PESTEL Analysis of Subway
Founded in 1969, Subway has grown to become the largest fast-food chain globally based upon its total number of stores. In 2019, there are more than 23,800 restaurants operational in the US. Canada is its second-largest market, where there are more than 3000 restaurants operational currently. One important thing about Subway is that it is operated entirely by franchises. There are more than 21,000 franchisees who operate the entire QSR chain. The first Subway opened in Bridgeport, Connecticut in 1969.
Since then, the company has kept expanding to various parts of the globe with more than half of its restaurants in the United States. Apart from its great quality of food, Subway is also known for its customer service, dining environment, and excellent marketing. However, there are various types of challenges in the international market which can be political, economic, technological, legal or even social in nature. This is a pestle analysis of Subway which analyses how these forces affect the QSR chain’s business around the globe.
The importance of political factors in the context of international business has grown a lot. It is because the level of control that governments and government agencies used to exercise over large businesses has grown to a very large extent. Apart from government regulations related to international business operations, the level of oversight related to food quality, labor, and other areas has also grown. This is true about nearly every industry including the food industry. While on the one hand government agencies are keeping a tight watch over every aspect of a business, it is also important to comply with the rules and regulations which can vary from country to country.
Regulations related to labor, food, and environment can vary from one market to another. Labour, taxes, food quality, and other areas require more focus from businesses since noncompliance in any region around the globe can result in hefty fines or shutting down operations. These are some of the most important factors that affect business performance worldwide. Moreover, the attitude of local governments and their policies regarding food businesses in any given market have a direct impact on performance in the given region. Trade agreements between any two nations can also have a direct impact on the revenues and profits of a QSR business. The trade wars between the US and China have impacted nearly every QSR business based in the US and operating in the China market. Not just the technology brands, but the fast-food brands have also felt the impact of rising tariffs. These tariffs can affect the prices of food and cause the operational costs for QSR businesses like Subway to grow.
The economic factors are also playing an important role in the context of international business including the fast-food industry. Economic changes throughout the world and especially in the main markets of a QSR brand have a direct impact on its revenues and profitability. When the level of economic activity is high and unemployment low, people tend to spend more on food and leisure activities. During such times when the employment level is higher, people have extra money and the spending on food and household items is higher. In such a case, the sales and revenue of fast food brands generally remain high. on the other hand recession or decline in economic activity generally leads to lower spending up on fast food and other things in this way economic changes can have a direct and immediate effect upon sales and revenue of brands like Subway.
Competition is also an important factor that affects the business of fast food companies. Currently, the entire Fast Food Industry is marked by intense competition. Some of the leading competitors of Subway include McDonald’s, Burger King, Wendy’s, Dominos, and KFC. Apart from the burger restaurants, pizza, and chicken restaurants also compete with Subway for market share. High competition adds to the costs of marketing and operations. Moreover, economic activity can vary from one region to another. Therefore, overdependence on a particular region can cause difficulty during times of recession. The United States is the largest market of Subway. Due to improved business and economic activity during the past few years, most fast food brands have seen healthy sales and profits. Even if Subway’s US revenue declined, then the reasons were not economic in nature.
Socio-cultural factors are also playing an increasingly important role in the context of international businesses including the fast-food companies. From region to region, the eating habits and consumption patterns differ because of social and cultural differences. It is why the level of popularity that a fast-food brand enjoys in each of its various markets may differ from market to market. Moreover, social image and social trends are also affecting the sales and revenue of fast food businesses as well as their overall success.
Socio-cultural factors are also playing an important role in terms of marketing since brand image and brand equity have grown even more important in the light of the fact that people love to buy from brands that have a strong social image. Once the image of a brand in society is tarnished, it becomes difficult to rebuild the lost image. For the past few years, Subway has been closing several of its restaurants in its leading markets including the United States. It has also experienced a continuous decline in its revenue. In 2015, the company faced a major setback when its marketing partner Jared Fogle was arrested on charges of sexual offenses. The company instantly cut all ties with him but by then it had affected Subway’s social image.
The role of technology in the QSR industry has kept growing over the past several years from sales to customer service and marketing technologies playing how much larger role in all these areas. Apart from its website and mobile app, Subway also uses social media for marketing and customer engagement, it has kept investing in digital technology to make buying from Subway a more convenient experience for all its customers.
Technology is helping fast-food brands in many other ways too. Not just online sales, but in the area of customer service and supply chain management also digital technology is playing a much bigger role than ever. The company has also rolled out a large number of technological features inside its stores so that customers can have a better dining experience. Some of these features include self-order kiosks, digital menu boards and a designated pick-up area for off-premise orders. Technology has helped Subway create an outstanding experience for its customers. Subway also plans to make use of more technological features including augmented reality, virtual reality and voice ordering in the future to provide its guests, a superior dining experience.
The environmental factors are also gaining importance rapidly in the context of the fast-food industry. The environmental impact of fast-food brands has become an important concern for the government and society. The governments have increased the oversight of fast-food brands in terms of their environmental impact. There are several environmental laws that the fast-food businesses need to comply with. Whether Subway or any of its leading competitors, they all have to remain compliant with the necessary environmental regulations.
This is why fast-food companies including Subway are also investing in the environment so as to reduce their environmental impact as well as to maintain a good image in society. In the area of supply chain management also the fast-food companies like Subway are investing in reducing their environmental impact and making their business processes more sustainable. Sustainability has become an important focus for all the leading fast-food brands. Apart from sustainable production and supply chain, these businesses are also investing in other aspects of their global business networks to make all their business processes sustainable. The company has greatly reduced its carbon emissions during the last ten years. It has also reduced its oil consumption as well as electricity consumption in its stores.
Legal factors one of the most important considerations in the context of international business. For any business that is operating in multiple corners of the world, it is important to comply with all the local laws and regulations. Even in the fast-food industry, the number of laws affecting business operations has grown. Moreover, the level of fines that can be applied by the government for noncompliance has also grown very high. From food quality to labor as well as wages, there are numerous laws in all these areas that affect the business of Fast Food brands like Subway. Legal issues can be a barrier to faster growth. Subway’s problems are not largely legal in nature. However, the company is dealing with various sorts of problems include some partially legal in nature.
CITE THIS SOURCE:
Pratap, Abhijeet. “SUBWAY PESTEL ANALYSIS .” Notesmatic, 22 Dec. 2019, notesmatic.com/2019/12/subway-pestel-analysis/.
Pratap, A. (2019, December 22). SUBWAY PESTEL ANALYSIS . In Notesmatic. Retrieved from https://notesmatic.com/2019/12/subway-pestel-analysis/