Remaking Subway with Business Design
Innovating different aspects of a traditional B2C business with design thinking methodologies.
This project was part of a course IIMT3626 : Value-Driven Innovation at the University of Hong Kong, which teaches a plethora of business design frameworks and how they can be used to solve real business problems.
Background
Subway is an American fast food restaurant franchise that sells submarine sandwiches (subs) and salads. With 44,881 restaurants in 112 countries, Subway has become the largest franchising chain in the world. US being one of the most important market has 26,646 outlets. In the recent years the chain has seen a drastic drop in revenues. According to the customer loyalty ranking by Brand Keys, Subway came at last position among quick service restaurants. This shows us that there is an inherent problem in customer satisfaction and brand loyalty in the sandwich chain. To understand the fall of Subway, we first look at its rise.
Strategy
There were several factors in terms of customer satisfaction that Subway got right so as to succeed in the 1990’s and further. Founded in 1965 the shop expanded to different parts of the world by aggressive franchising. This allowed Subway to capture large segments of the market quickly providing a consistent subway experience all around the world. The company’s “Eat Fresh” slogan has made the fast food chain a favorite among the more health conscious users. With the rapid expansion and growth of the fast food industry, Subway championed itself on being a customisable selection of healthy leafy sandwiches. While other fast food chains provided upscale chic environments to grab a bite, subway offered an extreme sense of personalisation and created a social annotation to the subs themselves.
Branding
If we analyze under the 4D brand model, Subway’s functional value was quick healthy fast food, social value was the healthy living associated with the sandwiches. The economic value pertained to the mid-level pricing of their healthy sandwiches, while the emotional value was the control a person got over their own food giving it a sense of freedom. This emotional value got deeply rooted as people started believing that Subway food was deliciously healthy and easily accessible.
User Research and Observations
The user research involved various interviews, card sorting activities, shadowing, immersion techniques as described in the IDEO design kit.
Target Segment
My research has been centered around the millennial target group i.e ages between 18 and 34. This population of 80 million has the power to influence a younger and older target groups at the same time.. The population data by euromonitor shows that the average age of the consumer is predicted to decrease in the US as well as other emerging markets, making it the most important consumer group.
General Observations
A major problem that Subway faces is the sudden change in lifestyle patterns. These expectations arise from a changing perception of the fast food industry itself along with other motivators. Fast food is regarded to be in the first phase of the maturity stage of the product life cycle indicating a decline in growth rates.
Subway’s healthy eat fresh campaign is failing because the definition of healthy has changed for most people. Consumers increasingly say they wish to know if their meat has been cut fresh, or their meal heated by a steamer, not microwave.
This shift in perception coupled with the rise of better alternatives has made Subway’s most loyal customer base drift to other restaurants.
Customer Journey Map
The customer journey shows that the need for a subway only arises when the customer is in a hurry.
Subway has become something cheap, fast, and available. This gives it only a functional value but diminishes its emotional value considerably.
Touchpoint 1: Discovery — Subway was found to be present in major shopping areas and commercial areas in Hong Kong however the more loyal Subway customers mentioned that the absence of a subway at every corner hinders their ability to eat Subway all the time. They cited McDonald’s as an example which was open 24 hours, available almost everywhere, offered new choices every month. This direct comparison to McDonald's appeared in various interviews where users said that they would go to Subway if it served sandwiches the way McDonald’s served its greasy burgers.
Touchpoint 2: Space — Many users mentioned in their interviews that insufficient sitting capacities and lack of social space makes Subway unappealing to them. It often makes them feel lonely in eating their sandwich. This kind of negative emotion trickles down onto the rest of the experience as well.
Touchpoint 3: Food — The entire process of selecting your own bread and ingredients are still exciting for most people. In fact in the user interviews, 67% of the people were satisfied with the range of choices offered by Subway. However, they still felt the value they were getting was lesser than what they were paying for. Subway has always maintained a mid level price range above its competitors like McDonald's. The 6-inch subs are not considered filling while the footlong is considered too expensive and excessive eating, thus the size of the sub has become a huge value problem for most individuals. This was noted by my shadowing as well, where people bought a 6 inch and had to buy another in some time to fill their bellies, only to waste some.
Touchpoint 4: Customer Service — The interviews hinted towards large dissatisfaction with customer service calling them slow or inadequate. Though this experience is subjective, however researching customer reviews on Yelp shows that such dissatisfaction is prevalent in at least 3 out of the 4 outlets of Subway in Hong Kong. For Subway’s hurried costumer, a slow or overly-chatty customer service is extremely irritating and one interviewee said it’s better if I don’t have to talk to them at all.
Touchpoint 5: After Sales Service — Such service or followups were almost nonexistent, there were no promotions or loyalty memberships that Subway openly advertised. The college interviewees mentioned that they would not mind a Subway membership because it was cheap and available on Campus. However, the respondents, not in University mentioned that they wouldn’t want a membership as they had better fast food options.
Restaurant Character Profiles
For this research method, users were told to imagine the restaurant as a person and describe it. It revealed some major aspects of how customers perceive Subway and its competitors.
Subway
Most people imagine Subway to be a health-conscious person who goes to the gym and tries too hard to stay fit.
McDonalds
In contrast, they pictured McDonald’s as an obese person who cracks a lot of jokes.
Sandwich Cafe
Respondents imagined a local sandwich cafe as an attractive girl or guy who plays the guitar.
Most people like jokes and this makes most people like fat old McDonalds. Most like listening to music and would love to hang out with the suave guitar guy.
While most people are health conscious, only some find this quality attractive. Most see it as an added benefit to inherent traits that a person has to a personality.
Subway’s promise of good health is not enough to attract millennials and GenZ. They have a different set of values and these values do not match with Subway’s image.
Psychographic Analysis
An individualistic and social-media-driven value system has led to a rise in independent food chains hampering Subway’s market position. Though it’s hampering fast food as a whole, chains like McDonalds having championed their low price menu still maintain a niche.
Subway isn’t touted as the “cool place to be”, people aren’t as proud of going to Subway as they are of Starbucks Lattes.
With a new-found dispensable income, millennials are willing to spend money not just on good food but to show people that they’re eating good food. The phrase “alone together” accurately describes how social-media is reshaping food choices and habits. It’s has led to subcultures with hashtags like #foodporn, and necessary check-ins when visiting the local cafe.
Food has become more social than ever, and Subway is lacking the most basic tenet here. It’s lonely, uncomfortable, hurried environments do not connect with the millennials.
Industry Trends
Euromonitor analysis on Fast Food in the US shows a sharp rise in independent food joints as compared to chained fast-food restaurants.
A cheap takeaway independent food joint can well disestablish Subway’s market, simply because people would trust it more than the Subway for taste and health.
Washington Post quotes the chain’s fast-rising rivals, like Chipotle Mexican Grill and Firehouse Subs, are beating Subway at the game it helped create, offering seemingly fresher, healthier, build-your-own meals.
Redesigning the Business of Subway
The ideas proposed are a radical break from the company’s value of consistency. However, with the changing lifestyle of people, this change in approach is necessary if the company wishes to survive in the fast-casual environment
Subway’s Mission Statement states that it aims to provide the tools and knowledge to allow entrepreneurs to compete successfully in the Fast Food industry worldwide, by consistently offering value to consumers through providing great-tasting food that is good for them and made the way they want it. The company’s mission has a large focus on entrepreneurs that is the franchise owners. Subway is the only Quick Service Restaurant (QSR) that has zero company-operated stores. Hence the major innovations would be focussed on the franchise system and would use the shared value creation model.
Creating Shared Value
This is an innovation framework that promotes taking decisions that benefit all stakeholders of the business instead of a narrow and short-term focus on increasing shareholder value.
Enable Local Cluster Development — Subway must introduce certain company-operated stores to increase the rate of experimentation and bring new concepts to the market faster. Companies like McD, KFC and Wendy’s all have a large portion of company-operated stores which allow them to experiment. Subway’s lack of company stores is a hindrance to innovation and adapting to customer needs. Expertise from these company-owned stores would enable Subway to improve the operating standards for all franchises, increasing their revenues in the long term. The company stores would also be a playground for testing radical ideas like Vertical Farming of ingredients or entirely Vegan outlets.
Recreate Products and Markets — the current approach of Subway to adapt to local tastes and present local versions of food needs to be revamped for millennials. The Psychographic segmentation showed us how people’s preferences have shifted from the mundane to the exotic. While Subway does a good job at localizing the food it provides, what if it did the exact opposite of that. Instead of introducing Indian Curry subs in India, they could introduce them to more globalized economies of North America. Globalisation has been a major factor affecting QSRs. Chipotle and Fast-Chinese are working extremely well in North America while McDonalds and KFC are raking in massive profits in China. Thus Subway should adopt these cross market approaches to diversify food choices in its vast franchisee network.
Redefine Productivity in the Value Chain — Such experimentation needs the robust franchise network we talked about earlier and also innovation in management. QSR’s are moving to chef based menu’s and therefore it is important to allow for innovation in micro cuisines to be led by decentralized Subway units. Following Subway's mission statements, we must make the franchise-owners feel more like innovative entrepreneurs as opposed to small business owners.
A wide variety of incentive schemes can be can be designed to promote this attitude among franchisees. One such scheme could take the form of innovation challenges, wherein Subway owners would be allowed to introduce two to three menu items of their own. If they manage to meet revenue targets with these new sandwiches, Subway would decrease its royalty share for the store.
This strategy follows a loose means and tight ends style of management in order to drive profitable innovation.
Once a local item introduced by the franchise owner is succesful, Subway can buy the recipe and introduce the new sandwich concept into other stores to drive sales.
Enhanced Brand Strategy
The main complaint of the consumers in the analysis was that Subway was unsocial and unfriendly however this runs counter to its functional value of Subway as fast food that can be grabbed in a hurry. Instead of focussing on either aspect, it makes more sense to deal with the two different consumers with two different types of restaurants. Subway’s initial strategy of introducing Subways in gas stations and Airports has been a for the hurried customer and can be classified as Subway Express stores. For social crowds looking for a culinary experience, premium Subway Cafe’s can be created with posh interiors and a mix of quick service as well as gourmet food. This concept is akin to McDonalds with its McCafe brand. However, the difference here is that while the company integrates McCafe into a Mcdonald's. Subway Cafe’s would be separate units with a different functional philosophy. The Cafe concept tackles the volume problem, by keeping the prices for the gourmet food high. It provides millennials the social insta-worthy environment with the value proposition of a juicy Subway Sandwich.
Blue Ocean Strategy
This framework is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.
New fast-food restaurants like SaladWorks bank on their promise for nutritious and organic food while Subway has been under the fire for its false promises on nutrition by an informed consumer market. The “Eat Fresh” image of Subway doesn’t suffice in today’s world, following the Blue Ocean Strategy I wish to introduce a concept that hasn’t been implemented at scale before called mindful or sustainable dining. This concept promotes guests’ overall well-being rather than simply focusing on providing nutritious menu items. The sense of personalization that Subway offers is pushed even further when the consumers get to know where their food comes from and how it affects the environment around them. The aim of this kind of dining experience is to allow consumers to feel good about themselves while eating out and banks on sustainable food sourcing. This dining experience would definitely increase the costs of the ingredients hence it might be limited to the premium Subway Cafes, however, some ingredients can also be provided at the Express stores. The narrative behind were the chicken or the lettuce comes from, how it got to the store can help shift the focus from nutritional specifics to Subway’s efforts in sustainability. This taps into a unique market of customers that care about the environment and want to know how their actions affect their carbon footprint.
Conclusion
Subway’s future lies in utilizing its vast franchisee network to introduce new products and improve the overall Subway experience for everybody. Subway Cafes help in tackling the social value problem by providing cozy and comfortable environments for Millenials to sit back and think of a caption for their next Instagram post. The focus on sustainability through the Mindful Dining program breaks the cost-value tradeoff giving Subway a differentiated and unique market space that appeals to customers.
