Subway Five Forces Analysis & Recommendations (Porter’s Model)

This Five Forces analysis of Subway examines the global foodservice industry and the related external factors that influence competitive pressures on the company. In Michael Porter’s Five Forces analysis model, these external factors in the quick-service restaurant market determine the Five Forces, namely, competition, buyer power, supplier power, substitution threat, and new entry threat. Subway’s growth in its multinational operations shows business capabilities to overcome challenges linked to the Five Forces. As one of the leading fast-food restaurant chains in the world, the company finds success in its strategies accounting for competitive forces in the industry. Still, innovative changes in the business organization can offer additional support for long-term growth despite the issues examined in this Five Forces analysis of Subway.

Overcoming the competitive forces in this Five Forces analysis case creates opportunities for reaching Subway’s mission and vision and related strategic goals and objectives. Strategic planning and managerial decisions that account for the external factors in this Five Forces analysis empower Subway’s quick-service restaurant chain to grow in the international market.

Summary: Porter’s Five Forces Analysis of Subway

This Five Forces analysis of Subway illustrates strong competitive rivalry, as well as related external factors affecting the five forces. The following are the intensities of these five forces influencing Subway:

1. Competition: Strong
2. Buyer Power: Moderate
3. Supplier Power: Weak
4. Threat of Substitutes: Moderate
5. Threat of New Entrants: Moderate

Recommendations. The results of this Five Forces analysis determine that Subway experiences strong competition that relates to market saturation. The bargaining power of customers, the threat of substitution, and the threat of new entry are moderate (considerable but limited) in influencing the fast-food restaurant chain. The bargaining power of suppliers is weak because of Subway’s large size and purchasing power. This Five Forces analysis of Subway warrants the following recommendations:

1. Invest in product innovation and market penetration using Subway’s competitive strategy and growth strategies to ensure competitive advantages and business growth.
2. Develop strategies for business diversification to grow the business despite the saturation of the foodservice market.
3. Implement aggressive marketing campaigns to strengthen Subway’s brand and protect its business against competitors and new entrants.

Competition with Subway

This element of the Five Forces analysis evaluates competitors’ ability to attract consumers and increase their market share. The strong force of competition with Subway is based on the following external factors:

• High number of foodservice firms
• High aggressiveness of firms
• Low-moderate brand loyalty

This Five Forces analysis of Subway evaluates competition with foodservice firms, including multinational fast-food restaurant chains, like McDonald’s, Burger King, and Wendy’s, as well as coffeehouse chains, such as Starbucks. The foodservice market is saturated with many firms of different types, sizes, and specialties. Based on Porter’s Five Forces analysis model, market saturation strengthens the force of competitive rivalry that Subway experiences. The related factor of firms’ high aggressiveness increases the strength of competition in the fast-food restaurant industry. Furthermore, the low to moderate brand loyalty of consumers strengthens the force of competition in this Five Forces analysis case. For example, diners looking for a different taste or cuisine can easily switch from Subway to competitors.

Bargaining Power of Customers

Customers’ influence on the restaurant business is evaluated in this element of Porter’s Five Forces analysis model. The following external factors are responsible for the moderate bargaining power of customers over Subway:

• Foodservice firms’ low-moderate differentiation
• Small size of individual customers
• Consumers’ high price sensitivity

Many foodservice firms offer similar menus of similar food and drinks, while some restaurants offer some differentiation in terms of cuisine, spiciness, and other factors. The overall situation of firms’ low to moderate differentiation has a moderate contribution to the bargaining power of buyers or customers in this Five Forces analysis of Subway. On the other hand, individual buyers make small purchases compared to the company’s total revenues. In Porter’s Five Forces analysis model, this external factor minimizes the bargaining power of Subway’s customers. Furthermore, high price sensitivity means that consumers are highly likely to switch to competitors based on affordability. In this Five Forces analysis case, buyer power relates to the trends affecting consumers in the foodservice market, such as the social and economic trends shown in the PESTEL/PESTLE analysis of Subway.

Bargaining Power of Suppliers

This element of the Five Forces analysis examines suppliers’ leverage and ability to influence foodservice companies. The weak bargaining power of suppliers over Subway are based on the following external factors:

• Suppliers’ moderate-high switching costs
• Subway’s moderate ability to switch suppliers
• High overall supply

Suppliers’ bargaining power over Subway is limited in this Five Forces analysis case because of their moderate to high switching costs. These costs involve the consequences of suppliers’ switching from the company to other buyers (other foodservice firms). These costs are moderate to high because Subway is a major buyer of ingredients and other input materials. On the other hand, the restaurant company’s large multinational size provides the moderate ability to switch from one supplier to another. This external factor also limits supplier power in this Five Forces analysis of Subway. Furthermore, the high overall supply can facilitate the restaurant chain’s switching from one supplier to another and reduce supplier power. Subway’s operations management, particularly for diversifying the supply chain, can improve the business despite supplier power and their impact in this Five Forces analysis case.

Threat of Substitutes

The likelihood and impact of substitution is examined in this Five Forces analysis of the foodservice business. The following external factors create the moderate substitution threat to Subway:

• High availability of substitutes
• Substitutes’ moderate price-performance ratio
• Buyers’ low-moderate propensity to substitute

In this Five Forces analysis of Subway, the high availability of substitutes limits their threat to the submarine sandwich business. These substitutes include microwave meals, home-cooked meals, and food and beverage products available at grocery stores. Substitutes have moderate price-performance ratio based on moderate convenience, taste, dining experience, ambiance, and other variables, relative to Subway. This external factor sets the threat of substitution at a moderate level in Porter’s Five Forces analysis model. Moreover, consumers who are used to having Subway’s food and drinks have a low to moderate propensity to substitute. This condition is especially true for busy customers who prefer the speed, convenience, and quality of the company’s food and drinks. The strengths shown in the SWOT analysis of Subway can function as competitive advantages over substitutes. These competitive advantages help protect the submarine sandwich business against the threat of substitution evaluated in this Five Forces analysis.

Threat of New Entrants

This Five Forces analysis evaluates the effect of new entry on the fast-food company. The following external factors are responsible for new entrants’ moderate threat to Subway:

• Consumers’ low switching costs
• Moderate economies of scale
• Low-moderate brand loyalty

Consumers’ low switching costs equate to the ease of switching from Subway to new foodservice firms. In Porter’s Five Forces analysis model, this external factor strengthens the threat of new entry. New entrants need to compete with the moderate economies of scale of local, regional, and multinational franchise operations. This factor leads to the moderate threat of new entrants in this Five Forces analysis of Subway. Moreover, despite the company’s strong brand, brand loyalty is moderate because consumers can easily try food and drinks from new firms in the market. Based on the competitive situation in this Five Forces analysis, increasing the effectiveness of Subway’s marketing mix (4P) can reduce the adverse effect of new entrants on the company.

References

• About Subway.
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• Dandis, A. O., Wallace-Williams, D. M., Ni, A. K., Wright, L. T., & Abu Siam, Y. I. (2023). The effect of brand experiences and relational benefits on loyalty in the fast-food restaurants. The TQM Journal, 35(7), 2028-2051.
• Martinez-Contreras, R. M., Hernandez-Mora, N. C., Vargas-Leguizamon, Y. R., & Borja-Barrera, S. M. (2022). PESTEL Analysis and the Porter’s Five Forces: An Integrated Model of Strategic Sectors. In Handbook of Research on Organizational Sustainability in Turbulent Economies (pp. 292-314). IGI Global.
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• Subway – Responsible Sourcing.
• U.S. Department of Agriculture – Economic Research Service – Food Service Industry Market Segments.