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With aview to gleaning valuable lessons for businesses entering new markets byanalyzing the case of Subway based on one of the most fundamental factors ofmarkets – demand, we choose “Ana
FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS ~~~~~~~~~*~~~~~~~~~ ESSAY ELEMENTARY MICROECONOMICS Title: ANALYZING SUBWAY'S FAILURE IN VIETNAM BASED ON FACTORS INFLUENCING CONSUMER DEMAND Students : Bui Ha Linh – 2313140033 Truong Thi Tu Linh - 2312140025 Class : KTE202E.1 Lecturer : Asst Prof Nguyen Thi Tuong Anh, PhD Hanoi, January 2024 TABLE OF CONTENTS I INTRODUCTION .3 Rationale for Topic Selection Research Objectives and Tasks 3 Research Scope Essay Structure II CONTENT PART 1: ANALYSIS OF FACTORS INFLUENCING CONSUMER DEMAND Demand 1.1 Definition of Quantity demanded 1.2 Law of demand Analysis of Demand Function 2.1 Income 2.2 Price of related good 2.3 Taste .4 2.4 Expectation 2.5 Number of buyers PART II: OVERVIEW OF SUBWAY AND REASONS FOR SUBWAY'S FAILURE IN VIETNAM Overview of Subway 1.1 Introduction to the fast-food brand Subway 1.2 Subway market overview worldwide and in Vietnam Analysing reasons for Subway's failure in Vietnam 2.1 Income 2.2 Price of related good 2.3 Taste .9 2.4 Expectation 10 2.5 Number of buyers 10 PART III: LESSONS FOR FOOD BRANDS APPROACHING THE VIETNAMESE MARKET .10 1 Researching the market thoroughly and developing suitable business strategies 10 1.1 Identifying competitors and target customer segments .10 1.2 Developing a pricing and marketing strategy 11 Adaptations to market changes 12 2.1 Menu adjustments 12 2.2 Purchasing process adjustments 12 III CONCLUSION 13 IV REFERENCES 13 V WORK DISTRIBUTION 14 I INTRODUCTION Rationale for Topic Selection Vietnam, with its dynamic economic growth and openness to foreign investment, has long become one of the most appealing markets for international brands However, with the combination of cultural and economic elements, this market still contains risks that hinder brands from replicating their previous successes in the home market, especially in the food and beverage industry One of the most popular cases is Subway when making its move in Vietnam The company has failed to achieve its initial goal despite its global triumph With a view to gleaning valuable lessons for businesses entering new markets by analyzing the case of Subway based on one of the most fundamental factors of markets – demand, we choose “Analyzing Subway's failure in Vietnam based on factors influencing consumer demand” as our research subject Research Objectives and Tasks By analyzing consumer demand and its factors, we can identify part of the reasons behind Subway’s failure in Vietnam, therefore drawing lessons for international F&B businesses seeking to penetrate the Vietnamese market Research Scope Theory of Demand, Subway, Subway market worldwide and in Vietnam Essay Structure The essay is divided into main parts: PART 1: Analysis of factors influencing consumer demand PART 2: Overview of Subway and reasons for Subway's failure in Vietnam PART 3: Lessons for food brands approaching the Vietnamese market Due to limited knowledge and experience, it is inevitable for us to make mistakes We would appreciate it if you could leave us feedback to help us improve our essay Thank you for your time! II CONTENT PART 1: ANALYSIS OF FACTORS INFLUENCING CONSUMER DEMAND Demand 1.1 Definition of Quantity demanded Quantity demanded is the amount of goods that consumers are willing and able to buy 1.2 Law of demand The quantity demanded of a good falls when the price of the good rises, other things equal The relationship between Price and Quantity demanded is inverse Analysis of Demand Function 2.1 Income If the good is normal, the relationship between Price and Quantity demanded is positive For normal goods: If the income rises, consumers will buy more of that good, and vice versa If the good is inferior, the relationship between price and Quantity demanded is inverse For inferior goods, the increase in income will drive buyers to consume a lower amount of that good and vice versa 2.2 Price of related goods Substitute goods: Two goods for which an increase in the price of one leads to an increase in the demand for the other Complementary goods: two goods for which an increase in the price of one leads to a decrease in the demand for the other 2.3 Taste The age difference, taking youngsters and the old as an instance, would result in variation in quantity demanded for the same good Between genders (generally men and women), the preference towards good is also different Based on the religious discrepancy, the quantity demanded of one good is not similar in any religion 2.4 Expectation Forecast of consumers about the market in the future and based on that focus, they’d have the equivalent activity at the current time 2.5 Number of buyers The relationship between the number of buyers and the quantity demanded is positive PART II: OVERVIEW OF SUBWAY AND REASONS FOR SUBWAY'S FAILURE IN VIETNAM Overview of Subway 1.1 Introduction to the fast-food brand Subway Subway is a globally renowned American multinational fast-food restaurant franchise, founded by Fred DeLuca and Peter Buck in 1965 This is one of the biggest fast-food chains worldwide with approximately 36,000 locations in more than 100 countries and territories, as of 2023 In the United States alone, Subway owns over 20,000 outlets, becoming the largest fast-food chain in terms of number of stores, surpassing its competitor McDonald’s with more than 13,000 outlets (Photo: Distribution of Subway’s restaurants around the world Source: Wikipedia) Subway’s mission and vision statements are, respectively, “To providing a wide range of great tasting, healthier food choices while reducing our Document continues below Discover more from: Microeconomics Trường Đại học Ngoại… 570 documents Go to course 18 Kinh Tế Vi Mô - AAA Class - Lý thuyết Microeconomics 100% (36) Test-Bank- chap 1-7 22 Microeconomics Bai tap cung cau co gian Many required calculatin… Microeconomics 93% (15) Kinh Tế Vi Mô - AAA Class - Bài tập Tự luận Microeconomics 10 100% (8) Calculating exercises chapter Microeconomics 100% (24) 91% (23) Unit2 demand&supply njknjnj Microeconomics 100% (6) environmental footprint and creating a positive influence in the communities we serve around the world.” and “To be ranked the #1 Quick Service Restaurant (QSR) franchise globally while delivering fresh, delicious sandwiches and an exceptional experience” 1.2 Subway market overview worldwide and in Vietnam In 1965, the first Subway restaurant, initially named “Pete’s Super Submarine”, was established in Bridgeport, Connecticut, USA Recognizing the need for rapid expansion in both quantity and coverage, years later, in 1974, Fred DeLuca, decided to franchise the Subway chain As a result, in 2001, Subway owned 15,000 stores, and this number skyrocketed to 33,000 in 2010, solidifying its position as the biggest fast-food chain globally at that time The franchise model has successfully proved its efficiency by doubling the overall Subway’s store count Notably, in 2013 – its peak, Subway opened 50 new stores in only one week (Photo: Sales of Subway restaurants in the United States from 2015 to 2022 (in billion U.S dollars) Source: Statista) Factors leading to Subway’s success and popularity go beyond its franchise model They are also Subway’s diverse menu and the slogan “Eat Fresh” that play important roles Most of Subway’s menus consist of submarine sandwiches, salads, and accompanying snacks and beverages Subway makes its difference by attaching its fast-food products with the “healthy” criterion: offering a range of toppings for customers to choose for their sandwiches and emphasizing the brand’s commitment to the safety and cleanliness of its ingredients in its marketing campaign Consequently, Subway has emerged by providing a healthier alternative for fast-food lovers Former First Lady of the United States, Michelle Obama, complimented Subway: “Subway’s kids’ menu makes life easier for parents, because they know that no matter what their kids order, it’s going to be a healthy choice” In 2010, Subway officially entered Vietnam with an ambition to establish 50 outlets in this country during the first years, averaging 10 stores each year The fast-food giant continued to apply its successful, long-standing marketing strategy to the Vietnamese market: Providing customers with healthy, non-fat sandwiches that still be able to supply sufficient energy The distinct EuropeanAmerican bland flavor and toppings such as ham and smoked meat were also part of Subway's offerings At first, the franchise price for a Subway store in Vietnam was approximately $10,000 However, the cost for the second Subway store in Vietnam halved to only $5,000 Subway has only managed to open restaurants in Vietnam since 2010, including restaurants in Ho Chi Minh City and restaurant in Da Nang City All Subway restaurants in Vietnam have unfortunately shut down By 2023, Subway had completely withdrawn from the Vietnamese market Analyzing reasons for Subway's failure in Vietnam 2.1 Income The General Statistics Department reported that the average monthly income of workers in the fourth quarter of 2023 increased by 180 thousand VND compared to that of the third quarter and a jump of 444 thousand VND compared to the same period last year Officially, Vietnam’s average monthly income reached 7.3 million in 2023 In urban areas, this value is 1.41 times higher than in rural areas, 8,9 million VND and 6.3 million VND respectively Besides, qualified workers gain a higher earnings increase, while those without qualifications must bear alternate breaks, reduced working hours, lower wages, and even lose their job In addition, due to the post-pandemic COVID-19 effect, customers are now more concerned about nutritional foods and increased self-resistance Besides, higher living standards drive modern consumers to not only eat but also enjoy fresh and organic food Or, a series of scandals came as a bomb with Subway’s food chain with several allegations about the ambiguous origin of ‘fresh food’ in some stores, the one about ‘flaked tuna blend with cream mayo’ whose components are not tuna but a mixture of various concoctions in many California’s Subway locations (From The Washing Post 2021) Eventually, along with all these notorieties and the new tendency to consume organic and fleshly-picked food items of modern citizens redefine ‘fast-food’ and even commercialized products ‘fast-food but good for health’ like Subway as an inferior good Along with the increase in income, the demand for this product is decreasing (Photo from The Washington Post- 2021: Subway’s tuna is not tuna, but a ‘mixture of various concoctions,’ a lawsuit alleges) 2.2 Price of related good In the case of ‘Subway’, the price of substitute goods is taken into consideration In comparison with local street food whose price is affordable from 15 thousand VND to 35 thousand VND for middle-class incomers who make up more than 50% of the total population in 2023, the price of Subway is higher by almost 1.5 times at the minimum price of 50 thousand for one Subway’s bread The same comparison is even applicable if typical local brands’ ‘banh mi’ stores are taken into consideration Brands Product Price (VND) Subway classic 6’’ Bread 50.000 Bánh mì Dân Tổ classic bánh mì thập cẩm 25.000 Bánh mì Phượng Hội An classic bánh mì thập cẩm 35.000 Bánh mì Bà Huynh classic bánh mì thập cẩm 45.000 (Source: Menu of each store about its standard portion -most preferred) Due to this, the slight decrease in the competitive price of bánh mì from the locals leads to a plummet in Subway food consumption Besides, in Viet Nam, Subway also loses when it comes to one standard portion's price in other fast-food brands as follows: Brands Product Price (VND) Subway classic 6’’ Bread 50.000 Lotteria classic Beef Burger 35.000 Jollibee classic Beef Burger 40.000 KFC classic Beef Burger 44.000 (Source: Menu of each store about its standard portion -most preferred) As Lotteria’s product takes the lead at a highly accepted price, a profound analysis of this success will be discussed In the early days of entering the Vietnamese market, Lotteria used low prices to attract a large number of customers from competitors Next, it used the strategy in combining meals, thereby reducing the cost of a standard portion Then there is the competitive pricing strategy to compete with rivals such as KFC, Jollibee, and Subway Compared to that, the prices of Subway are still considered too high Eventually, the Subway’s demand quantity continues to be staggering 2.3 Taste On one hand, In American food culture, they often prefer individual meals rather than sharing with each other, but Vietnamese food culture is usually about sharing food It is quite normal for a family or a group of friends to sit and share a meal together Meanwhile, a Mac or Burger is not something to share Therefore, the culinary style of Subway is not at all suitable for these cultural features of the Vietnamese On the other hand, the lack of savory taste in Subway’s bread whose recipe and seasoning are rigidly applied in Western style - bland is a failure when it comes to Vietnamese consumers’ preference As usual, Vietnamese people are accustomed to savory and a little bit salty flavors from soy sauce, marinated 10 soybean sauce, and chilly one, consequently, the inappropriate bland flavor strategy from Subway results in a plunge of its buyers 2.4 Expectation The post-pandemic effect of Covid-19, a healthy eating lifestyle has become more important to consumers than ever, with expectations for organic, healthbeneficial products The lateness of Subway in the introduction of new, quality products that meet various nutritional needs of consumers (higher portion of veggies, less processed meat such as Ham and oily culinary) shrinks the quantity demanded 2.5 Number of buyers As the number of Subway’s consumers continues to shrink, its quantity demanded reduces gradually As a result, the brand’s profit is at the margin of alert PART III: LESSONS FOR FOOD BRANDS APPROACHING THE VIETNAMESE MARKET Researching the market thoroughly and developing suitable business strategies 1.1 Identifying competitors and target customer segments In the case of Subway, when entering the Vietnam market, Subway’s competitors are not only other fast-food brands as in the USA but also other Vietnamese traditional bread bakeries Therefore, it is important for brands to accurately identify both direct and indirect competitors and analyze those competitors’ strengths, weaknesses, strategies, and unique selling points This process will help formulate a suitable business strategy and enhance the brand’s competitiveness in such a large and dynamic market Furthermore, customers are complex entities with direct impact on the ability to success of one brand Segmenting target customers involves considerations 11 beyond geographical factors, including ages, salaries, hobbies, and consumers’ behavior Only after identifying the target customer segment can a brand develop products, pricing, and distribution channels in the most optimal way 1.2 Developing a pricing and marketing strategy In the case of Subway, it is possible to notice that the brand’s average price is higher than its competitors’ Specifically in the Vietnamese market, consumers with average income have the tendency to not only prioritize “Delicious – Nutritious” but also “Affordable” as a criterion when making purchasing decisions This is the reason as to why Subway faces a relatively low level of competitiveness To attract more customers, the brands should adjust their pricing by changing ingredients source to domestic or local sources and introducing discount programs, and promotions, … Moreover, brands should launch marketing campaigns tied to Vietnamese culture and Vietnamese festive occasions such as Lunar New Year and Mid-Autumn Festival (Photos: Lunar New Year and Mid-Autumn campaigns of foreign brands in VN) Adaptations to market changes 2.1 Menu adjustments Vietnam is one of the countries with the richest culinary diversity, featuring a wide array of dishes and spices Regarding bread, Vietnam has numerous types 12 of bread, such as pan-fried bread, Hai Phong spicy bread, Hoi An bread, and more A sandwich with a plain taste and simple toppings is unlikely to be Vietnamese’s favorite choice Vietnamese Bread, with such varieties, has eliminated all the unique selling points of Subway To compete and increase the revenue in the Vietnamese market, brands need to adjust their recipes and ingredients Brands can consider adding more sauces to enhance the flavor, catering to the tastes and preferences of the Vietnamese people Subway has successfully done this in the Indian market To respect Hindu dietary preferences, beef products are replaced by a diverse range of vegetarians options In such a competitive culinary market, brands also need to create an irreplaceable product that is closely associated with their brand image to stand firm 2.2 Purchasing process adjustments Vietnamese people have a habit to make efficient and time-saving purchases Specifically, when it comes to a dish like bread, customers only need to wait from two to three minutes to have freshly made bread However, at Subway, the 5-step ordering process makes ordering sandwiches seem cumbersome and timeconsuming Therefore, simplifying the ordering process and making it as convenient for the buyers as possible would help brands eliminate a perceived “weakness” in the eyes of Vietnamese consumers 13 (Photo: Subway Vietnam’s Ordering Direction and Menu in 2020 Source: Facebook SUBWAY VIETNAM) III CONCLUSION In summary IV REFERENCES Percentage distribution of household income in Vietnam in 2020, Statista, 08/11/2023 Vietnam: household income distribution 2020 | Statista Subway (restaurant), Wikipedia Subway (restaurant) - Wikipedia Explore Our World, Subway Explore Our World (subway.com) 14 Restaurants by Country 2022, McDonald’s, 2022 Restaurants by Country 2022.xlsx (mcdonalds.com) Visionary Team, Subway Mission Statement & Vision Statement 2023, Visionary Business Person, 2023 Subway Mission Statement & Vision Statement 2023 (visionarybusinessperson.com) Subway Restaurants, Encyclopedia.com, 11/12/2023 Subway Restaurants | Encyclopedia.com Phuong Anh, Thăng trầm Subway học kinh doanh nhượng quyền, Cafebiz, 20/06/2015 Thăng trầm Subway học kinh doanh nhượng quyền (cafebiz.vn) Office of the First Lady, First Lady Michelle Obama Announces Commitment by Restaurants to Promote Healthier Choices to Kids, The White House – President Barack Obama, 23/01/2014 First Lady Michelle Obama Announces Commitment by Subway® Restaurants to Promote Healthier Choices to Kids | whitehouse.gov (archives.gov) Anh Hoa, Subway Vietnam frantically looks for franchise partners, Vietnam Investment Review, 16/02/2017 Subway Vietnam frantically looks for franchise partners (vir.com.vn) V WORK DISTRIBUTION SECTION MEMBER INTRODUCTION Bùi Hà Linh CONTENT – PART Trương Thị Tú Linh CONTENT – PART 2.1 Bùi Hà Linh CONTENT – PART 2.2 CONTENT – PART Trương Thị Tú Linh Bùi Hà Linh CONCLUSION Trương Thị Tú Linh 15 16 More from: Microeconomics Trường Đại học Ngoại… 570 documents Go to course 18 Kinh Tế Vi Mô - AAA Class - Lý thuyết Microeconomics 100% (36) Test-Bank- chap 1-7 22 Microeconomics Bai tap cung cau co gian Many required calculatin… Microeconomics 100% (24) 100% (8) Calculating exercises chapter Microeconomics 93% (15) More from: Tú Linh 16 Trường Đại học Ngoại thương Discover more Evidences Practice Advanced Reading None Mối liên hệ phổ biến 17 Phát triển kinh tế độc lập Triết học Mác Lênin None Microeconomics chapter review Microeconomics None CHƯƠNG 1- KTCT- Hang Hoa _ Chuong Kinh tế trị None Recommended for you 14 Chapter 13 - Lecture notes 13 Microeconomics 100% (6) Unit2 demand&supply 10 njknjnj Microeconomics 20 100% (6) Chapter - Lecture notes Microeconomics 100% (4)