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PESTLE Analysis of Subway's External Environment

Question:

Discuss about the macro and micro environment of Subway in the market of Australia.

In the current business scenario, one of the most competitive business sectors is the global fast food sector. This is due to the reason that, this sector is having both organized and non-organized players. Moreover, in the recent time, fast food sector is witnessing the rapid growth of global and big investors, which further increasing the competition in the market. Australian market of fast food is also witnessing the rapid increase in the competition with the entrants of new players in the market.

Subway is one of the leading fast food companies in Australia with having their branches in several cities. Subway Melbourne is one of the most profitable and revenue generating in the Australian region. Moreover, Subway is having distinctive market approach in Melbourne due to their unique product offering compared to their competitors (subway.com, 2017). However, with the inflow of more global players in the market such as KFC and McDonalds, they are facing the challenge of maintaining their market leadership status.

This report will discuss about the macro and micro environment of Subway in the market of Australia. Moreover, five forces analysis will also be involved to determine the competitiveness in the industry. Accordingly, issues and opportunities will be identified for Subway and recommendations will be provided.

External environment of Subway will be analyzed due to the reason that, it will help to determine the macro factors that are having influence in the business operation of Subway. PESTLE analysis will be used due to the reason that, it will help to determine the different factors that will influence the business operation of Subway (Yüksel, 2012). Moreover, PESTLE analysis also helps to identify the opportunities and challenges to be faced by Subway within these environments.

Political

Different regions in Australia are having different political regulations, which should be adhered by Subway.

Recent development in the political scenario regarding the ill impacts of fast food will be a challenge for Subway.

However, the political environment of Melbourne is favorable and stable and it will have positive impact on the business organizations.

Economical

Australia is one of the leading developed countries along with Melbourne being one of the prominent cities. Economy of Melbourne is already developed and is rapidly enhancing. Thus, the market opportunity for Subway is more in Melbourne.

From the above figure, it is being seen that, the contribution of Melbourne is second highest after Sydney in the gross domestic product of Australia (Wade, 2017). Thus, the per capita income will be higher in Melbourne, which will have positive impact on the business operation of Subway.

Social

The social acceptance for the fast food is reducing due to the increased awareness about the ill impacts of fast food. However, this can a huge opportunity for Subway due to the reason that, they offer healthier and nutritious products compared to their rivals.

Customization options being offered by them is also one of their key competitive advantages. This is due to the reason that, customers are having the options of having the products according to their preferences.

Technological

Technology is one of the key factors for the fast food industry due to the reason of take away concept. Subway offers online facilities for their customers to book from their convenience.

However, competitors of Subway are coming up with more updated technologies, which will be difficult for Subway to follow (Kremer & Symmons, 2015). They will have to invest a huge capital in developing new technologies.

Legal

Subway will face the issue of introduction of stringent legislations in reducing the ill impact of fast foods.

They will have to adhere to the food quality and standards as the regulatory framework

Environmental

Fast food sector will face direct impact from the climate change due to the emergence of food shortage. Thus, it will be important for the players to initiate policies to reduce the food wastage as much as possible

Moreover, recycling should also be initiated by the companies for their packaging purpose. This will help them to have sustainable development along with dealing with the shortage of resources.

The economy and per capita income of Melbourne is increasing gradually. Thus, the purchasing power of the customers will be more to buy the products of Subway.

Offering healthier products containing fresh veggies and customization options will help Subway to target the health conscious people (Hollensen, 2015).

Trend for online shopping is increasing and this offering service through internet will help Subway to cater to more number of customers.

Consumer perception towards global fast food brands are growing negative and it will be a challenge for Subway to overcome this.

Adhering to the stringent regulations regarding food safety will increase the price of the products, which may reduce the customer segments for Subway (Moodie et al, 2013).

With the entry of more competitors in the market, Subway will face more intense competition along with reduction in their profitability.

Pestle analysis is being used in order to identify the environmental factors for the whole industry. However, this analysis will not identify the competitiveness and role of the stakeholders in the industry. Thus, Porter five forces analysis will be used in order to determine the role and impact of the stakeholders being associated with this industry (E. Dobbs, 2014).

Threats of new entrants

Low investment cost to operate in local market causing entry of small competitors in the market of Melbourne.

Offering more cost effective products by the new entrants.

Threat of new entrant is high (Chen et al, 2015).

Bargaining power of buyers

Presence of numerous players in the fast food market.

However, products of Subway are distinctive compared to their competitors.

Switching cost is low for the buyers.

Bargaining power for buyers is moderate.

Bargaining power of suppliers

Good number of suppliers are present in the market, however, Subway source a major materials from their suppliers.

Thus, the pricing of the suppliers will determine the price of the end products of Subway.

Bargaining power of suppliers is high.

Threats of substitute

Subway is having good number of local and global brands as their competitors.

However, pricing is different and products of Subway are also distinctive from their competitors.

Threats of substitute are moderate for Subway.

Industry rivalry

Huge number global brand in the market.

All brands are competing in same customer segment by different substitute products (Galbraith?Emami & Lobstein, 2013).

Competition is increasing with the entry of the local brands.

Industry rivalry is high for Subway.

Porter's Five Forces Analysis for Subway

From the above analysis, it is being seen that, the market for Subway in Melbourne is intensely competitive in nature with the presence of different global brand such as KFC and McDonalds. Moreover, with the entry of the local competitors, competition is further increasing. Thus, it is important for Subway to have distinctive approach in the market to stay ahead in the competition (Magretta, 2011). From the above analysis, it is also being identified that, suppliers are having influence on the pricing of Subway. This is due to the reason that, a major section of raw material is being sourced from the suppliers by Subway. Thus, Subway is facing challenges in competing in the market of Melbourne along with maintaining their profitability.

Internal environment of Subway will also be analyzed in order to determine their core competencies and competitive advantages to compete in the market. This is important due to the reason that, internal environment analysis will help to determine the effectiveness of the organization to deal with the external challenges. VRIO framework will be used in order to determine the effectiveness of their resources (Andjelkovic Pesic, Jankovic Milic & Stankovic, 2013). Initiation of the VRIO framework will also help to identify the characteristics of the resources for Subway.

Resources / capabilities

Valuable

Rare

Imitation cost

Organizational effectiveness

Human resource management

Yes

No

Yes

Yes

Brand value and identity

Yes

Yes

Yes

Yes

Products

Yes

No

Yes

Yes

Outbound logistics

Yes

No

Yes

Yes

For the contemporary business organizations, effective management of the human resources is important to enhance the effectiveness. In the case of Subway, they have initiated different activities in order to engage their employees in the organization along with enhancing their level of motivation (Lazaroiu, 2015). Incentives are being promoted by them in order to motivate the employees to perform better. Moreover, it is valuable due to reason that, the more motivated and engaged will be the employees, the more will be the organizational effectiveness and productivity (Tan & Lester, 2012). It will help them to enhance the loyalty and satisfaction of the customers.

However, it is not rare in nature due to the reason that, the competitors of Subway are also having their unique process of human resource management. Imitation cost will be there for the human resource management due to the reason that, the unique approach of the HRM along with the skill set of the employees cannot get imitated (Beardwell & Thompson, 2014). The strategy of HRM is also effectively exploited by Subway in achieving the best result. This reflects in their customer service and level of positive satisfaction of the customers.

Brand value is another competency for Subway due to the reason that, they have gained huge brand value throughout the world, which is helpful for them to push new products and penetrate in new markets (Melo & Galan, 2011). Moreover, imitation cost will also be more for their competitors to gain the brand value as Subway. Products and outbound facilities are also competency for Subway due to the reason that, the products of Subway is the key source of their revenue. Moreover, the product quality and ingredients are the key differential factors

Product diversity is less due to the reason that, Subway only caters to various variants of sandwiches. On the other hand, their competitors are having penetration in other fast food sector also.

Internal Environment Analysis of Subway using VRIO Framework

Subway is having less market penetration in the market compared to their competitors. In the market of Melbourne also, KFC and McDonalds are having more market penetration than Subway.

Product portfolio of Subway is more expensive compared to the local competitors. New entrants in the market are offering similar products in fewer prices, which is reducing their existing market base.

Subway should initiate to diversify their product portfolio in order to cover to more number of customers. It will help them to enhance the market base along with enhancing the revenue.

Market of Melbourne is already saturated and thus, it is not possible to open new stores. Thus, it is being recommended that, Subway should target customers in different price segments. Accordingly, they should come up with more affordable products to cater to more number of customers.

Introduction of healthier products will help them to target the new age customers. Moreover, it will help them to reduce the negative perception of the customers regarding fast food.

Conclusion

Thus, from the above discussion, it can be concluded that, Subway is effectively operating in the market of Melbourne. However, there are few emerging threats being identified in this report. One of the key threats will be the growing of negative perception of the employees regarding fast food. On the other hand, various opportunities are also being identified in this report, which will help them to enhance their market share in the future. In accordance to the identified issues, this report have discussed about few recommendations in order to overcome them. It is being expected that, effective implementation of the above discussed recommended steps will help to enhance the market share for Subway

References

Andjelkovic Pesic, M., Jankovic Milic, V., & Stankovic, J. (2013). APPLICATION OF VRIO FRAMEWORK FOR ANALYZING HUMAN RESOURCES’ROLE IN PROVIDING COMPETITIVE ADVANTAGE. Tourism & Management Studies, 2.

Beardwell, J., & Thompson, A. (2014). Human resource management: a contemporary approach. Pearson Education.

Chen, E., Flint, S., Perry, P., Perry, M., & Lau, R. (2015). Implementation of non-regulatory food safety management schemes in New Zealand: A survey of the food and beverage industry. Food control, 47, 569-576.

Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Galbraith?Emami, S., & Lobstein, T. (2013). The impact of initiatives to limit the advertising of food and beverage products to children: a systematic review. Obesity Reviews, 14(12), 960-974.

Hollensen, S. (2015). Marketing management: A relationship approach. Pearson Education.

Kremer, P. D., & Symmons, M. A. (2015). Mass timber construction as an alternative to concrete and steel in the Australia building industry: a PESTEL evaluation of the potential. International Wood Products Journal, 6(3), 138-147.

Lazaroiu, G. (2015). Employee Motivation and Job Performance. Linguistic and Philosophical Investigations, 14, 97.

Magretta, J. (2011). Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press.

Melo, T., & Galan, J. I. (2011). Effects of corporate social responsibility on brand value. Journal of Brand Management, 18(6), 423-437.

Moodie, R., Stuckler, D., Monteiro, C., Sheron, N., Neal, B., Thamarangsi, T., ... & Lancet NCD Action Group. (2013). Profits and pandemics: prevention of harmful effects of tobacco, alcohol, and ultra-processed food and drink industries. The Lancet, 381(9867), 670-679.

subway.com. (2017). About Us. [online] Available at: https://www.subway.com/en-au/aboutus [Accessed 20 Dec. 2017].

Tan, Y., & Lester, L. H. (2012). Labour market and economic impacts of international working holiday temporary migrants to Australia. Population, space and place, 18(3), 359-383.

Wade, M. (2017). Booming Sydney drives the nation's growth. The Sydney Morning Herald. Retrieved 19 December 2017, from https://www.smh.com.au/nsw/booming-sydney-drives-the-nations-growth-20160214-gmtmj7.html

Yüksel, ?. (2012). Developing a multi-criteria decision making model for PESTEL analysis. International Journal of Business and Management, 7(24), 52

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