Strategic Management Case Study Analysis: Subway Franchise Issues

This case study examines the strategic management issues confronting Subway, a global food franchise. The analysis focuses on internal challenges, including leadership changes, marketing setbacks, and franchisee conflicts, alongside external pressures such as declining sales and product controversies. The study highlights the application of strategic frameworks like PESTLE analysis and Porter's Five Forces to understand the political, economic, social, technological, legal, and environmental factors impacting Subway's business. It also addresses the competitive landscape and the need for strategic adjustments. The case underscores the importance of adapting to consumer demands, maintaining product quality, and managing franchisee relationships to ensure long-term success in the competitive restaurant industry. The study concludes by questioning the need for core management changes and the potential for resolving the identified issues through strategic interventions.

Running head: STRATEGIC MANAGEMENT: CASE STUDY ANALYSIS
Strategic Management: Case Study Analysis
Name of Student
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Author Note

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STRATEGIC MANAGEMENT: CASE STUDY ANALYSIS
Mini-case Analysis
Is the world’s largest food franchise safe and free from strategic management issues
or there are threats that questions their managerial functions?
Subway is a privately owned American food franchise company, known for its
submarine sandwiches and salads (Subway 2019). It is one among the few fastest growing
restaurant franchises in the world and the largest single-brand food chain. Primarily located
all over United States, it had around 42,000 outlets in near about 112 countries all across the
world (Narishkin and Cameron 2019).
However, it is a matter of concern that even the largest of the franchises in the world
suffer from various strategic management issues that negatively affect their operational
systems and the way they function (Dabbene, Gay and Tortia 2014). In the past few years,
Subway has been caught up in such similar organisational issues.
Strategic issues faced by Subway
The major crisis faced by Subway at present is internal rivalry and weak leadership. It
began when, long time spokesperson of the company Jared Fogle was charged of possessing
child pornography and child molestation (Phillip and Larimer 2015). It was in 2015, that he
was considered guilty of all charges and subjected to 15 years of federal imprisonment.
Subway broke all ties with Fogle and had to undertake an entirely new marketing campaign
post his removal. In 2017, Subway hired Karlin Linhardt as their vice president. This was one
of the major hires on the company’s part as Linhardt was a big name, known for his
association with McDonalds. The big blow arrived when he suddenly resigned from the
position within a span of 8-9 months of his arrival. The marketing strategies were expected to
experience a major positive boom after he ascended the position but with the news of his
resignation, it continued to remain stagnant. There were also reports of conflicting ideas
related to establishing new changes in the company between Linhardt and CEO Suzanne
Greco.
A major decline in sales has been noticed since 2017 along with a decrease in the
number of outlets. According to reports, 2017 marked the fourth year of the food chain’s
declining state of sales. The United States outlet count fell by 909, which is a three times
larger loss than what the company accounted the previous year. The Subway franchisee war
began during the $4.99 deal which was a new version of the $5 Footlong deal. Various
franchisees started protesting against the deal by signing a petition as it was considered to be
Linhardt’s idea. According to the New York Post, that was one of the reasons behind
LinHardt’s departure Kosman 2017). Many outlets also complained that the profit and traffic
margin of the company was going down as the food and labour cost went on rising. In an age
when most of the consumers are conscious about the products, the franchisees also expressed
grievances regarding food supply. Due to the company being completely franchised, food
supply is controlled by the corporate offices. Therefore, the restriction of food supply only
from Subway recognised suppliers often caused a hindrance in making profit as the company
fail to meet up to the demand s of better quality products from the franchisees.
Another issue faced by Subway has been in terms of its products. There has been a
considerable lack of creative menu options as compared to competitors. The only noticeable
change in Subway’s menu has been the removal of artificial components. Back in 2014, food

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blogger Vani Hari collected nearly 50,000 petitioned signature pointing out and protesting
against the use of Azodicarbonamide chemical in Subway’s bread (Babe 2014). The chemical
has been certified in the United Kingdom as a substance that can cause asthma. In another
occasion, CBC’s TV Series Marketplace ran an investigation in 2017 by putting chicken
products from Subway under a lab-test. It was pointed out that 50% of the DNA was
composed of Soy products (News 2017). There was also a controversy regarding the size of
the sub sandwiches which was considered to be less than that of the advertised size. It was
Australian teenager Matt Corby who took to his Facebook to post a picture of measuring a
footlong sub sandwich that was less that 12 inches, the size that was advertised. The post
soon went viral and people started complaining about the size of the subs. Moreover, the
constant expansion of the number of outlets have increased the quantitative output but the
quality of the food has often been compromised with. More focus have been intended
towards the number of stores rather than the quality of the products.
It can be considered that though the restaurant industry has experienced a boom all
over the world in the last few years and the demand for food chain service has been high
among consumers, they have repeatedly been a part of numerous strategic issues. Though
Subway has been used as a case in the paper, the issues mentioned have been a matter of
concern for food franchisees and the industry as a whole.
The identified strategic issues of Subway can be analysed and understood using
strategic frameworks like PESTLE Analysis and Porters Five Forces (Mishra n.d). These
frameworks would help to understand the threats and risks that the company can face in long
run due to the different issues it is currently facing.
The PESTLE analysis framework will give a complete idea about the macro-
environment of the market Subway is catering to. It will also analyse the different political,
economic, social, technological, legal and environmental factor that influence the business of
the company and how the issues can cause an hindrance to the regulation of such factors. It
can also be analysed that what are the scopes for the company to resolve their issues in the
given sectors.
However, the PESTLE framework would only provide an idea about the state and
scope of the external environment of the company (Dockalikova and Klozikova 2014). It is
also essential to understand the competitive environment of the company. When a given
company is undergoing any critical strategic issue, the majority of benefit is drawn by the
competitors in the market. Hence, having a detailed idea about the competitive market is as
essential for a company as resolving its strategic issues.
Porter’s Five Forces can be considered as the ideal framework that can help
understand the competitive market and what are the measures Subway need to undertake to
keep a check of the competition and not act up to their advantage (Dobbs 2014). Therefore, it
can be considered that strategic issues does not necessary fit into any specific or singular
strategic framework. Most often a combination of two or more strategic frameworks becomes
appropriate to understand and analyse the strategic issues faced by any company.
Looking at the issues that Subway is currently facing it can be questioned if the readers feel
if-
Do you think there is an immediate need for change in the core management of Subway?

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STRATEGIC MANAGEMENT: CASE STUDY ANALYSIS
Do you think if the management undertakes proper methods, all the addressed issues would
be solved from the core of the company?

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STRATEGIC MANAGEMENT: CASE STUDY ANALYSIS
Briefing Note
Despite being one of the largest food franchises in the world, Subway has often
encountered various strategic issues in an organisational level. The major issue faced by the
company are various internal struggles and management problems concerning the higher
authorities, their reputation and the image of the brand. Similarly, a greater cause of concern
has been the growing problems among the franchisees, their complaints and grievances. The
franchisee problems have also resulted in the declining sales and profit margin and led to
closure of many of the company’s outlets. Moreover, issues concerning the product has also
been in the news. From questions regarding safety to authenticity of products according to
advertisements, the company has seen all of it.
As mentioned earlier, in order to figure out probable solutions of the issues, it is
necessary to understand and analyse the problems. Now, the problems can be analysed taking
into consideration certain core strategic concepts or frameworks. The frameworks used for
analysis of Subway are PESTLE Analysis and Porter’s Five Forces.
PESTLE Analysis
Political Factors
Subway functions as a food franchise business and like all other food chain business, it must
abide by certain political factors. One of the issues mentioned is the fact that owners of the
company are mostly concerned with the quantitative aspect of the food chain rather than
qualitative. It is trying to expand the number of outlets all over the globe at a very rapid rate.
In doing so, they have the probability of overlooking many political factors. But it is indeed
necessary for them to abide by all the political rules and regulations of all the countries they
are expanding their business into.
Economic Factors
One of the major concerns of Subway is the declining sales. Over the past two years, Subway
has witnessed a major decline in the U.S. sales. It has also been recorded that the sales across
many countries has mostly been flat or have considerably decreased. There has also been a
decline in the number of franchisees as the company has closed down around 1000 outlets.
From nearly 27,000 franchised stores in U.S reported in 2015, it came down to about 24,800
sales in 2018 (Statista 2019). Also, with the food supply being restricted solely to Subway
suppliers, higher inflation rate can negatively affect the business.
Social Factors
The brand’s association with Jared Fogle, who was the face of Subway since 2000 and the
same person being found guilty as a child molester served as a big blow to create a negative
image of the brand. The brand value suffered for quite a few months after Fogle’s arrest.
Consumers were highly doubting the image that was provided by the brand so far.
Technological Factors
Subway has been creating new store designs that has digital facilities like self-ordering kiosks
in few outlets, digitalized menu boards, a separate food preparation area and a distinct order
pick-up area. Though these advanced technological changes can help Subway to be at par
with its competitor that long embraced such advantages, many franchisee owners are of the

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opinion that the changes are not bringing in the desired reaction from the consumers. The
management have mostly focussed on technological advancements but the customers mainly
demand in a better quality of food products. Subway should certainly consider having a
balanced between both.
Legal Factors
Over few years Subway has been struggling to maintain legal factors. Firstly, the
spokesperson of the company faced federal imprisonment due to child molestation. Although
the company did a good job by breaking all ties with the concerned person and establishing a
whole new marketing campaign. Every global food chain has to abide by food safety laws in
all the countries it operates and maintain health regulations. Food and health safety was
jeopardized by the company when the chemicals were found in its bread production as
pointed out Vani Hari. Later, soy products were also found in the chicken products. Although
the company addressed the former issue and promised to shed usage of artificial chemicals,
the latter issues was completely denied. CBC, the production house that carried out the
investigation stated that no alternative declaration have been provided from Subway’s side.
Environmental Factors
After several instances of criticism regarding the use of antibiotics in meat products and
chemicals ain bread, Subway has decided to stop using any artificially induced food products.
They have also considered animal welfare and undertaken the policy of using cage free eggs
in their products. After suffering various reputational damage, these agendas contribute in
uplifting the image of the brand. However, the company should be highly careful to make
sure that the agendas are carried out successfully and no other hindrance is caused in the
process.
Porter’s Five Forces
Bargaining Power of the Customers – High
The issues focused in this paper has mostly been highlighted by the consumers of Subway.
Protests against the spokesperson, petition against the food products and slamming the
company with lawsuits, all of such issues have been brought to focus by the customers.
Therefore, grievances on the company’s part and with the amount existing options, the
bargaining powers of the customers are high. They have the power to boycott the company if
and when they like as well as switch to other food chains without compromising the price.
Bargaining Power of the Suppliers – Medium
The company deals with multiple suppliers all across the globe. The suppliers are inclusive of
the brand and might not want to easily break ties with the company. But amidst the
mentioned issues it has been noticed how franchisee owners have expressed dismay about the
limited number of supply they receive. If the owners decide to protest against supply issues,
the suppliers might want to break association with the company to avoid any dispute.
Threat of Substitutes – High
There was a time when Subway was the unprecedented ruler of the food chain industry. But
declining sales, internal rivalries, weakened leadership, social controversies, stagnant change
in food products and lack of innovation led the customers to shift their focus to other

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companies. McDonalds has also substituted the brand and is the leading food chain franchise
in the world at present. It has also successfully built a better brand image and a more loyal
customer base. Other competitors like Chipotle and Arby’s also has a great probability to
substitute the brand especially in the U.S. market.
Threat of New Entrants – Medium
The food chain industry is growing at a great pace in the global scenario. New franchisees are
constantly entering the market. And every such franchise can use the strategic issues of
Subway to their advantage and to increase their stronghold in the market. However, despite
all the issues, it is to be considered that Subway is a renowned brand and any other new
entrant in the potential market would require a long time to replace Subway and take over its
position.
Rivalry among Competitors – High
There is a great rivalry among all of Subway’s competitors. Various commercials and
campaigns have often hinted at the faltering food product promise and issues faced by
Subway. If Subway does not resolve its issues competitors like McDonalds and KFC can
certainly use it to their advantage (Harrington, Ottenbacher and Fauser 2017).
Therefore, it can be concluded that the strategic issues faced by Subway does have an
effect on it macro market environment. Similarly, the competitive market can also use such
issues to its advantage. Subway should firstly solve its internal disputes and establish a strong
and proper leadership. The management serves as the core of the company and that certainly
needs to be stable. The PR department should also know how to deal with crisis better. The
higher authorities should definitely consider solving the issues faced by the outlets. Proper
functioning of the franchisees is necessary for a food franchise to run smoothly. Authorities
should listen out to the grievances of company owners and take necessary steps towards
solving the issues. More emphasis should be given to the quality of the products rather than
overexpansion of outlets. Subway has already taken up food safety measures and stopped
using artificial products. They should make sure to continue the same and strive towards
betterment of the company.

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