A close look at Firms Franchising: a Case Study of Subway Restaurants

Abstract

Decision making is the main pillar towards the advancement of a business. It requires that decisions that are made are appropriate and best suit the scenario at hand. It’s the obligation of the business owner to consider the factors of production so that he or she can focus on the benefits and disadvantages of a particular choice at any point in time.

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Franchising is a business practice which involves the registration and licensing of a firm’s trademarks and business methods. Franchising is well suited for businesses which can replicate themselves and have a good record of their profitability. After registration the owner has the right to sell the trademark to other people so as to establish similar kinds of business using the same trademark. These rights are usually on contract basis ranging from five to twenty years.

A close examination of a case study of subway restaurant

Introduction

Subway Restaurant is a privately owned company which specializes in selling fast foods such as sandwiches, pizzas and salads. It’s owned and operated by Doctors Associates Inc.  Currently it has 33,246 points of sale in 91 countries. Its main office is based in Milford, Connecticut, U.S.A. with regional offices in Amsterdam (Netherlands), Brisbane (Australia), Beirut (Lebanon) and Miami (Latin America). The reason for my choice of this particular firm is the fact that it is ranked as the leading single-brand restaurant chain in the world.(subway publication 2009 p.4)

What is interesting about the company?

The company was founded Mr. Fred De luca with a loan of $1,000 from a friend in August 1965.  His initial intention was make money that would cater for his college fees and his business grew rapidly. He had good business ideologies of marketing his products by artistically placing the maps New York subway system in the business stores as well as advertising the business name over the radio. Fred acquired the principles of running an enterprise that  provided best services to customers, offering products of high quality, minimizing overhead costs and finding strategic locations. These principles ever since act as the mission of all Subway restaurant branches.(subway publication 2009 p. 6)

Subway Marines management were challenged by the three ideas central to economic practices which are scarcity, opportunity and choice. Scarcity refers to the situation  where resources are less than what is required, in other terms, where the demand of  is higher than  supply. Resources are the basic inputs of production that is land, labour, capital and entrepreneurship. Thus Scarcity requires choice that is when one is making a decision on what should be done he or she has to make the most appropriate choice as the resources which are available are limited (subway publication 2009 p. 7)

Upon making a choice, opportunity cost comes in where one considers cost effectiveness and other utility derived or deprived. For example the outputs that were forgone, comfort deprived and lost time. This brings the concept of tradeoffs whereby in making a particular decision about a particular product one ought to have looked at the pros and cons of that particular choice.

The three fundamental questions that should come to mind are;

i)                    What should be produced

Considering the idea of scarcity, Fred, the founder had limited resources as he wanted to start a business that would enable him to pay up his college fees. It was upon the intervention of a friend from whom he borrowed a loan of $1,000 that he was able to start his business. He considered the scarce resource he had against many alternatives that were available. (Subway publication 2009 p. 9)

Because the resources he had at had were limited he had to make an important choice. Fred’s choice could have been influenced by so many factors at the time such as less competition in such a business at that time. The uniqueness of the line of business as well as the realization that there was more demand for the product than the supply confirmed the feasibility of the business. In Connecticut, at that time there were few restaurants which specialized in selling fast foods of that kind. (Subway Publication 2009 p.10)

Further, the idea of coming up with an opportunity cost  was rife in that he had the intention of providing high quality services to customers, producing quality foods whilst minimizing overhead costs.  In his pursuit of advocating for high quality services and foods the overhead costs would have increased and vice versa and these courses of actions would have had impacts on the performance of his business (subway publication p.10)

ii)                  How should goods be produced

Fred realized that provision of high quality services could only be made real if he produced and sold his products in a restaurant which was more convenient to customers because they enjoyed the comfort of consuming the products in a comfortable place. (Subway publication 2009 p.2)

Provision of high quality products brought prosperity as the customers were sure that quality services and food would be found at Fred’s premises. In this case he had specialized in selling salad, pizza and marines. In his effort of minimizing overhead costs,  Fred opted to produce his products in a hotel  which had a trademark and this worked by minimizing registration costs that were earlier on incurred by registering each restaurant on its own. Establishment of more branches all over the world at strategic positions was actualized by the idea that it was a restaurant (subway publication 2009 p.2)

iii)                From whom should goods and services  be produced

In reference to the aspect of scarcity and choice Fred opted to start a restaurant. His choice business in a restaurant became more advantageous because he registered his restaurant trademark. (Subway publication 2009 p. 2)

Upon registering the trademark he began selling out his franchise to other parts of the world which increased the profit margin of his business. In addition as the business expanded across many parts of the world the right to franchise became more expensive and furthermore improved the company name thus attracting more customers. (Subway publication 2009 p.g 6)

In conclusion franchising is a business practice which helps an enterprise build its own name and generate more revenue for the founders. Consequently, its common today in many sectors of the economy. It is a more advantageous option than selling shares of a company because the only component of the business sold is the rights to use its trademark under a certain defined scope of operations.

References

Subway publication (2009). Official Subway Restaurants Website. Retrieved August 18, 2010,                               from http://www.subway.com/subwayroot/index.aspx.

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