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On February 15, Subway held a franchising partner recruitment meeting for investors in Ho Chi Minh City. At present, Subway is considered the world’s biggest franchising network. The company is ambitious to become the number one fast food brand in every market—and Vietnam is not an exception.
Following other brands like KFC, Lotteria, and Jolibee, sandwich and salad restaurant chain Subway officially opened its first restaurant in Vietnam in February 2011, almost a year later than anticipated. Subway has cooperated with PepsiCo to start its first restaurant on the “Street of foreigners” Pham Ngu Lao Street, District 1 of Ho Chi Minh City. According to the arrangement, Subway is responsible for the sandwiches and PepsiCo provides the soft drinks.
Upon arrival to Vietnam, Subway has set a goal of 50 franchise restaurants by 2015. However, at present, there are only six of them in Ho Chi Minh City.
“Like other fast food brands, Subway entered into Vietnam late. Initially, we had to adjust our strategies to fit the culture as well as market trends. It takes time for us to adapt to the differences in the Vietnamese market to get the desired foothold here,” Mark Mason McGrath, general director of Subway Vietnam, explained.
In 1985, 20 years since its establishment, Subway had 590 restaurants. Ten years later, there were 11,420 restaurants in the US and now there are 45,000 restaurants in over 100 countries. In Southeast Asia, Subway has opened 200 restaurants in Singapore, 100 in Thailand, and 40 in the Philippines. However, Subway has not reached its expected goals in Vietnam.
Known as a healthy food provider over the world, Subway can enter into market segments untouched by other giants like McDonald’s and Burger King. However, the company has not been able to forge this into a comparative advantage in Vietnam.
Seeking individual investors
Entering a new market is an inevitable course to Subway. The company has been very successful in the US, but the market became saturated. Moreover, the international market holds real potential, placing expansion on top of Subway’s agenda.
However, the first challenge that Subway had to face was building its brand and exploring its target customers’ desires. In the west, Subway’s products brought about a shift in fast food eating habits and reduced obesity, which was welcomed in western countries. However, the situation in the Asia-Pacific region is different.
Relatively low obesity rates and a lack of health concerns associated with common foodstuff create a largely different playing field in the Asia-Pacific.. At the same time, KFC and McDonald’s have been present for longer and have been shaping consumption habits in the area. This is a reason why, despite the substantial market potential, the growth rate of Subway in Asia is still low.
To overcome the obstacles, Subway is starting over to become the world’s biggest fast food franchise. The company will focus on enhancing customer experience. In Vietnam, Subway is looking for franchisees. In 2017, Subway is planning to expand outside Ho Chi Minh City through cooperation with other franchising brands. Nha Trang will be the next destination, and Subway is considering other potential cities and provinces.
Nonetheless, the brand has a careful approach to expanding its network. “We do not want to cooperate with too big brands like other giants did when entering and expanding in Vietnam. The best way for us to expand our network is to cooperate with the individual investors in the long-term,” said McGrath, adding that Subway brings a chance for fruitful investment and doing business for those who wish to be owners.
Comparative advantages galore
Compared to other competitors in the fast food industry, where investors have to pay dollar millions to become franchise partners, such as McDonald’s ($1-2 million) and KFC ($1.3-2.5 million), investors in Subway have to pay only a portion. The initial investment in a Subway restaurant in Vietnam ranges from $124,000 to 300,000, dependant on the location and the size of the restaurant.
Of the amount, the franchising fee for the first Subway restaurant in Vietnam is about $10,000. From the second restaurant on, the fee is only $5,000. The total cost to launch and maintain a franchise restaurant like this is low and is considered an advantage and a big investment opportunity. However, according to Mcgrath, it is not the cost of investment, but investors’ low awareness of Subway’s value that hampers cooperation.
Of all fast food brands, Subway has the comparative advantage of being able to fit in many different areas all over the world other than only traditional locations. Subway appears in universities, airports, hospitals, convenience stores, cinemas, hotels, zoos, casinos, museums, parks, stadiums, and near churches.
Subway’s restaurant model fits in anywhere, even in narrow spaces, while its competitors cannot. This ensures Subway’s coverage all over the world, which significantly increases its number of restaurant. Besides, Subway also actively cooperates with small fast food brands in supermarkets. Two parties will share a space, staff, management, but still maintain their separate brand identity with different uniforms for wait staff, decorations, menu, and other specified colouring principles.
Subway always offers its franchisees preferential conditions. Its linkage to local financial institutions to support franchisees is one of the reasons for investors to open Subway restaurants. “With all these comparative advantages over competitors, we expect investors to realise with time the opportunities we have to offer,” McGrath said.
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