SUBWAY Expansion in Japan (Case #12, Notes)
Overview
Subway has struggled to be successful in Japan, despite their world-wide success and generally strong "healthy eating" image. We want to try to explore some of the reasons why they have struggled. We believe it is clear that Subway has not positioned itself well in Japan. They have made little effort to adapt themselves for the Japanese market; it seems as if they have believed that as a successful American company, and a successful world-wide franchise, they would automatically be successful in any market. There seems to have been a lack of research into Japanese consumer preferences, eating habits and food culture. In addition, it seems that the support offered to franchisees has been very weak. It is true that it is difficult to find promotional material for Subway in Japan, either on television or on the streets (e.g. billboard or poster advertising), or in print media.
Summary
The American sandwich chain Subway decided to enter the Japanese market in 2002. However, despite their huge international success and the Japanese love of food, Japan has been a very hard market for Subway to crack. Subway markets itself as a healthier fast-food option, compared to stores such as McDonald's or KFC. Subway has committed to expansion of its business in overseas markets.
Subway competes in the fast food market, which is heavily saturated. In Japan, competitors include McDonald's, Mos Burger, KFC, Yoshinoya, Starbucks and Mister Donuts. In addition to these large fast food companies, there are a plethora of local restaurants in Japan that serve fast, healthy and cheap meals.
With so many truly healthy food options available in Japan, it would seem difficult for a fast food company to try to promote itself as a healthy choice. If people in Japan choose to eat fast food, they are aware that it probably will not be healthy, and do not necessarily expect it do be so. Concepts of 'healthy' food are not necessarily the same in Japan as in many Western nations. Many Japanese think of healthy food more in terms of its quality - for example, how fresh, pure, or organic ingredients are.
Subway in Japan
There are many similarities between Subway Japan and Subway in the U.S.
The first Subway store was opened at Akasaka Mitsuke, Tokyo in 1992 after Subway Japan Inc. concluded a master franchise agreement with the American parent Subway. Subway Japan is 100% owned by Suntory Ltd. Their food service operations are supported by one of Suntory's group companies, Hospitality Business Innovator Inc. There are 115 Subway stores in Japan. Most Subways are franchised. Subway is focusing on opening new stores around the capital area and Kinki areas of Japan. Subway promotes its sandwiches as fresh, healthy and made-to-order. They use the slogan "Eat Fresh".
Problems for Franchisees
Out of 195 stores that Subway franchisees have opened in Japan between 1992 and 2001, 112 of them have failed. The average survival rate for a store is less than three years. There have been claims that Subway has not supported its franchisees adequately, and has failed to properly advertise or promote its stores.
Despite minor adjustments, Subway has basically moved into the Japanese market without adjusting its product or marketing for local tastes. This is all the more interesting considering owners Suntory are a Japanese company, with experience in the Japanese restaurant and fast food industry. In a Nikkei newspaper survey, it was suggested that only 19.8% of people who had been to Subway in the previous year would go there again.
The market of the food service industry is intense in Japan, and has been growing every year. However, the increasing of stores is exceeding the increasing of total sales, so the market is now highly competitive. To survive in this situation, restaurants need to appeal to their customers in specific ways.
Changing lifestyles are affecting the food industry. A higher profile for women in society, the increasing number of single-person households, and the number of people active 24 hours a day will increase demands on the food service industry, including take-out and delivery services. However, at the same time, consumers are becoming more concerned about health and food safety.
Discussion Questions
1. Why does Subway not have a high customer return rate despite having a good reputation for taste?
2. Do you think Subway can distinguish itself from competitors in terms of its positioning?
3. Subway has struggled to establish its business in Japan. What do you think are the important points that Subway should have considered when trying to do business in Japan?
4. How does Subway's positioning compare with that of its competitors?