Pakistan fast food, Desi food, and continental food industry arepegged at Pakistani 20 billion rupees plus a year with an expectedannual growth rate of 30% to 40%. Several multinationals includingMcDonald’s, Hardees, Domino’s, and Pizza Hut have established theirpresence in Pakistan. A new entrant is Subway—a leading sandwichchain, which, with 16,900 outlets in Canada and the USA, hassurpassed McDonald’s branch strength in these two countries.Worldwide, it has a total of 22,361 restaurants, spread across 78countries. Subway operates in Pakistan through a wholly-ownedsubsidiary, Subway Systems Pakistan (Subway). Subway increased thenumber of outlets in Pakistan to around 100 by 2019. Subway sells awide range of vegetarian and non-vegetarian sandwiches, whichconsumers can customize. To cater to Pakistani tastes, it alsooffers many Pakistanis recipes such as paneertikka, chicken tikka, chickenseekh kebab, and spicy vegetables. Pakistanisentiments and sensibilities, the company does use chicken, beef,and mutton products in Pakistan. What is special about Subwayoutlets is that the orders are prepared right in front of thecustomers, with customers being able to even customize their meal.They can choose the toppings, spices to be added, etc. Speakingabout the products that the fast-food chain sells, Mr. Raheem(hypothetical name), Business Development Manager, Subway SystemsPakistan, says, “There is no other fast-food chain in Pakistan thatserves the products we serve. Further, customer interaction ismaximum at our stores as the customer can be involved at all stagesof the sandwich-making process, starting from choosing the bread tothe meat, the sauces, spices, and so on, which again is unique tous.

Subway has adopted the franchising route to penetrate themarket. Each store involves an investment of Pakistani 1.5–4million rupees. It has an area of 700 sq. ft. to 1,000 sq. ft. withtwo sections—dine-in and takeaway counters. Justifying the move touse the franchising route, Fred DeLuca, Chairman & Founder ofSubway, said, “We have never compromised on quality and services.But you cannot be present in 70 countries to monitor this on aday-to-day basis. So we follow the franchisee route everywhere.”The franchisee has to bear the cost of setting up the outlet. Theseinclude an initial franchise fee, and purchasing or leasing theequipment. The franchisee is also responsible for managing therestaurant and personnel. The franchisee should pay a royalty feeof 8% and 3.5% toward an advertising fund; in lieu, Subway providesassistance in identifying the location for the outlet, in designingthe store, preparing the menu, setting up operational systems, inconducting training programmes, and in carrying out periodicevaluations.

On the pricing front, the prices range from Pakistani rupees100–500 plus—depending on the recipe the customer chooses—10–15%higher than its nearest competitor McDonald’s. But analysts are notsure about the company’s premium pricing strategy. Mr. Sehgal(hypothetical name), MD of a retail-management consultancy firm,MWB Technopak, commented, “As such, there is no negative perceptionabout sandwiches in Pakistan. However, the premium pricing strategyfor the product may have to be altered, keeping the price-consciousPakistani consumer in mind.

Subway has a unique arrangement to promote its brand. Theadvertising expenses are financed from a specially createdadvertising fund that is operated by the franchisees themselves.The franchisees contribute a certain percentage of the salesproceeds to build the fund. They also promote the brand locally.The development of advertising campaigns is being looked after byABC advertising agency. The main objectives of the advertisingcampaigns are to attract customers to the outlet and also toproject the image of the outlet as one that offers healthy andfresh food.

QUESTIONS

1. “We have never compromised on quality and services. But youcannot be present in 70 countries to monitor this on a day to daybasis. So we follow the franchisee route everywhere.” Do you agreewith this statement?

2. Subway has adopted a premium pricing strategy with prices 15%higher than those of its competitors. Do you feel that such apricing strategy is appropriate for the price-conscious Pakistaniconsumer market?