The impact of business laws on Subway restaurant in UK

The impact of business laws on Subway restaurant in UK


1 Introduction

Subway is a leading American restaurant chain with franchises all over the world. The company is owned by Doctors Associates Inc. The company was established in 1965 by Fred DeLuca and Peter Buck as a submarine sandwich restaurant. Since then the company has expanded its menus to include chicken, sandwich, pizza among other delicacies. The company’s headquarters are located in Milford, Connecticut in the United States of America. The main delicacies offered in Subway restaurants are Subway Sandwich, Chicken Chipotle, Chicken Pizziola and Turkey and Veggie Party. More information about this company is presented in appendix 1. The aim of this report is to analyse the external forces that are influencing the restaurant businesses in the United Kingdom. The report also aims to analyse the impact that business laws have on Subway brand in the United Kingdom. To achieve these aims, this report is structured into four main sections with the first section being the introduction and contains a brief explanation of what the report is discussing. The second part analyses the UK external environment using the PESTLE model and the five forces analysis. The third part of the report investigates the theme of the importance of business laws and its effect on operations of Subway in UK. The section also looks into how Subway has responded to this. It further evaluates whether the responses of Subway to business laws have been effective. The section further points out how Subway can make its responses more effective. The final part of the discourse is the conclusion.

2 Analysis of external influences

2.1 PESTEL analysis

This section looks into the external factors that influence business operations in the United Kingdom. The external factors mainly involve those factors that are beyond the business control (Cox, Chu and Rodionova, 2017). These forces have been highlighted by the PESTLE model as the political forces, social forces, economical forces, ecological forces, technological forces and legal forces.

2.1.1 Political forces

Politically, there are political issues that affect the business environment in the United Kingdom. The major political issue that has affected businesses in UK is the exit of UK from the European Union (Waugh, 2016). This has had negative implications on the companies because it is expected to halt the immigration of people from EU to the UK. This will minimise the number of immigrants who provide cheap labour to the restaurants in the United Kingdom thus increasing the business costs of operating in the United Kingdom (Cox, Chu, and Rodionova, 2017).

2.1. 2 Social forces

The UK’s culture and social inclination has influence on the Subway restaurants in the United Kingdom. In the Geert Hofstede’s rankings, UK is considered to have high rankings on indulgence aspect of the national culture as depicted by the figure 2 below. This means that people in UK have a tendency to indulge in luxurious activities which include eating out (Hoftesede, 2012). This has positive implications on Subway as it provides an opportunity to sell more Subway products to customers in the United Kingdom.


2.1.3 Economical forces

One of the major economic force that had influence on the consumers in the United Kingdom is the slight decline in the GDP as it grew by 0.2% in the first quarter of 2017 (Chu, 2017). This was the lowest growth in Europe as shown by the figure 3 below. This implies that the consumers have slight reduction in their disposable income growth which constrains them to spend money on little luxuries such as eating out (ONS, 2017). This will have negative implications on companies such as Subway as it is projected that there will be lesser number of customers who will be eating out in their restaurants compared to the previous year.

Figure 3: UK economic performance in Q1 2017

Source: Chu (2017)

2.1.4 Ecological forces

According to Sena (2017) consumers in the United Kingdom are very concerned about the environment and prefer to reward companies that are environmentally friendly by buying goods and services from such companies. This is depicted by the high number of concerned citizens depicted by the figure 4 below. This has implications on companies such as Subway because it means that the company has to set aside financial resources to participate in environment conservation. This entails having initiatives such as use of renewable energy sources as well as by paying carbon credits in order to attract consumers who are environment conscious (Maggioli, 2016).

Figure 4: Distribution of eco consumers in UK

Source: Statista (2014)

2.1.5 Technological forces

These are the forces of innovation and technical knowhow and capabilities that are influencing businesses in the United Kingdom. Currently one of the technological forces affecting restaurant businesses in the United Kingdom is the increased use of internet in the United Kingdom. According to ONS (2017) over 80% of the population in the United Kingdom has high access to the internet (figure 5). In addition over 50% use social media to network and communicate with other people. This has changed the manner in which people buy products and services. This has implications on companies such as Subway because customers are preferring to purchase food online rather than coming to the restaurant. This has positively affected the companies by reducing costs such as having large number of employees as most of the services can be automated and done online (Kemp, 2017).

Figure 5: Internet use by age in UK

Source: ONS (2017)

2.1.6 Legal factors

One of the major legislations relates to the minimum wages. This regulation states that businesses in UK cannot pay their workers remunerations that are below the minimum wages as shown by the figure 6 below (Hall, 2010). This increases the labour costs incurred by businesses that are operating within the United Kingdom. The other legal factor is that food industry is considered to be sensitive and therefore has a number of regulations such as Food Safety regulations as well as Food standards and labelling regulations that demand businesses in UK to label food ingredients in order to make consumers aware of the amount of calories in food that they are buying (FSA, 2017). This regulation increases cost of doing business in UK.


Figure 6: Minimum wage rates in UK

Source: Minimum Wage UK (2017)

2.2 Five forces analysis

The five forces analysis looks into the industry forces that affect business and companies that operate within that industry. The fives forces are the force of suppliers, the power of buyers, the threat of new entrants, the force of competition and the threat of substitutes (Hanlon, 2016).

In regard to the force of supplies on the restaurant industry in the UK, Subway (2017) noted that the bargaining power of suppliers who were in UK was very low. This is because brands such as Subway which had the capacity to buy in bulk had capability to negotiate for lower prices with the suppliers. Also the suppliers were not very organised to negotiate with the suppliers collectively which limited their bargaining power.

Concerning the force of buyers in the UK restaurant industry, Rodriguwez, (2016) noted that buyers had higher bargaining power especially due to the fact that there were a number of restaurants that provided similar products as those offered by Subway. This minimised Subway’s bargaining power with the buyers despite Subway having superior food products.

On the threat of new entrants Subway faces, it was moderate. The equipments and capacity needed to start a successful restaurant brand in UK was low. Hence, the entry barrier is low. However, the low profit margins obtained by the restaurants favoured large brands such as Subway as they sold large volumes of food which enabled them to make profits unlike a new entrants (Angela, 2012).

The threat of substitutes in the restaurant industry is very high. Although Subway offers sandwich as the main products, the product faces substitutes from Pizza, doughnuts, hamburgers and cakes as well as food products (Rodriguwez, 2016). In addition, the sugary food products provided by the restaurants also face substitution with healthy food salads which are offered by competitions.

On the competitive rivalry, Subway faces intense competition from companies such as McDonalds, Pizza Hut, Dominos, and KFC which offer fast food products such as sandwich, humbuggers and fried chicken (Maze, 2013).

3 Subway’s responses to the importance of business law on Subway

3.1 Analysis of the importance of business laws

3.1.1 The relevance of business law with Subway

The theme of business laws is of essence when it comes to restaurant industry and specifically to Subway Company. This is because the business is highly regulated and these regulations affect the bottom line of the company. One of the relevant business laws is the minimum wages regulation. According to Hayward (2016) this law is relevant to the company because it affects the labour costs of the company. Having higher minimum wages increases the business costs of Subway which negatively affects the company’s bottom line (Minimum Wage UK, 2017).

The other business law that is relevant to Subway is the food labelling regulation. This regulation holds that businesses should label the food ingredients and specifically the amount of carbohydrates in a particular food product. This law is meant to protect young consumers who are highly affected by obesity by providing guidance on the types of foods and nutrients in a particular food product (Gov UK, 2017). This has had negative implications on Subway Company as customers who are health conscious and who could be obese cannot take most of the products provided by the restaurant.

The other significant business law is the business law concerning the food safety regulations. This regulation holds that the food restaurants must uphold certain standards of cleanliness and safe food handling to protect consumers from food poisoning that results from food contamination (FSA, 2017b). Each food joint has to apply for food licenses and has to be under consistent inspection to ensure that the food quality in each restaurant is up to the standards (FSA, 2016). This regulation however comes with a cost as the cost of applying for licensing and inspection are passed on to the business which increases the cost of doing restaurant business.

The other business law that is of relevance to the restaurant industry relates to the employees welfare and work environment. The restaurants have to adhere to occupation health and safety regulation that protect workers from operating in poor work conditions (Hayward, 2016). This implies that businesses such as Subway have to provide optimum work conditions failure to which workplace injuries such as falls and burns are severely penalised by the government. Therefore businesses in UK have to put in place mechanisms that protect workers in order to operate successfully in the United Kingdom.

The environmental law is another law which has influence on the operations of sandwich restaurants such as Subway restaurant (Boffey, 2017). Businesses have to incur additional costs that are levied by the government through energy taxes levied on fossil fuels. This means that restaurants such as Subway have to incur higher cost of operation. In addition they have to pay carbon credits in order to make them compliant to the environmental regulations. The businesses have also to pay county taxes for disposal of their solid waste (Gov UK, 2013).

3.1.2 The implications of business laws on Subway’s policy and decision-making

The business laws in UK have affected Subway’s policy and decision making. The business law requiring Subway to pay its workers minimum wages has affected the company’s human resource policy (Little, 2014). The laws have made the company to improve on the wages of the employees. The company has put in place rewards mechanisms that provide each of the employees with basic salary which is above the minimum wages. In addition to this Subway provides overtime allowances for employees who work on weekends and on holidays (Subway, 2016). This ensures that the Subway in UK is not only compliant to the business laws but its employees are well motivated to serve the employees efficiently. The employee health and safety regulation have also affected Subway’s human resource recruitment policy. The restaurant has to hire skilled workers who have certification by Food Standards agency which shows that the employee has been trained by the agency on safe food handling (Subway, 2017).

The business law on food labelling has affected the company’s product policy (Tarantino, 2017). This is because food labelling reduces demand for foods with high calories as consumers are averse to products that can lead to obesity and weight gain which has increased demand for products such as salads and fruits (Haslett, 2016). Subway has been forced to introduce new products that cater for the growing number of health conscious consumers. The company has therefore responded to this by including juices, vegetables and fruit salads as some of the products offered by the company.

The other policy of Subway that has been affected by the business laws related to the food safety polices. The policy has affected the company’s fiscal policies as the company has been forced to upgrade its equipments so that most of the food preparation processes are automated and have minimal human interactions hence reducing chances of poor hygiene and contamination (Fulton, 2016). The company has acquired automated oven, dishwashers and water purification machines in its restaurants as way of enhancing food safety. This policy change however comes with high costs as the cost of automation is very high. The food safety polices also affect Subway’s food procurement policy (PRNewswire, 2015). Although the focus of the company is on low cost supplies, the company has initiated a policy to focus on quality of the supplies more than the price of the supplies. This is to ensure that the company receives fresh produces such as groceries which are fresh from the market in order to boost the food quality (Sartain, 2015).

The environmental law in UK has affected Subway’s environment policies because the company has to identify better ways of participating in environmental conservation efforts. In order to comply with the environment laws, the company has bought equipments that are meant to help Subway to be environment friendly (Vijayaraghavan, 2011). This has been done through installation of solar energy in most of the Subway restaurants in order to reduce consumption of fossil fuel energy.

The above business laws have also influenced the financial policy of Subway. For instance the company has to hire employees at industry wages in order to meet the legal requirements. In addition, the company has to purchase equipments that are very expensive to automate its services. This means that the company had to change its low cost policy in order to cater for rising expenses.

The business laws also have significant implications on the decision making process of Subway. In order to effectively make decisions that are compliant with the business laws the company needs an advisor to the top management who is conversant with the legal environment in UK (Subway, 2016). Therefore, the company’s management in UK will hire a legal advisor who will act as part of the management and will be providing legal advice to the management to ensure that the management makes informed decisions. Food safety regulations made Subway to include every employee in the process of ensuring food safety. This means that the decision making process on food safety involved all employees to enhance food safety at all levels of food preparation and delivery.


3.2 Critical examination of the effectiveness of Subway’s responses

3.2.1 The effectiveness of the responses

The response of improving the wages of the employees has been effective. This is because it has not only made the company to be compliant to the business laws but it has also made the company to have to have motivated employees (Boffey, 2017). Paying the employees above average wages motivates the employees and makes them to provide high quality services to their customers (Hayward, 2016). This attracts even more customers to the company thus implying the Subway’s response of increasing the wages of its employees has been effective. The response of improving employee welfare has made the employees to be more enthusiastic and engaged in their job which has increased employees productivity and quality of customer service in Subway restaurants.

The responses of introducing new products to the consumers have also been very effective. This is because there is high demand for healthy food products. Consumers are more interested in foods that will improve their health (Tarantino, 2017). This has seen consumers abandoning traditional food products offered in restaurants such as sandwich despite their sweetness. Instead consumers are consuming vegetables, salads and fruits which have high nutritional value and health benefits. Therefore the responses of introducing new food products have been effective as it has increased the sales volume of Subway (Haslett, 2016).

The response of introducing automated machines such as dishwashers has also been effective in bolstering food safety as it has reduced human interaction with food and allowed for automatic inspection of food quality (Little, 2014). In addition to this the automation processes has reduced the number of workers working for the company which has helped the company to cut on labour costs.

The company’s decisions to increase the prices of some of the products have been effective (Cox, Chu and Rodionova, 2017). This is because it has made Subway to be perceived as a high end restaurant. In addition, this strategy enables Subway to attract middle class consumer. In addition, it provides Subway with high margins which can cover the high costs that have come with the introduction of new health conscious products (Sena, 2017).

Subway’s response of participating in the environment conservation through the use of the solar energy has been effective (Vijayaraghavan, 2011). It has reduced energy costs which were previously incurred by the company. In addition, the company has also benefitted from increase in the number of environment conscious consumers who now prefer to take their meal from Subway thus increasing the sales volume of Subway restaurants in the United Kingdom (Subway, 2017).

Likewise the decision to bring on board a legal advisor in the company management to help the management make decision that are compliant to the legal laws has been effective (PRNewswire, 2017). This is because it has helped the management to identify legal huddles that are present in UK and appropriately respond to them thus avoiding penalties and findings that are imposed by the authorities and regulatory bodies for non compliance (Sena, 2017).

The decision to include every employee in ensuring food safety was effective because it ensured that food provided by Subway had high safety standards. This saved the restaurant brand costs that would have been incurred in paying fines penalties levied on restaurants with instances of contaminated food products (Subway, 2017).

3.2.2 The ineffectiveness of the responses

Despite the aforementioned effectiveness of Subway’s responses, there have been instances where the responses have not been effective. One of the ineffectiveness is that the response of providing high wages to the employees has been very costly (Angela, 2012). It is very costly to pay the employees above industry wages as it increases the operational costs of the company.

The other ineffectiveness of the responses is that the use of automated machines will require the company to hire additional employees who are conversant with the using automated machines (Maze, 2017). This increased the costs incurred by the company and reduced its profitability. In addition, having automated services reduces human interactions in the restaurants which discourage customers from visiting the restaurants as most customers prefer restaurants where they are served by people than by machines. Also machines are prone to service failure which is difficult to rectify which creates service delays.

The other ineffectiveness of the responses relates to the introduction of new production Subway’s menu. According to Subway (2017) one of the major reasons why Subway is very popular is due to its sandwich which is unique. Provision of other sandwiches and products may not appeal to sandwich enthusiasts who are the loyal customers of the company.

3.3 Recommendations on areas to improve

To avoid the ineffectiveness of using automated machines, Subway can hire employees who are already conversant with the use of the automated machines. This will ensure that the restaurants employees can serve customers and can also use the automated machines (Vijayaraghavan, 2011). The restaurants will have attendants who will offer personalised service and attention to customers who need a customised service. Having both manual and automated will help in ensuring that customers who are in a hurry receive automated service which will minimise their waiting time.

To improve on the ineffectiveness of having new products which are not appealing to the loyal customers (Tarantino, 2017), Subway will still retain its traditional products which are the sandwich, chicken and chicken. However, the company will include healthy toppings such as vegetable toppings, fruit toppings and salad toppings. This will make the restaurants friendly to healthy conscious customers. It will also ensure that the prices of the products do not increase (Haslett, 2016). This will ensure that Subway retains high numbers of its customers while gaining more customers who are interested in health foods.

4 Conclusion

This report has identified that the United Kingdom has negative political, economic, legal and ecological environment. However the economic, social and technological environment is favourable to Subway. On the porters’ five forces, the report has noted that the force of buyers was high as well as threat of substitutes and competitive rivalry. However, the power of suppliers was very low.  The reports further looked into the theme of business laws and the implications that business laws have on Subway’s policies. It was noted that business laws affected the Subway human’s resource policy, products policy, operation policy, price policy and the environment policy. Subway responded to these laws by automating most of its operations, and by introducing new products. It also responded by paying its employee higher wages and by introducing solar energy. The other response included ensuring that the employees hired by the company have undergone training conducted by the food standards agency. The company also responded by having a legal advisor on the company’s top management and by ensuring that all employees are involved in making decisions on food safety. Nevertheless, some of these responses were ineffective as change in products meant that the company could lose all its customers who come to the restaurant due to its sandwich. Other limitations included increased costs as a result of increasing employees’ wages. Also automation of services alienated customers who were interested in being offered personalised services that could not be offered through automation. To mitigate on this, the hotel sought to retain both the sandwich and the other traditional products provided previously. In addition, the hotel sought to ensure that there were no price adjustments to avoid losing customers who were price conscious. In addition, the company offered both automated service and a personalised service depending on the customers’ preferences in order to serve large number of customers irrespective of their preferences.







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Appendix 1 Company profile of Subway

Subway is a leading American restaurant chain with franchises all over the world. The company is owned by Doctors Associates Inc. The company was established in 1965 by Fred DeLuca and Peter Buck as a submarine sandwich restaurant. Since then the company has expanded its menus to include chicken sandwich pizza among other delicacies. The company’s headquarters are located in Milford, Connecticut in the United States of America. Suzanne Greco is the current chief executive officer of the company assisted by Joe Chaves who is the director of operations in the company (Subway, 2016). The main delicacies offered in Subway restaurants are Subway Sandwich, Chicken Chipotle, Chicken Pizziola and Turkey and Veggie Party. The most important and unique product sold by Subway is the submarine sandwich because it has unique ingredients and recipe which are considered to be secretive. The restaurant has approximately 45,000 stores in the globe which are found in over 110 countries. The restaurant has approximately 2300 restaurants in the United Kingdom. The restaurant has employed approximately 492,000 employees globally. The company is privately owned company (Subway, 2017).

As a fast food restaurant, Subway faces intense competition from companies such as McDonalds, Pizza Hut, Dominos, and KFC which offer fast food products such as sandwich, humbuggers and fried chicken (Maze, 2013).  But because its unique competitive advantages, it has the second largest market share globally. The company market share only falls below that of McDonalds

The company had gross revenues of over $11.3 billion in 2016. The company had estimated net revenues of $58 million as of 2016. In regard to the market structure, the company has the second largest market share in the restaurant industry as it has which has gross revenues of $198 billion (Statista, 2016).

Operates in over 110 countries
Number of stores worldwide 45000 stores
Gross revenues $11.3 billion
Net revenues $58 million
Revenue growth -1.7%
Operating margin 9%
EPS $0.1

Source: Statista (2016)

Figure 7: Sales from 2013 to 2016

Source: Statista (2016)

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