BA 640
Case Memo 3

Subway’s Entry into the Japanese Fast Food Market

1. Background: * 1st store opened in Connecticut, 1965, began franchising in 1974 * Marketing strategy-healthy fast food option * Jared the Subway guy-spokesperson * 18000 stores in US, committed to international expansion * Looking for ‘high potential’ markets, ie. dense population, economic and political stability, preference for fast food options, disposable income * Very sluggish growth in Asian market

2. Japanese Food culture * Popularity of junk food * Smaller portions * View healthy food in terms of purity, organic, quality of ingredients * Local food is traditionally very healthy (rice, fish, vegetables, ect)
3. Competitors | # of stores | Pricing strategy | Advertising strategy/Brand Position | Target Market | McDonalds-market leader | 3000 | 100 yen menu, 500 yen basic set menu | Heavy TV advertising, seasonal product launches, low pricing strategy, local tastes (ie. Teriyaki burger) | Total market, plus children | Mos | 1435 | Higher prices, burger sets at 600 yen | Emphasis on quality, seasonal ingredients, burgers cooked to order, salad options, “Miffy” character | Women in their 20’s-30’s | Yoshinoya | 1031 | 300 yen and up | Traditional Japanese fast food, sells gyudon. Fast, cheap, convenient, 100 years of ‘tradition’. | Male students and workers | Starbucks | 702 | Sandwich 380 yen, coffee 250-330 yen | Convenience, relaxing atmosphere, coffee break time | Young people, women, office workers | KFC | 1159 | Set menu 750 yen | Take home options, heavy TV advertising, image of freshness, ‘home cooked’, hospitality | Family market | Mister Donut | 1284 | Very cheap, 100 yen doughnut sales | TV advertising, handout discount vouchers, famous Japanese promoters. Doughnuts, noodles, pork buns | Young people, students, office workers | Subway | 115 | 300-400 for 6 inch, 600-700 for a meal | Health, freshness, weight loss | (None specified) |

4. Subway in Japan * Menu: Sandwiches, wraps, salads, potato wedges, softer bread, smaller meat portion * Market not receptive to Jared due to low obesity levels, little interest in weight loss * 100% owned by Suntory ltd, most are franchised, half in Tokyo * Successful in franchising due to low start up costs * Market ‘eat fresh’, low calorie meals * Total cost for a meal 600-700 yen
5. Problems for Franchises * 112/195 Subway stores have failed, average 3 year survival rate * Problems with Subway: no advertising, continual high prices, no management guidance for franchise owners * No adjustment to local tastes * Subway is least visited fast food venue, and least likely for return customers, despite decent approval rating for taste
Discussion Questions: 1. Why does Subway not have a high customer return rate despite having a good reputation for taste? It is likely that even though their customers enjoy the taste of Subway, they may not feel like they are getting a good value for their money, when they could get similar size meal for fewer yen. Also, Subway in Japan fails to offer any sort of advertising strategy or promotional deals to entice customers to return. Although they may be open to trying something new once, no effort is made to get them back, so customers return to traditional Japanese food and fast food.

2. Do you think Subway can distinguish itself from competitors in terms of positioning? It seems the Japanese market has a tendency to prefer junk fast food such as burgers and fries, or traditional cheap Japanese food, such as rice and noodle bowls. Subway needs to distinguish itself from competitors by targeting a certain market and redeveloping their products to accommodate local taste and culture, such as the incorporation of organic ingredients.

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? Subway bases much of its marketing strategy around health and weight loss, with a typically American deli style of sandwich. Subway should have investigated the Japanese culture and preferences and adjusted its strategy, perhaps by incorporating local tastes. They could offer a teriyaki chicken salad or sandwich, with sides of rice instead of potatoes. Tackling obesity and weight loss is not a priority for the Japanese, so they need to alter their advertising strategy as well. When they think of fresh food, they think pure and organic, not just low fat. Subway needs to integrate organic ingredients and advertise that fact, so they can compete with brands like Mos.

4. How does Subway’s positioning compare with that of its competitors? Subway entered a very competitive, fully saturated market in Japan. In order to succeed, they should have employed an aggressive marketing strategy, and defined their target market from the beginning instead of relying on the global brand name. All of the competitors offer lower prices for full meals, heavy advertising, and have a specific market they are catering to. Competitors also rely on TV and local advertising, and have partnerships with celebrities