaurant, 2008). To back his claim, Dr. Buck made an investment of a thousand dollars and handed the money to De Luca. After a chat with their attorney, the duo considered the option of franchising their business.
This decision changed the face of Subway Restaurant. By the year 2008, Subway has approximately thirty thousand franchises in about eighty seven countries around the world (SUBWAY® Restaurant, 2008). The main reason for franchising Subway was that De Luca wanted to expand the business further. To expand and to expand rapidly from a total of 16 units to double that size in two years and meet their target (SUBWAY® Restaurant, 2008) required money and qualified people. Franchising was the best alternative. The advantages of franchising are enormous for a franchisor.
They include rapid expansion, more time available for other possibilities as day to day operations are handed over to the franchisees, instant cash flows, limited costs of overhead and many other advantages (Franchise Venture Capital, 2005). The main disadvantage of a franchisor is the loss of control over the organization. Due to certain franchisees, the image of the company can be tarnished beyond repair. Another disadvantage is the decrease in flexibility for the franchisor. It will be harder to implement changes in strategy and tactics after franchising.
And also, franchisees have invested a great deal in the business in terms of time and money and cannot be fired or disassociated easily (Butterfield Bakery, 2003). Marketing: Marketing is very important for franchises. It is not possible for franchisees to individually market the franchise as the costs of marketing are too high and their pool of capital small. Generally, marketing is done on a global scale by Subway. There is an advertising fund in which all franchisees have to pay, which is about 4. 5% in US, Canada and Australia, and 3. 5% in other countries (SUBWAY® Restaurant, 2008).
Franchisees have flexibility in the case of nationally sponsored programs such as coupons. One franchise in the same country may be using coupons while another might not. Operations Management: Daily materials are not centralized and can be bought from different suppliers but the initial materials such as equipment are bought from Subway’s associate manufacturers. Costs: To set up a franchise with Subway, first you have to submit a filled online application at the Subway Website (www. subway. com). After the application is completed, you receive a brochure that gives additional information not available at the website.
After that, you can contact the franchisor and discuss possibilities. The start up fee is USD 15,000 for US, Canadian Dollars 15,000 for Canada, Australian Dollars 12,500 for Australia and USD 10,000 for all other countries. An 8 % royalty has to be paid by all franchisees (SUBWAY® Restaurant, 2008). The Break Even point for a BMT Sandwich is approximately 6340 units per month (See Appendix I). Human Resource Management: There is a two week training program that all franchisees have to attend before opening the franchise (SUBWAY® Restaurant, 2008).
In order to maintain the image of the company, the employees in a franchise also have to be trained in basic procedures and Customer Relations Management. There are many advantages of Corporate Training. Firstly, the staff learns to follow company policies regarding such issues as cleanliness, quality, customer interaction, and dealing with fellow employees. Training increases the skills and productivity of the work force. Disadvantages are the time and cost expended for the training. The job of the trainer is not as simple as it may seem to the casual observer.
It requires skill and understanding the diverse nature of the trainees and how to relay the message in the most effective way. Staffing: There is no disclosed information that we could find regarding the minimum wage policies of Subway. Subway is in the process of offering basic health care to its members (Webb, 2007). Exit Strategy: There are a number of people who would like to have the prestige of running a Subway franchise. One way of approaching them is via newspaper advertisements. By creating a number of possible buyers, the seller can sell to the highest bidder and reap maximum rewards.
Subway offers loans for expansion and remodeling and assistance in payment of the fees of franchising for minorities. There is also an equipment leasing program in place (Subway Restaurant, 2008)
Butterfield Bakery. (2003). Advantages and Disadvantages of Franchising. Retrieved February 11, 2009, from Butterfield Bakery: http://www. butterfield. co. za/public/Concept/advantages. htm Franchise Venture Capital. (2005). Advantages of Franchising. Retrieved February 11, 2009, from Franchise Venture Capital: http://www. franchiseventurecapital. com/advantages. html