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MGT603 Strategic Management Assignment 2 Solution Spring 2014

Subway is an American fast food restaurant that primarily sells submarine sandwiches (subs) and salads. It is owned and operated by Doctor’s Associates, Inc. Subway is one of the fastest growing franchises in the world with 42,070 restaurants in 107 countries and territories as of June 28, 2014. It is the largest single-brand restaurant chain and the largest restaurant operator globally.

Assignment Question:

Being a student of strategic management, you are required to discuss Subway’s market position in the light of porter’s five forces model.   (10 marks)

Note:

Michael Porter’s framework derives 5 forces that determine the attractiveness of a market. Porter referred to these forces as the microenvironment to contrast it with the more general term macro environment. A change in any of these forces normally requires a company to re-assess the marketplace. Porter’s five forces are threat of new entrants, threat of substitute products and rivalry among competitors, bargaining power of suppliers and bargaining power of buyers.

You are required to discuss the following points.

Threat of new entrants

¯  Barriers to entry

¯  Switching cost

Threat of substitute products

¯  Buyer inclination to substitute products

Rivalry among competitors

¯  Exit barriers

¯  Product differences

¯  Diversity of rivals

Bargaining power of suppliers

¯  Presence of substitute inputs

¯  Supplier concentration

Bargaining power of buyers

¯  Price sensitivity

¯  Substitute available

¯  Product differentiation

Solution:

Porter’s Five Forces Analysis

The Five Forces that Shape Industry Competition (Porter, 2008)

There is always a Threat of New Entrant in this market because of the low setting up cost and no product differentiation in the specific fast food industry. As the UK fast food market is concern there are lot of examples of new set up in that particular field.

Overall the world market of fast food suppliers are concern Bargaining Power of Supplier is more due to the alliances among the supplier are taking place in order to get more market share and profit as more potential and demand of their products in international market as far as the farming industry is concern.

Now a day due to current financial crises and low purchasing Power of Buyers (Consumer) and their loyalty with brand in not much strong because consumers are looking for something cheap instead of becoming brand loyal. So Subway must have to manage the strong buyer’s power in order to get more market share. In UK context there is always a big Threat of Substitute as lot of convenience shops, mid range restaurants, pre cooked food and some of the health food shops are available in the market, and they are providing substitutes of Subway to the consumers. Fast food industry is facing a stiff competition as there are lots of fast food chains available for consumer in other words more Competitive Rivalry. The example of Mc Donald’s, KFC, Burger king etc are the big competitors of Subway. They are competing each other in term of price, quality, branch networking as overall demand of their products is increasing.

Strengths

Size and number stores and channels as compare to the Mc Donald’s, KFC etc. Menu reflects demand for fresh, healthy and fast and also the according to the tradition and values of the specific country as different menu in Pakistan, china etc.. As every on Worldwide know the brand Subway. Low franchisee start up costs as its mention in the comparison of different start up cost of fast food setups. Franchisee training is structured, brief and designed to assure rapid start-up and success.

Weaknesses

Decor is not according to the new fashion. Some franchisees can be unhappy because of not been getting attention and benefits from the company as there is a big set up and too many branches. As far as the nature of job is concern there is high employee turn over ratio. There is a chance of no or less control over franchise saturation in given market areas like the quality and customer service.

Opportunities

Due to low investment cost (Franchising cost) as compare to other companies in fast food industry like Mc Donald’s, Pizza Hut etc. There is always an opportunity to grow globally. Updating decor can make the sale up and good reputation of the company and brand competition is getting stiffer in this specific industry so improvement in relation to customer service can make a visible difference. There are good potential customers in Chine, and almost 520 M people are belong to upper middle class so with the combination of Chinese traditional menu that can be a good in time thinking to invest in china. Another concept of Halal franchises not only to targeting the Muslim but other customers as well.

Threats


There is stiff competition among the different companies in fast food industry, the fifth of competitive edge, more market share, and brand building competition. But as the present downturn in economy and its may not be a good idea to increase the number of franchises as Subway target to have 2010 branches in UK by 2010. The SUBWAY� chain aims to increase the number of outlets it has in the UK and Ireland to over 2,000 stores by 2010 (Subway, 2009 a).

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