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Subway in India

Prashant Verma
MJ18GL062
INDEX

Background…………………………………………………………………….Page 2

Product Life Cycle…………………………………………………………. …Page 3

Business Model………………………………………………………………...Page 4

Supply Chain Management…………………………………………………..Page 6

Manufacturing Strategy……………………………………………………….Page 7

Retail Strategy………………………………………………………………….Page 8

Logistics and warehousing strategy…………………………………………Page 9

Inventory Model……………………………………………………………..Page 10

Forecasting technique……………………………………………………….Page 11

Challenges……………………………………………………………………Page 12

Citations………………………………………………………………………Page 13

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1. Background

Subway is an international chain operating retail outlet in the fast-food sector dedicated to
serving submarine sandwiches (subs) and salads to its customers withholding an undisputed
global position having received the distinction as being number one franchise opportunity
for the past decade1. Head quartered in Milford - Connecticut (US) in 2017, Subway boasts a
of owning 43,000 stores in over 111 countries2 with the support of 5 regional offices located
respectively in Miami, Amsterdam, Brisbane, Beirut and Singapore.
The roots of subway date back to 1965 when Fred DeLuca, a high school graduate aged 17
with a family friend Dr. Peter Buck teamed up to open “Pete’s super Submarines” selling 312
sandwiched the very first day – with DeLuca hoping to earn sufficient money from this
business to afford his college fees to eventually become a doctor himself. 3 years after being
operational, in 1968, the outlet changed its name to “Pete’s Subway” and registered itself as
SUBWAY® restaurant after opening its first franchise in Wallingford (CT). The signature
sandwich, classic BMT (BMT – Biggest, Meatiest and Tastiest) got its name from the
Brooklyn-Manhattan in 1975 followed by the opening of first store outside Connecticut, in
the state of Massachusetts.
By 1980, Subway had reached New York with a themed architecture based on the city’s
transit system. In 1982, just 17 years from inception, Subway marked 300 stores in 30 stores
in the US a year post which it was entitled as “number one” in the sub sandwich category by
the Entrepreneur magazine and simultaneously introducing the freshly baked bread at the
US locations. 1984 was the first time when Subway expanded its horizons by inaugurating
the first international store in Bahrain with the introduction of “party platters” and subway
classic sandwich. It was quite interesting that Canada, the closest international neighbour
from Connecticut, Canada got its first store only in 1986 – and in the next year Subway had
already opened its 1000th store in Hawaii followed by Bahama’s – and again within an year
having opened 1000 more, Subway had reached the mark of 2000 with a recognition of
being the number one franchise opportunity in their annual franchise 500 ranking. Within
the next two years, Subway had marked an outstanding number of 5000 stores worldwide!
Since then, Subway had extended its vision from just expansion of stores by establishing
online channels to connect to its customers to advertising itself by sponsoring formula races
to “going green” in 2007 where the store in Kissimmee, Florida incorporated
environmentally responsible environment by including low-flow faucets, energy efficiency
equipment and solar tubes for lighting and also launching FreshFit/FreshFit for kids meals.
Till date, the expansion has gone to social media, an approved healthy promise of food,
promoting vegetarian diet for kids – also getting recognised by PBH (Produce for better
health) in addition to the global reach it has made over the years with being a socially and
environmentally responsible organisation.
Subway made its way to India in 2001 in New Delhi. Due to experience of localization and
religious constraints and started to sell and elaborate vegetarian range due to high

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vegetarian costumers in the country. Subway India had a different menu that did not
consist of pork and beef products. Back in 2012, Subway dedicated a branch to all-
vegetarian menu in 2012 in Lovely professional university, Punjab and the second in 2013 in
Ahmedabad, Gujrat. So far, Subway has made its reach across 68 cities through 641 stores
all across India.
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2. Product life cycle of Subway in the market


The product life cycle is typically divided in 4 sections namely Introduction, growth,
maturity and decline. From fig.1, the typical stages can be framed out of the following
segments:
1. Introduction – From Concept creation to concept development.
2. Growth – Market development phase.
3. Maturity – Business optimization phase.
4. Decline – Line following down towards “Harvesting”.
Based on the research and current proposals and plans laid out by Subway, the product life
cycle for the company can be demonstrated as follows in Fig.1

Fig.1: PLC of Subway

From the previous section of background, the phases in the graph can be viewed in a
historic timeline, the actions that signify the position in the PLC and then I would expand on
why the current position of Subway is placed towards the end of maturity stage.

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The introduction phase (concept creation to concept development) phase started back in the
1965 when the submarine sandwich market was targeted by Fred DeLuca and the business
came into existence. As mentioned earlier, the idea behind having this business was to act
as a fundraiser for Fred to ultimately support his tuition fees to become a doctor.
Nevertheless, however, the concept lead to a development phase when in 1968 “SUBWAY”
got its name followed by the idea of franchising in 1974.
The second phase of growth (or) market development can be seen from the point in 1975
till 1993 where BMT gets introduced followed by a large-scale expansion from 300 stores to
more than 5000 stores. Additionally, Subway expanded overseas too, introduced freshly
baked breads and took up franchisees on the refueling stations.
Thirdly, the business optimization phase (or) maturity phase for Subway came in after 1993,
somewhere in 1995 when it decided to sponsor cars in the formula race, advertise itself in
movies such as “Ace Ventura” etc. Most importantly, in the maturity phase, Subway
expanded it reach to the customers by moving online in 1995 publishing its achievements,
newsletters online to offering toasted breads to its global customers and finally initiating its
social and environmental responsibilities of “going green” and achieving recognition for
PBH.
The current position of subway in the product life cycle has been placed after the maturity
stage in the re-inventing business phase which as per the findings have steadily taken a big
note from the 2017 when it was reported that Subway is likely to face a fall down against
other fast food chains of its scale, such as McDonalds – with the elimination of a few stores
and sales decline of about 15% from 2012 to 20163. Although, Subway claims that the
closing down of stores is a part of re-location strategy where a better strategic location will
be coming into picture along with renovation of stores and introduction of more products in
the beverage line, moving towards home delivery options without losing its focus on the
submarine sandwich section4 - definitely introducing more lines on the sandwiches allowing
the same level of customizability and healthy deliverables by using anti-biotic free meats.
So, the positioning of Subway on the PLC based on the findings should be towards re-
inventing business or in other words towards challenging the decline to keep a hold in the
market without plateauing the company.

3. Business Model of Subway


Subway relies exclusively on franchising, inferring that it has other owners of these
franchises who pay to get licenced to operate a subway chin pertaining to Subway’s ethics
and practices.
The USP of subway in comparison to other fast food chains is the flexibility in terms of
location, which is supported by their production method of not cooking, rather focus on
assemble-to-order methodology catering to the customized demands of the customers. This
also means there is no need of a full-sized kitchen since the food in the store is pre-cooked.
The real equipment-assets in a subway store are the toasters used to toast the bread-

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cheese and ovens in the “freshly-baked” bread offering chains. Due to this advantage of
space, Subways can be found around the corner of busy streets serving their customers with
the speed they expect.

Business Model Canvas

Fig 2. Business Model Canvas link: https://canvanizer.com/slideshow/wWJS5CBEjslXp


Next, the brand perception of Subway is more of a healthy food rather than being a fast
food chain. The range of veggies and cold cuts it offers have a healthier image than the fried
foods to the customers. In addition to this, Subway offers customisability which makes the
customer have the advantage of altering the taste almost every time they eat a submarine
in the quickest way possible.
The promises to their USP’s are delivered through several key activities such as logistics,
inventory management, relation to their suppliers/vendors, selection of contract winners of
their franchises, there service offered to the customers and the continuously improving
consistent control over the quality. The supply chain starts from the vendor end where a
top-notch supplier for vegetables, meats and beverage suppliers work in the pact of
delivering consistent quality benchmark and promised deliverables. The corporate social
responsibilities are highly values by Subway and are keenly kept a check upon that positively
results in a better brand positioning and global acceptance.
Of all the key activities, the set of value propositions for the consumers talks of offering
products that are made in health consciousness by demonstrating elimination of antibiotic
meats, tag lining Subway as “eat fresh”, introduction of gluten-free breads products and
promoting veggies for the subway’s “kids” segment in the U.S. Subway also promises low-
priced proposition by offering the 5-dollar subs in the US.

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The revenue model of Subway is mainly supported by the franchising part i.e. the revenue
earned upon licencing and awarding permission to operate the business. In addition to this,
there is a master franchise which is owned by Subway itself and is about one in a region to
signify flagship. Typical franchise fees range from $105,800 to $393,600 for the setup
including an average annual charge of $15,0005 in addition to which about 12.5% of every
restaurant’s revenue goes to Subway6. (India’s investment requirement discussed in
“retailing strategy”)
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4. Supply Chain Management

Fig 3. Supply Chain overview


SUBWAY is known for its fresh, healthy and globally distributed range of submarine
sandwiches with millions of customers worldwide savouring Subway every day. The
franchises and Independent Purchasing Cooperative (IPCs) are responsible for procuring the
products, equipment’s, ingredients and all the aids required to deliver the services to the
valued customers.
The supply chain value does not end at the verge of product movements but extends to its
sustainability where the IPC’s and other franchises work together dedicatedly towards an
environmentally secure future. From streamlining supply chain to the sustainable sourcing
practices, high food quality and safety standards are delivered.
The supply chain starts at the procurement end where Subway has four core procurement
support activities7:
• Opportunity Assessment
• Category Strategy
• Supplier Mix
• Procurement Software

The above-mentioned supports summarize that Subway has keen observation over its chain
that enables it to view the right opportunities at the right time – for example from choosing
the right bread base for the perfect sandwich. Followed by the sandwich ingredients that
come under the category strategy to define the short term and long-term objective of a
category for the business requirements. Next comes the supplier mix which focusses on

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having the right blend of suppliers in the upstream chain to cater the needs of Subway’s
supply chain and lastly, the employment of procurement software to coordinate with the
suppliers better and working towards visibility to enable a transparent working culture.
In India, Subway has partnered with Jyoti International foods private limited (JIFPL) as the
national supplier who handle the 3PL. On a global level, C.H. Robinson has a contract since
2004 which has eventually helped it in supporting the supply chain functions such as two-
phase managed freight solution, transportation centre and portfolio freight bidding8 helping
throughout costs optimisations and commitment to serve the customers better while
reduction of wastes throughout the global supply chain.
At the customer facing end of the supply chain, Subway focusses on promoting the IPC
towards transparency enabling them to make real-time fast, accurate decisions to give
customers what they want. Subway uses GS19 standards that help them eradicate product
data discrepancies and deal with better data to deal with the replenishment process.
___________________________________________________________________________

5. Manufacturing Strategy of Subway


In terms of the product, subway’s tag-line reminds it to serve “fresh” where it focusses on
maintaining its standard to the fresh bread. This product strategy plays a vital role in the
sustenance of subway. The strategic selection of the bread type too plays an important role
since the combination with the other ingredients and sauces should be compatible.
Overall, it can be said that Subway follows a traditional “assemble-to-order” practice where
the replenishment of ingredients take places once/twice per week10. The franchise
management is responsible to prepare and stack the veggies/meats and other vendor
supplies (chips/cookies) over the counter. The bread is supplied in form of frozen bread
sticks from the Bakers’ circle India Pvt Ltd (sole distributor for south Asia) which is baked
multiple times in a day as per the demand – which is same globally as a part of strategic
sourcing locally.

Fig. 4: Order-manufacturing flow


Receive order

Ask for bread


NO?

Bake Toast bread

Assemble requested
ingredients

Pack & Serve

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6. Retail Strategy of Subway

The retailing strategy of Subway lies in the idea of “franchising”. The idea of franchising
gives Subway a lot of benefits in terms of management and promoting focus on areas of
business optimization. The benefits of franchising for Subway can be noted as follows:
1. Capital
- Lesser assets mean lesser capital. On the other hand, there is a revenue
generation from the idea of franchising out the business.
2. Management effectiveness
- Where in a non-franchising business the management is typically involved in
dealing with the day-to-day challenges of running the business, the management
can focus on objectifying and strategizing the course of actions.
3. Speed of growth
- With the open end for franchising the business, and letting the business agendas
motivate the brand image, more the number of franchisers interested, growth
happens exponentially – a stunning result seen by Subway of growing to 641
stores in the 68 cities alone in India after entering India in 200111.
4. Leverage of staffing
- Franchising allows the franchisors to function in a “leaner” mode. Since the
franchisees take on the responsibilities along with the support from home
offices, the skimming of staff requirements happens at the franchise end
benefiting the whole organization in its cost structuring and encouraging more
applicants for franchising.
5. Penetration in secondary and tertiary markets
- Having a tertiary control of over the expenses that the franchisor makes by
incurring royalty expenses etc., the opportunity to explore the markets from
other end of evaluating the success factors of the brand in a market. Whereas,
the franchise that can bear the costs bear the risk of entering the market on self-
evaluation basis.
Looking at the major benefits as mentioned above are highly endorsed and yield a benefit
for itself in almost every aspect in all the possible market. More so, the uniqueness of
Subway in contrast to other similar fast-food chains is that it has not lost its product value of
submarine sandwiches and salads but has localized in the ingredients that it has to offer. To
say, competitors such as McDonalds, KFC have offered product as “Mc Chicken wings” and
“Cheeza” respectively by expanding the menu. This “retailing” strategy is not just a one-
sided business leverage for Subway. Subway, as a franchisor also gives the advantage to the
franchising party in the following ways:

1. Reducing business risk


- The business is based on a proven idea – franchisees can look upon the success
factors and rate thereby self-evaluating before committing themselves to the
business.

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2. No prior experience required
- Since the training and other operational activities with the least staff possible
employed, there is no such need to have a prior experience in running a
franchise.
3. Exposure
- For a small franchisor, who deals with a large organization as Subway, there is a
lot of exposure it gets on a global level by collaborating with high-quality vendors
in addition to the world-class practices that Subway does.

The investment can range from INR 5,495,000 to INR 10,539,000. This includes the initial
franchise fee of INR 625,00012.
___________________________________________________________________________
7. Logistics and warehousing strategy

At the heart of Subway’s logistics practices is “speed” that primarily comes by the nature of
products that it uses. Namely, products/ingredients on a smaller level including perishables
starting from the lettuce ranging up to the meat products and the most important – bread
items that it uses all of which require temperature-controlled transportation and storage.
With a rise from 0 to 641 stores in India alone, the replenishment strategies and
consolidation of orders to fulfill the demands of each franchise comes as a challenge. The
goals and plans in the logistics and warehousing strategy forebrings the cost-efficient
truckload transport and faster inventory turns.
Based on an example shared by the IPC, the practices being the same throughout, it can be
understood that vendors earlier produced their items which was processed for the shipping
stage and brought for shipping to the inventory then moving the materials to distribution
centers making it harder for the carrier to maintain constant temperature. In a strategic
approach, Subway along with CH Robinson developed a stringent model that used the
“postponement strategy” by creating a new redistribution system and new consolidation
facility with separate “operating rooms” and palletizing shrink-wrapping thereby
consolidating whole order on a truckload basis in collaboration with CH Robinson. This has
worked in favor of Subway by recording more inventory turns and prevented cross-
contamination of meats, the reflection of which claims a 66% fresher delivery when the
ingredients reach Subway’s franchises.
Next, the focus was laid on packaging and the outcome of having an underutilized capacity
of about 32%, Subway consolidated the shipment of lightweight items such as napkins and
straws. Next, the shipment of breads was taken into consideration where to fight the peak
seasons which led to a decision of bringing up new bread plants (operated by vendors)
based on “what-if” analysis to bring down to the lowest cost possible on all operational
basis – from supplier to customer. In the planning and distribution network, MIT and
Chainalytics were advisory partners whose insights and encouragement provided IPC with

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the broader aspect of collaborating and coming up with network design that proved
beneficial to all.
This case discussed above belongs to U.S. division, but all these traits of supply chain have
been implemented in India along with strategic selection of suppliers to operate effectively
and efficiently – as a function of an efficient supply chain that alters demand patterns only
but not the product.
___________________________________________________________________________

8. Inventory model

Fig 5: EOQ requisition


Subway requires all its franchisees to order items from an approved distributor. This is to
ensure that all the Subway restaurants serve the best quality with significant consistency
and allowing minimum costs. Using the Independent Purchasing Cooperative (IPC),
negotiations for the lowest costs for goods and services while maintaining quality, standards
and ensuring the best value for Subway franchisees is aimed at.

When the ingredients in a store reaches a certain amount on the lower level, it is replaced
with new ones (Kanban Approach & Pull System) which can said to have inculcated a "Lean"
Process Design & Facility Layout. In order to carry out the lean systems, the ordering
systems can be seen as that of an economic order quantity where the order size is
determined for the specific time period.
The need to use an EOQ model arises from it being a part of a continuous review inventory
system which can be better for a pull system by developing a data log that is then used in

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future to determine the specific values for the EOQ. For Subway, it can be laid out by
following reasons why EOQ stands appropriate:
1. Inventory levels are monitored at all times and a fixed quantity is ordered each time
when the re-order point is reached.
2. EOQ assumes a constant demand with inventory depletion is at a fixed rate.
3. It provides a model to calculate optimal re-order levels and quantity to ensure
instantaneous replenishment with no shortages.
4. It is valuable for small business owners, to say, the franchisees that raise the demand
which in turn goes to the supplier and replenishment takes place.
5. The cost of inventory under the EOQ model involves a trade-off between inventory
holding costs and order costs.
As we have seen earlier, the final product for any Subway franchise is made-to-
order/assemble-to-order. Thus, other than the postponement strategy that Subway has
employed in its consolidation centres of slicing, the remaining tasks of raw materials (RM),
WIP (work-in-progress) and Finished goods (FG) are all visible in the customer end. Since all
the raw materials are made ready to be assembled to meet the tailored demands of the
customer, there is insignificant WIP that involves only toasting the bread if insisted and
most of the operations contributing to the least possible lead time. The finished goods are
available for consumption as the whole assembly process happens in front of the consumer.
But the EOQ model is on a demand basis for the products that are available round the year
at all supplier nodes. Many a times, in a strategic procurement approach, non-perishable
supplies are procured on the basis of economies of scale and stored for long periods (such
as tissues, straws etc. and raw materials for bread which can be stored for really long
periods.
___________________________________________________________________________

9. Forecasting Techniques

Subway focuses on working towards reducing its costs in the ordering system and also the
bullwhip effect that appears in the supply chain. By making retailers accountable for the
procurement, Subway makes sure there is no excessive order of inventory, if any, is mostly
caused by uncontrolled external factors that affect the sales of Subway franchisees. Out of
an Indian case study13 on Subway, following points were a highlight in the demand
forecasting technique of Subway:

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Fig. 6: Forecasting Methodology in India

This kind of methodology seems quite simple in its approach. Although, it involves huge
amount of data mining and accurate sales data, the usage of the data involved is highly
beneficial for the forecasting procedure. Based out from the figure 6, past 3 years data is
taken in the form of trend with variabilities and outliers then compared to the last 3 weeks
data – this can provide with an optimal idea of deciding what the order quantities should be
like based on the content in addition to which other factors.
Also, based on the fresh food policy and general attribute of the perishable foods, orders
are given for utmost 7 days at maximum with an additional buffer of 3 days which means
that the order processing and receiving time is about 3 days and the received inventory can
be help for a period of maximum 7 days – this also allows patterns of wastes to disappear
and since the demand is visible throughout the transparent systems devised, it becomes
easier for Subway to work with its suppliers and meet the demand that the customers
through franchisees expect.

________________________________________________________________
10. Challenges that need to be addressed

Challenges that lie in hands of Subway in the future can be laid down as follows:

• A consistent Service experiences.


• Harnessing big data.
• Overexpansion may lead to loss of interest.
• Innovation to avoid market saturation.
• Rising virtual food stores.
• Threat of being sued for high performance claims
• Need to incorporate technological advances such as drone for deliveries, AI for faster
order processing etc.
• Franchise diversity may be preferred in customers’ opinion and dealing with such a
vast supply chain may can be very challenging for Subway.
• Tech-savvy ordering systems to go way ahead of Subway’s current delivery options.

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• With increasing purchase power of customers, newer ideas are likely to disrupt the
QSR (Quick service restaurants).
___________________________________________________________________________

In Text Citations
1

https://web.archive.org/web/20030419080129/http://www.subway.com/subwayroot/Abo
utSubway/index.aspx
2 https://www.subway.com/exploreourworld
3 https://www.nrn.com/quick-service/why-subway-shrinking
4 https://www.qsrmagazine.com/restaurant-operations/why-subway-isnt-failing-according-

subway
5 https://www.businessinsider.sg/what-it-costs-to-open-a-subway-2015-3/?r=US&IR=T
6 https://www.businessinsider.sg/what-it-costs-to-open-a-subway-2015-3/?r=US&IR=T
7 http://spendmatters.com/2016/02/16/what-can-subway-teach-us-about-procurement/
8 https://www.joc.com/subway-restaurants-awards-ch-robinson-worldwide-supply-chain-

partner-year_20080819.html
9 https://blog.foodlogiq.com/subway-ipc-supply-chain-transparency
10 https://www.businessinsider.sg/franchisees-say-subway-blocks-fresh-produce-deliveries-

2017-12/?r=US&IR=T
11 https://www.subway.com/en-in/exploreourworld#
12 https://www.subway.com/en-IN/OwnAFranchise/FranchisingFAQs
13 https://www.slideshare.net/sandeepgarg51/subway-8244226?qid=c94bfdd3-bb1d-48fb-

96ab-557b33667772&v=&b=&from_search=2

References

www.chainalytics.com
www.subway.com
www.entrepreneur.com
https://www.supplychainbrain.com

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