(Tiểu luận) title analyzing subways failure in vietnambased on factors influencing consumer demand

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

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

Lecturer : Asst Prof Nguyen Thi Tuong Anh, PhD

Hanoi, January 2024

TABLE OF CONTENTS

I INTRODUCTION 3

1 Rationale for Topic Selection 3

2 Research Objectives and Tasks 3

3 Research Scope 3

4 Essay Structure 3

II CONTENT 4

PART 1: ANALYSIS OF FACTORS INFLUENCING CONSUMER DEMAND 4

1 Demand 4

1.1 Definition of Quantity demanded 4

1.2 Law of demand 4

2 Analysis of Demand Function 4

2.1 Income 4

2.2 Price of related good 4

2.3 Taste 4

2.4 Expectation 5

2.5 Number of buyers 5

PART II: OVERVIEW OF SUBWAY AND REASONS FOR SUBWAY'S FAILURE IN VIETNAM 5

1 Overview of Subway 5

1.1 Introduction to the fast-food brand Subway 5

1.2 Subway market overview worldwide and in Vietnam 6

2 Analysing reasons for Subway's failure in Vietnam 7

2.1 Income 7

2.2 Price of related good 8

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

2 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

1 Rationale for Topic Selection

Vietnam, with its dynamic economic growth and openness to foreigninvestment, has long become one of the most appealing markets for internationalbrands However, with the combination of cultural and economic elements, thismarket still contains risks that hinder brands from replicating their previoussuccesses 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 Thecompany has failed to achieve its initial goal despite its global triumph 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 “Analyzing Subway's failure in Vietnam based onfactors influencing consumer demand” as our research subject

2 Research Objectives and Tasks

By analyzing consumer demand and its factors, we can identify part of thereasons behind Subway’s failure in Vietnam, therefore drawing lessons forinternational F&B businesses seeking to penetrate the Vietnamese market

3 Research Scope

Theory of Demand, Subway, Subway market worldwide and in Vietnam

4 Essay Structure

The essay is divided into 3 main parts:

PART 1: Analysis of factors influencing consumer demand

PART 2: Overview of Subway and reasons for Subway's failure in VietnamPART 3: Lessons for food brands approaching the Vietnamese marketDue to limited knowledge and experience, it is inevitable for us to makemistakes We would appreciate it if you could leave us feedback to help usimprove our essay Thank you for your time!

II CONTENT PART 1: ANALYSIS OF FACTORS INFLUENCING

CONSUMER DEMAND

1 Demand

1.1 Definition of Quantity demanded

Quantity demanded is the amount of goods that consumers are willing andable to buy

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 isalso different.

Based on the religious discrepancy, the quantity demanded of one good is notsimilar in any religion

1.1 Introduction to the fast-food brand Subway

Subway is a globally renowned American multinational fast-food restaurantfranchise, founded by Fred DeLuca and Peter Buck in 1965 This is one of thebiggest fast-food chains worldwide with approximately 36,000 locations in morethan 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 andvision statements are,

respectively, “To providing

a wide range of great tasting, healthier food choices while reducing our

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Microeconomics 100% (6)

10

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 SuperSubmarine”, was established in Bridgeport, Connecticut, USA Recognizing theneed for rapid expansion in both quantity and coverage, 9 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 Thefranchise model has successfully proved its efficiency by doubling the overallSubway’s store count Notably, in 2013 – its peak, Subway opened 50 newstores 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 franchisemodel They are also Subway’s diverse menu and the slogan “Eat Fresh” thatplay 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 thebrand’s commitment to the safety and cleanliness of its ingredients in itsmarketing 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 50outlets in this country during the first 5 years, averaging 10 stores each year Thefast-food giant continued to apply its successful, long-standing marketingstrategy to the Vietnamese market: Providing customers with healthy, non-fatsandwiches that still be able to supply sufficient energy The distinct European-American bland flavor and toppings such as ham and smoked meat were alsopart of Subway's offerings At first, the franchise price for a Subway store inVietnam was approximately $10,000 However, the cost for the second Subwaystore in Vietnam halved to only $5,000 Subway has only managed to open 7restaurants in Vietnam since 2010, including 6 restaurants in Ho Chi Minh Cityand 1 restaurant in Da Nang City All 7 Subway restaurants in Vietnam haveunfortunately shut down By 2023, Subway had completely withdrawn from theVietnamese market

2 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 VNDcompared to that of the third quarter and a jump of 444 thousand VNDcompared to the same period last year Officially, Vietnam’s average monthlyincome reached 7.3 million in 2023

In urban areas, this value is 1.41 times higher than in rural areas, 8,9 millionVND and 6.3 million VND respectively Besides, qualified workers gain ahigher earnings increase, while those without qualifications must bear alternatebreaks, reduced working hours, lower wages, and even lose their job

In addition, due to the post-pandemic COVID-19 effect, customers are nowmore concerned about nutritional foods and increased self-resistance Besides,higher living standards drive modern consumers to not only eat but also enjoyfresh and organic food Or, a series of scandals came as a bomb with Subway’sfood chain with several allegations about the ambiguous origin of ‘fresh food’ insome stores, the one about ‘flaked tuna blend with cream mayo’ whosecomponents are not tuna but a mixture of various concoctions in manyCalifornia’s Subway locations (From The Washing Post 2021) Eventually,along with all these notorieties and the new tendency to consume organic andfleshly-picked food items of modern citizens redefine ‘fast-food’ and evencommercialized products ‘fast-food but good for health’ like Subway as aninferior good Along with the increase in income, the demand for this product isdecreasing

(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 intoconsideration

In comparison with local street food whose price is affordable from 15thousand VND to 35 thousand VND for middle-class incomers who make upmore than 50% of the total population in 2023, the price of Subway is higher byalmost 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’ storesare taken into consideration

Bánh mì Dân Tổ 1 classic bánh mì thập cẩm 25.000

Bánh mì Phượng Hội An 1 classic bánh mì thập cẩm 35.000

Bánh mì Bà Huynh 1 classic bánh mì thập cẩm 45.000

(Source: Menu of each store about its 1 standard portion -most preferred)

Due to this, the slight decrease in the competitive price of bánh mì from thelocals leads to a plummet in Subway food consumption

Besides, in Viet Nam, Subway also loses when it comes to one standardportion's price in other fast-food brands as follows:

(Source: Menu of each store about its 1 standard portion -most preferred)

As Lotteria’s product takes the lead at a highly accepted price, a profoundanalysis of this success will be discussed In the early days of entering theVietnamese market, Lotteria used low prices to attract a large number ofcustomers from competitors Next, it used the strategy in combining meals,thereby reducing the cost of a standard portion Then there is the competitivepricing 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 mealsrather than sharing with each other, but Vietnamese food culture is usually aboutsharing 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 culturalfeatures of the Vietnamese

On the other hand, the lack of savory taste in Subway’s bread whose recipeand seasoning are rigidly applied in Western style - bland is a failure when itcomes to Vietnamese consumers’ preference As usual, Vietnamese people areaccustomed to savory and a little bit salty flavors from soy sauce, marinated

soybean sauce, and chilly one, consequently, the inappropriate bland flavorstrategy from Subway results in a plunge of its buyers.

2.4 Expectation

The post-pandemic effect of Covid-19, a healthy eating lifestyle has becomemore important to consumers than ever, with expectations for organic, health-beneficial products The lateness of Subway in the introduction of new, qualityproducts that meet various nutritional needs of consumers (higher portion ofveggies, less processed meat such as Ham and oily culinary) shrinks the quantitydemanded

2.5 Number of buyers

As the number of Subway’s consumers continues to shrink, its quantitydemanded reduces gradually As a result, the brand’s profit is at the margin ofalert

PART III: LESSONS FOR FOOD BRANDS APPROACHING THE VIETNAMESE MARKET

1 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’scompetitors are not only other fast-food brands as in the USA but also otherVietnamese traditional bread bakeries Therefore, it is important for brands toaccurately identify both direct and indirect competitors and analyze thosecompetitors’ strengths, weaknesses, strategies, and unique selling points Thisprocess will help formulate a suitable business strategy and enhance the brand’scompetitiveness 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

beyond geographical factors, including ages, salaries, hobbies, and consumers’behavior Only after identifying the target customer segment can a branddevelop 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 ishigher than its competitors’ Specifically in the Vietnamese market, consumerswith average income have the tendency to not only prioritize “Delicious –Nutritious” but also “Affordable” as a criterion when making purchasingdecisions This is the reason as to why Subway faces a relatively low level ofcompetitiveness To attract more customers, the brands should adjust theirpricing by changing ingredients source to domestic or local sources andintroducing discount programs, and promotions, … Moreover, brands shouldlaunch marketing campaigns tied to Vietnamese culture and Vietnamese festiveoccasions such as Lunar New Year and Mid-Autumn Festival

(Photos: Lunar New Year and Mid-Autumn campaigns of foreign brands in VN)

2 Adaptations to market changes

2.1 Menu adjustments

Vietnam is one of the countries with the richest culinary diversity, featuring awide array of dishes and spices Regarding bread, Vietnam has numerous types