Subway Microeconomic Analysis
Subway Corporation: Microeconomic Analysis
Subway is an American restaurant franchise that primarily sells submarine sandwiches and salads. Since its inception in 1965, Subway has blossomed into one of the world's most successful franchises, with 35,015 restaurants in 98 countries as of August 2011 (Subway, 2011, p.1). Subway restaurants have been consistently ranked in Entrepreneur Magazine's "Top 500 Franchises," and in March 2011, Subway surpassed McDonald's in its ranking of most popular fast-food restaurant in the United States in a poll of over 43 thousand social media users (Jargon, 2011, p.1).
With its promise to provide both quality fresh ingredients and impeccable customer service, Subway has earned a place in the upper echelon of American franchises, seeing consistent revenue streams, increased employment, and a consistent and loyal consumer base. In viewing the microeconomic makeup of Subway, along with its strategies for success in the market, one can gauge how Subway has become one of the most successful franchises in the world with an economic business model that has proven undeniably successful.
Economic Progress and Costs
Economist Michael McCarty (2011) notes that the United States fast food market has seen a healthy rise in growth within the last three years, with the market forecast to have a value of $57.6 billion by the end of 2011, an increase of 12.1% since 2005 (McCarty, 2011, p.488). Subway, in turn, has seen remarkable success in the past ten years.
This success is due largely in fact to the steady low cost of production of Subway products. While the price of food has risen substantially in recent years, Subway has consistently committed itself to maintaining operations that are as financially and socially responsible as possible. During the recession, Subway franchises across America teamed up with family-owned farming operations to both promote the value of customer patronage of family farms and cost allocations. By incorporating locally sourced products wherever possible, Subway is able to meet its safety specifications and remain cost effective, which is a tactic that has allowed Subway to continuously increase in terms of business expansion even during the recession.
In utilizing such tactics, Subway has maintained the ability to keep its prices low while providing quality prices. Through massive promotional campaigns and advertisements for deals such as the "Five-Dollar-Foot-Long," along with mention of the dietary success patrons like the now-famous Jared Fogle, Subway has been able to bring in a consistently strong revenue stream in order to turn a profit, regardless of minimal price hikes in the distribution of other products.
Supply, Demand, and Elasticity
Subway's supply and demand flow is one that is fairly steady. Without customer demand, a restaurant like Subway ceases to exist. However, Subway has carved a niche for itself in the fast food market that has set it apart from many of its competitors. In doing so, Subway has established a pseudo-monopoly on the distribution of healthy fast food. Though other competitors are now seeking to include more health-conscious menu items into their repertoire, Subway is still far out of reach in terms of true competition.
The issue of supply then comes into play especially in terms of the enormous marketing promotions and advertising that Subway utilizes in order to move its product. For example, Subway's "Five-Dollar-Foot-Long" promotion was so popular and so fast, that it caused inventory shortages throughout the company. In order to compensate, additional products and employees were brought in. The question of whether Subway's $5 fixation was a round number that resonates with customers or a function of consumer-price points and price elasticity that affect virtually all markets? Economis Steve Tobak asserts that the answer is most likely the latter. He notes, "there are times when price is the best lever . . . And recognizing those times is often more a function of desperation than marketing wisdom" (Tobak, 2009, p.1).
In terms of demand elasticity, the new demand created by the promotion "directly added to revenues and profits" (Duru, 2009, p.1). Further, Subway discovered that these sandwiches had a very high demand elasticity because the...
Subway Economic Analysis Subway Corporation: Economic Business Analysis Subway Corporation: Economic Business Analysis Why Subway? Microeconomics centers on the study of the economic makeup of individual households, firms, and government. As franchise firms fall into this category, it is clear that small business owners, such as franchise owners, face the day-to-day task of dealing with many economic decisions in order to keep their businesses both functional and successful in order to turn a profit. One
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