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CAN THE NORTH SIDE OF HOLLY SPRINGS, MS, SUPPORT A SUBWAY
FRANCHISE?
By:
Shirley Ann Bean-Walker
The Senior Project Presented in Partial Fulfillment
of the Requirements for the Degree in Business Administration
RUST COLLEGE
March 2016
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CAN THE NORTH SIDE OF HOLLY SPRINGS, MS, SUPPORT A SUBWAY FRANCHISE?
By:
Shirley Ann Bean-Walker
March 2016
Approved:
Accepted and Signed:
Senior Project Advisor Date
Accepted and Signed:
Reader Two Date
Accepted and Signed:
Reader Two Date
__________________
Mr. Richard J. Frederick, Chair Division of Business Date
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ABSTRACT
Lack of convenience and variety has left residents on the north side of Holly Springs,
MS, the students of Rust College, and employees to gas station delis, highly processed food, and
unhealthy options. The north side of Holly Springs is in dire need of more food choice options,
but not able to sustain high maintenance restaurants. A more affordable option like a Subway
restaurant could be an excellent beginning. The purpose of this paper is to analyze the consumer
market on the north side of Holly Springs to determine if a Subway restaurant would be
sustainable in the environments current state. Several factors that will assist in determining the
strength of the consumer market for a Subway restaurant are introduced, discussed, and
correlated with disposable income. Factors such as market feasibility, threats to Subway, and
Marshall County’s expected growth, to name a few, are also reviewed. These factors will directly
affect the success or failure of a restaurant.
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TABLE OF CONTENTS
INTRODUCTION
Background of the Problem ……………………………………………………..6
Statement of the Problem ………………………………………………………..7
Purpose of the Study …………………………………………………………….8
Significance of the Problem ………………………………………………….….8
Research Questions ……………………………………………………………...9
Hypotheses ……………………………………………………………………....10
Definition of Terms ……………………………………………………………...11
Assumptions ……………………………………………………………………..13
Summary ………………………………………………………………………...13
REVIEW OF THE LITERATURE
Market Feasibility………………………………………………………………..15
Demographics………………………………………………………………….16
Median Income………………………………………………………………...16
Traffic………………………………………………………………………….17
Competition…………………………………………………………………….17
Consumers Travel Distances…………………………………………………...17
Marshall County, MS, is Growing………………………………………………...18
Spring Economic Development Area Industrial Park…………………………..19
Health is Trending………………………………………………………………20
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Marshall County’s Health………………………………………………………20
Subway……………………………………………………….................................21
Inside a Subway Restaurant…………………………………………………….22
Subway’s Current Position…………………………………………...................23
The Cost of a Subway Franchise………………………………………………..24
Threats for Subway………………………………………………………………...24
Minimum Wage is Rising……………………………………………………….25
Hepatitis A………………………………………………………………………28
Sandwich Sizes………………………………………………………………….29
Franchise Relations……………………………………………………………...30
Subway’s Artificial Ingredients…………………………………………………30
Summary…………………………………………………………………………...31
RESULTS
Data Collection…………………………………………………………………….33
Data Analysis…………………………………………………………………........34
Findings…………………………………………………………………………….39
Recommendations………………………………………………………………….42
Conclusion………………………………………………………………………….42
REFERENCES
APPENDIXES
Appendix I
Appendix II
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INTRODUCTION
After a long day of settling into a great new home, the health conscious resident is
exhausted and would like to grab a quick meal before ending the day. In search of a quick meal,
the resident sets out to find only two gas stations and no fast food options nearby. Not interested
in the less than fresh ingredients, the resident continues searching. After a long, uncomfortable
ride to the south side of town, the resident finally discovers a Subway restaurant located in a
hidden corner behind yet another gas station.
Lack of convenience and variety has left residents on the north side of town and the
students of Rust College to gas station delis. The north side of Holly Springs is in dire need of
options, but not able to sustain high maintenance restaurants. A more affordable option like
Subway could be an excellent beginning. In 2010, Holly Springs' population was 7,699 residents;
the larger percentage of residents lived on the north side of town closer to Rust College making it
a possibly profitable area for a franchise venture. Today there are no fast food restaurants on the
north side of Holly Springs (“Holly Springs, MS,” 2014). Subway's brand name is established
and shows potential to become a lucrative business. The intentions of this research are to identify
and understand the consumer market on the north side of Holly Springs to determine if a Subway
franchise would be an ideal venture to explore.
Background of the Problem
Highway 78 was built in the 1990s running directly on the northern side of Holly Springs,
MS, closer to Rust College. Highway-oriented businesses were located along Highway 78,
dependent on pass-by traffic to maintain a steady flow of support. Roughly 20 years ago when
Highway 178 was built on the south side of town closer to the WalMart Super Center it guided
pass-by traffic away from Highway 78. Taking pass-by traffic to the southern side of town left
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the northern side barren (Handy, Lockean, Kubly, Srinivasan, Jarret, Oden, & Mahmassani,
2001).
In response to the stunning effects, the city responded by implementing the
Comprehensive Plan of 1997. The primary objectives of the Comprehensive Plan of 1997 were
to construct a new bypass off Highway 78 and Highway 178, relocate Walmart to the south side
of Holly Springs reopening it as a Supercenter, upgrade Highway 78 to Interstate level (I-22),
and closing industries on the north side of town. Since the onset of the Comprehensive Plan of
1997, all of the primary objectives have been met. The strategic plan had reunited highway-
oriented business with its pass-by traffic (Watson, 2012). The Comprehensive Plan of 1997 has
also increased the consumer market by upgrading Highway 78 to Interstate level (I-22), and in
doing so, possibly created a large enough consumer base to support more businesses (Mitchell,
2013).
Like most highway-oriented businesses, Subway franchises can also be found in high
traffic areas (e.g. Walmart, shopping centers, etc.). Although there is as much opportunity near
Highway 78, there is only one Subway franchise in Holly Springs, MS. The current Subway
franchise is situated in an unappealing position without any landmarks near Highway 78 leaving
open a consumer market of motorists not familiar with local restaurants or aware of the current
Subway franchise (Artz, 2001).
Statement of the Problem
Holly Springs, MS has eight fast food restaurants, none of which are located on the north
side of town (“Holly Springs, MS City-Data”, 2012). Residents on the north side of Holly
Springs do not have the convenience of fast food restaurants. As a result, they are compelled to
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drive to the south side of town to benefit from fast food options. In 2012, of the estimated 7,699
residents of Holly Springs, the majority resided in the north portion of the city (“Holly Springs,
MS Quick Facts,” 2013). Currently, there are no fast food restaurants on the north portion of the
city, but there should be more convenient options for the majority of Holly Springs, MS
residents. Flowood, MS, comparably similar to Holly Springs in population, had a total
population of 8,154 in 2012, but unlike Holly Springs, Flowood has 19 fast food restaurants
located all over the town (“Welcome to the city of Flowood”, 2014). It is accurate to assume that
the consumer market on the north side of Holly Springs may be sufficient to support a Subway
franchise.
Purpose of the Study
The purpose of this quantitative research is to determine if the consumer market on the
north side of Holly Springs, MS could successfully support a Subway franchise. Holly Springs’
residents on the north side of town lack fast food restaurants. To determine the strength of the
consumer market, the researcher will compile the necessary data by asking residents on the north
side of town to complete a survey. The information gathered will also include relevantly
contributes to the success of a Subway franchise, such as median income, traffic flow, and
consumer taste of the area. Concerning the likelihood of a Subway franchise (dependent
variable) on the north side of town, this research will give reliable results in determining if the
consumer market of Holly Springs, MS (independent variable) is strong enough to support the
franchise.
Significance of the Problem
This quantitative research is being conducted to support the possibility of a Subway
franchise operating successfully on the north side of Holly Springs, MS. This study will yield
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information on the strength of the consumer market in underdeveloped towns. The likelihood of
their success often depends on the median income of the community, the population of the
immediate area, and location of the franchise. The researcher will also determine possible
contributions a Subway franchise could have on the development of the north side of Holly
Springs.
Subway franchises' renowned low start-up costs and low operating expenses make it an
excellent candidate to introduce to the low-income consumers who make up the north side of
town. Subway's reasonable prices, brand name, and fast food make the restaurant appealing to
residents of the community and any traffic on the north side seeking quick food (R. Hitchins, D.
Elliott, & A. Gibson, 2004). Researching the likelihood of the consumer market supporting a
second Subway franchise will benefit individuals interested in or beginning franchises in
underdeveloped areas similar to the demographics found on the north side of Holly Springs.
Subway franchises represent one of many small businesses in the United States
contributing to expanding the United States economy. Small business participation in the U.S.
economy accounts for half of the private-sector economic growth and more than 99 percent of all
enterprises. These small businesses were at the core of expansion immediately following the
economic downturn in mid-2009, which saw output, business income, and profits rise while
business bankruptcies and unemployment declined (“Small Business Economy 2012,” 2012).
Research Questions
For the research to be useful to readers, the following questions are presented to prove/
disprove whether or not a potential second Subway franchise could successfully operate on the
north side of Holly Springs, MS.
1. Will consumers’ willingness to drive distances interfere with them shopping locally?
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2. Is the available consumer market on the north side of town large enough to support a
Subway franchise on the north side of the city?
3. Would residence's income support a Subway restaurant?
4. Do the consumers on the north side of town want a Subway franchise?
5. Does the area generate a significant amount of pass-by traffic? Alternatively, would
Subway consumer base rely solely on the north side residence?
6. Will Subway’s controversies cause lower sales or no effect on sales?
7. Is there any competition currently in the area or coming to the area?
8. Will future town plans expand the consumer market on the north side of town?
9. Will brand loyalty to Subway substantially contribute to sales at a possible north side
location?
In thoroughly researching the answers to the above questions a solution to the possibility of a
Subway franchise successfully operating on the north side of Holly Springs may be determined.
Hypotheses
The succeeding hypothetical statement was devised to formulate an approach to this
research. The theoretical statements may or may not support the probability of the consumer
market supporting a Subway franchise on the north side of Holly Springs, MS. Such a
declaration can be thoroughly determined by the assessment of secondary, scholarly business
articles and journals, and the collection and evaluation of survey data from the intended
population. The analysis of the north side of town's deposition and calculation of north side
residence's median income will also be used.
1. The null hypothesis (H1o) confirms the expectation that the consumer market in Holly
Springs, MS, will support a Subway franchise on the north side of town. The alternative
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hypothesis (H1a) confirms that the consumer market in Holly Springs, MS, will not
support a Subway franchise on the north side of town.
Definition of Terms
This research was compiled using information in a quantitative manner to process the
subject area to determine if the consumer market on the north side of Holly Springs, MS, will
support a Subway franchise. This research addresses the problem of no fast food restaurants on
the north side of Holly Springs for the convenience of its residence. The researcher provides a
thorough definition of field-specific terms throughout the paper. The list of terms and definitions
are as followed:
Underdeveloped
Not normally or adequately developed; having a relatively low economic level of
industrial production and standard of living (as from lack of capital). Residences are usually
subjected to an insufficient amount of resources (Schwager, 1997).
Franchise
An agreement or license between two legally independent parties which gives a person or
group of people (franchisee) the right to market a product or service using the trademark or trade
name of another business (franchisor), the franchisee the right to market a product or service
using the operating methods of the franchisor, the franchisee the obligation to pay the franchisor
fees for these rights, and the franchisor the obligation to provide rights and support to franchisees
(Chan, 1991).
Highway-Oriented Businesses
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Businesses primarily oriented towards serving the traveling/transient public or that
require immediate access to the regional transportation systems (Fort Wright Zoning Ordinance,
2013).
Consumer Market
The consumer market pertains to buyers who purchase goods and services for
consumption rather than resale. Not all consumers are alike in their tastes, preferences and
buying habits due to different characteristics that can distinguish particular customers from
others. These particular consumer characteristics include various demographic, psychographic,
behavioralists, and geographic traits. Marketers usually define these consumer characteristics
through market segmentation, the process of separating and identifying key customer groups
(Suttle, 2013).
Household Income
Total income of all people living in a particular household. Income refers not only to the
salaries and benefits received but also to receipts from any personal business, investments,
dividends, and other income. Household members do not need to be related to being part of a
household. Household income is often used as an economic indicator to determine individual
household’s disposable income (Davis, 2013).
Traffic
The volume of customers visiting a business establishment (Lemon, 2001).
Assumptions
Small businesses need to know the members of their target audience, what they want,
where they are located and how they will react to product promotions. Consumer behaviors
control the type of organizations that will establish themselves within these consumers'
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communities (Dietrich, 2014). The development of this research has led to the following
assumptions allowing the reader to formulate clear and concise opinions on the contents of the
research. The only competition that should be taken into account are those locations located in
Holly Springs. Additionally, North side residences participating in the survey analysis have
answered all questions honestly and to the best of their ability. Furthermore, all data acquired for
the purpose of this study is accurate and reliable. Secondary information is used for convenience
due to restraints such as time, lack of resources, and no funding.
Summary
Quantitative data compiled for the purpose of this research on North Holly Springs, MS
consumer market comes from primary and scholarly secondary sources. Of eight fast food
restaurants, none is located on the north side of Holly Springs, causing north side residence the
inconvenience of driving to the south side of town to benefit from fast food options. In 2012, of
the estimated 7,669 residents of Holly Springs, the majority resided on the north side of the city.
Cities of similar population, such as Flowood, MS, have a total of 19 fast food restaurants
located all over the city.
The researcher assesses determinants of a Subway franchise succeeding or failing on the
north side of Holly Springs by asking residents on the north portion of the city to complete a
survey. Other determinants will also include relevantly contributes to the success of a Subway
franchise, such as median income, traffic flow, and consumer taste of the area. This research will
yield information on the strength of the consumer market in Holly Springs’ north side and under-
developed towns alike. Subway franchises' renowned low start-up costs and low operating
expenses make it a strong candidate to introduce to the low-income north side consumers.
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Subway's reasonable prices, brand name, and fast food make the restaurant appealing to residents
of the community and any traffic on the north side seeking quick food.
Concerning the likelihood of a Subway franchise (dependent variable) on the north side
of town, this research will give reliable results to determine if the consumer market of Holly
Springs, MS, and (independent variable) is strong enough to support the franchise. The literature
review will follow to give further information on the environment of the intended franchise
location and Subway's history.
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REVIEW OF THE LITERATURE
This review will examine Holly Springs’ north side environment to determine if the
consumers will benefit from a convenient, fast food restaurant. The hypothesis stated that the
consumer market on the north side of Holly Springs, MS, would not support a Subway franchise.
The information that follows introduces several factors that influence the feasibility of a Subway
franchise operating successfully on the north side of town and generating a comfortable income
for the owner. The review will also underline some of the trends and analyze a comparison
between the existing restaurants and a Subway franchise.
Market Feasibility
This section will address market conditions associated with demographics, human
capital, anticipated growth, neighboring businesses, and location. This section will provide
insight regarding the potential number of customers, potential sales, pull factors, and other
measures of market strength (Brent, Campbell & Miller, 2015). Research shows that Holly
Springs is losing revenue to neighboring communities, but there is an opportunity to capture this
revenue by providing convenience (Brent, Campbell, & Miller, 2015).
Marshall County, Holly Springs’ county, is harnessing only 50.4% of retail and
commercial sales dollars potentially available within its local market. The intermodal facility and
industries now located in Marshall County are positioning the area to attract additional retail that
supports logistics supply chains, thus more disposable income for residents and workers in the
area. Therefore, market conditions could support the need for a fast food restaurant in the Rust
College area due to the population increase, traffic patterns, industrial development underway,
and lifestyle changes (Brent, Campbell, & Miller, 2015).
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Demographics. Subway’s target market is young adults between the ages of 16 and 39
(Subway, 2015). In 2013, of the estimated 7,625 residents of Holly Springs, the majority resided
on the north side of town. In 2012, a 30-mile radius of Holly Springs, MS, reaches a population
of 327,405 people. Of the 327,405 population, there are 258,115 individuals 15 years or older
(“ACS Population Summary”, 2012). The median age of Holly Springs’ residents is 31 years old
for both male and female (“Holly Springs, MS Quick Facts,” 2013). Therefore, approximately
79% of individuals in a 30-mile radius of Holly Springs, MS, can be included in the Subway
franchise’s target market.
Rust College is not in the census data provided, but Rust College enrolled 922 students in
the 2013-2014 school year. Rust College’s student body population, staff, and employees could
make further contributions to the success of a Subway franchise of the north side of Holly
Springs. The town’s only institute of higher learning will drastically affect the consumer market
on the north side. (McLoy-Lewis & Vaughn, 2014).
Median income. According to the 2015 census, the median household income for Holly
Springs is $26,337 (Lifestyles & Demographics, 2015). Between 1960 and 2007, the share of
disposable personal income spent on food purchased at restaurants, fast food places, and other
away-from-home eating places increased from 3.4 to 4.1 percent (USDA Economic Research
Service, 2015). Therefore, of the $26,337 median income of Holly Springs a minimum of
$895.46 and a maximum of $1,079.82 will be used to purchase food at restaurants, fast food
places, and other away-from-home eating places per households.
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Traffic. The Subway franchise should expect a substantial amount of foot traffic from
nearby residences and the Rust College student population. According to the Dean of Students
care registry records, only one of every 20 students has a vehicle on campus. Furthermore, within
a one-mile radius, the majority of Holly Springs population can be reached, there are three
factories with at least 50 employees each, the Marshall County Correctional Department, and
Marshall County Detention Center. The Subway franchise’s location is also positioned right on
Highway 7.
Competition. The most northern side of Holly Springs, MS, currently has no fast food
restaurants. There is a total of six fast food restaurants on the south side, 11 dine-in restaurants
on the south side, and one dine-in restaurant near the north side of Holly Springs. The 18 fast
food and dine-in restaurants consists of McDonalds, Sonics, Subway, Dominoes, Little Caesars,
Huddle House, Popeyes, KFC, Taco Bell, JB’s Restaurant, Annie’s Restaurant, Copper Kettle,
Victor’s Pizza, Panda Buffet, El Nopalito, Southern Eatery, Chicken Coup, and Wendy’s.
Consumers travel distances. When marketing a local business, it can be difficult to
judge how far to extend the catchment area for attracting new customers. Small businesses
neither have the time nor the resources to waste on targeting consumers who may not consider
them local enough to be a viable business to use. Bright Local conducted a research study to
determine how far consumers are willing to travel to reach a local business. During this study
age and gender were also taken into consideration (Marchant, 2014).
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A panel of over 800 respondents was presented with 13 business categories and asked to
enter a driving time for each group. The 13 business categories were restaurant/café, clothes
shop, pub/bar, specialist shop, hair/beauty salon, wedding shop/venue, accountant/solicitor,
general shop, doctor/dentist, gym/sports club, garage/car dealer, yoga class/alternative therapies,
and realtor/surveyor. Respondents were willing to drive, on average, 17 minutes to reach a
restaurant/café. Therefore, respondents are willing to drive farther to get to a restaurant/café than
they are to yoga class/alternative therapies, gym/sports club, hair/beauty salon, pub/bar, clothes
shop, or accountant/solicitor (Marchant, 2014).
Subway franchise target market is young adults between the ages of 16 and 39.
According to the research, the 18-24 and 25-34 are willing to drive 16.3 minutes to reach a local
business, and 35-44 are prepared to drive 17 minutes to reach local businesses. Therefore,
consumers between the ages of 18 and 34 should not be expected to drive over 16.3 minutes to
reach the Subway franchise. Since the median age for Holly Springs residents is 31 years old for
both male and female, the majority of the population will still be captured in the target market
(Marchant, 2014).
Marshall County, MS, is Growing
Marshall County’s available land makes it a worthy competitor to surrounding counties.
Marshall County is mainly undeveloped, which is attractive to industries because they have more
flexibility at their discretion. Additionally, Marshall County’s proximity to the distribution hub
of America, Memphis, TN, allows Marshall County industries to get all the same benefits as
industries that are located in Shelby County or DeSoto County without the crowded and
overpriced hassle (MCIDA, 2016).
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Chickasaw Trail Industrial Park (CTIP) is responsible for the larger part of Marshall
County’s success in bringing notoriety to Marshall County. CTIP encompasses 3,600 acres of
developed industrial property located in Marshall County, MS and approximately 22.6 miles
from Holly Springs. CTIP is now home to industries like Exel, ASICS America Corporation,
Volvo Parts Distribution Center, and Post Consumer Brands. These great industries locating in
Marshall County have other industries’ attention. Marshall County Industrial Development
Authority has received international and Fortune 500 Company inquiries. Marshall County’s cost
efficiency is causing growth and shows no sign of slowing down. City and state officials expect
the county’s industries to double by 2026 (MCIDA, 2016).
Spring economic development area industrial park. In April 2014, the Senate and both
houses of the state Legislature have unanimously passed HB1640. The HB1640 authorizes
Marshall County and the City of Holly Springs, through the Marshall County Industrial
Development Authority, to create the new Springs Economic Development Area Industrial Park.
The park will be situated northwest of the city and on both sides of Highway 78. The creation of
the Spring Economic Development Area Industrial Park is in response to the anticipated growth.
The area will be suitable for large industrial sites (Watson, 2015).
The proposed site development for the Spring Economic Development Area Industrial
Park includes retail, industrial, medical, and wetlands park and outdoor trails. The completion of
Interstate 269 and the existing highway network is anticipated to have increasingly heavier
traffic volumes in the area. A reasonable assumption is that retail development and more leisure
amenities will follow (Brent, Campbell, & Miller, 2015).
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Health is trending. Within the last few decades, there have been myriad nutrition
education and information efforts to guide Americans to more healthful diets; these efforts have
originated from both the government and private sectors. Some of these efforts are targeted to
healthy Americans, that is, those who are not on prescribed diets to treat medical conditions.
Other educational efforts target population groups considered to be nutritionally at risk due to
low income and age or physiological condition (e.g., pregnant women, young children, the
elderly), and who may be eligible to participate in food assistance programs. And some activities
target nutrition education intermediaries allied professionals, teachers, and school food service
workers (Weimer, 2008).
The National Restaurant Association research shows that more than seven in 10 adults
are trying to eat healthier at restaurants than they did in 2013. Restaurant operators are taking
notice, with more than eight in 10 restaurant operators saying their guests pay more attention to
the nutrition content of food now than they did in 2013. Strong majorities of consumers have
also noticed that restaurants feature more nutritious options on menus now (National Restaurant
Association, 2015).
Marshall County’s health. According to County Health Rankings, 40 percent of adults
report a body mass index (BMI) of 30 or more in Marshall County. The food environment index,
an index of factors that contribute to a healthy food environment, received a 5.6 with zero being
the worst and ten being the best. There is 23 percent of adults reporting fair or poor health
(County Health Rankings, 2015). Furthermore, Mississippi now has the third highest adult
obesity rate in the nation, according to The State of Obesity: Better Policies for a Healthier
America. Mississippi's adult obesity rate is currently 35.5 percent, up from 23.7 percent in 2000
and 15.0 percent in 1990 (The State of Obesity, 2014).
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Although the food in Holly Springs is safe to consume, the environment consumers live
makes choosing healthy food very hard and choosing unhealthy food very accessible. It’s truly a
toxic environment that eats away at healthy lifestyles and promotes obesity. Any positive
changes in the food environment can begin to shift momentum. One of the first steps toward
bettering the food environment is making healthy foods and drinks more convenient and
affordable. Limiting access to high-calorie, low nutrient foods, and sugary drinks are of equal
importance (Harvard T.H. Chan, 2013).
Subway
Fred DeLuca set out to fulfill his dream of becoming a medical doctor. A family friend
suggested he open a submarine sandwich shop to help pay for his education. The first store was
opened in Bridgeport, Connecticut in August 1965. Dr. Peter Beck and Fred DeLuca set a goal of
having 32 stores opened in 10 years. Fred soon learned the basics of running a business, as well
as the importance of serving a well-made, high-quality product, providing excellent customer
service, keeping operating costs low and finding great locations. These early lessons continue to
serve as the foundation for successful Subway restaurants around the world (Subway, 2016).
By 1974, the duo owned and operated 16 submarine sandwich shops throughout
Connecticut. Realizing they would not reach their 32 store goal in time, Fred and Dr. Beck began
franchising, launching the SUBWAY® brand into a period of remarkable growth which
continues to this day. Today, the SUBWAY® brand is the world's largest submarine sandwich
chain with more than 44,000 locations around the world. Subway has become the leading choice
for people seeking quick, nutritious meals that the whole family can enjoy. The SUBWAY®
brand is guided by his passion for delighting customers by serving fresh, delicious, made-to-
order sandwiches (Subway, 2016).
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Inside a subway restaurant. When entering a Subway restaurant consumers notice a
Tuscany Décor, an all-new design package that is the first complete interior and exterior revamp
Subway has undertaken. The Tuscany Décor provides a warm and inviting fast-casual
environment that enhances Subway's brand positioning of healthful, fresh, great-tasting
sandwiches and salads. The warm colors and textures of the Tuscan countryside embody Old
World charm and hospitality, which the new Tuscany Décor integrates into the design. The
natural building materials of the region express the beauty and relaxed feel of the landscape
(QSR, 2002).
Next, the consumer will have an array of sandwich options. Subway menu offers 18
sandwiches: Black Forest Ham, Chicken & Bacon Ranch Melt, Cold Cut Combo, Italian B.M.T,
Meatball Marinara, Roasted Chicken, Roast Beef, Spicy Italian, Steak & Cheese, Subway Club,
Sweet Onion Chicken Teriyaki, Tuna, Turkey Breast, Turkey Breast & Black Forest Ham,
Turkey Italiano Melt, Veggie Delite, Philly Cheese Steak, and Veggie Patty. All sandwiches can
be served on Flatbread, Honey Oat, Wheat, Italian, Italian Herbs & Cheese, Monterey Cheddar,
and Italian Herbs. Then pile their sandwich with over ten vegetables, seven kinds of cheese, and
over ten sauces. The customer also has the option of having their sandwich as a breakfast
sandwich with eggs or having their sandwich as a salad without the bread. Subway offers Fresh
Fit for Kids for the children that offer a more limited selection of sandwiches with a drink, and
side Subway sides and drinks include an assortment of cookies, chips, and drinks. (Subway,
2016).
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Subway’s current position. Much of the Subway franchises success came from a
strategy of aggressive expansion while also promoting healthy eating, as exemplified by Jared
Fogle. Jared Fogle became the chain's pitchman in 2000 after shedding 245 pounds by sticking to
a diet of two Subway sandwiches per day and exercising. Thanks to Jared Fogle, Subway
franchises became the front runner of quick-serve restaurants (QSR) (Picchi, 2015).
Subway has been coping with a shift in consumers' tastes lately, with many diners
preferring the organic or sustainable foods served at smaller rivals such as Chipotle (CMG) and
Panera (PNRA). While sales at those chains are growing, Subway was hit by a 3.3 percent
decline in sales last year, according to research firm Technomic. Subway franchises have taken
many of the same steps as its hipper rivals, such as removing trans-fats from its bread. Subway
has also taken measures to eliminate a food additive called azodicarbonamide from their bread
that has been linked to respiratory issues, but those changes do not seem to be making much of
an impact on diners, given the flashier food at Chipotle, Shake Shack (SHAK) and other rivals
(Picchi, 2015).
Part of Subway’s troubles could be attributed to the recovering economy. As Americans
get more money in their pockets, they are willing to pay extra when they eat out. Subway did
well during the recession when a customer could buy a footlong sandwich for five dollars, but
since customers can be less financially conscience, they are beginning to value quality over
quantity (Picchi, 2015).
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The cost of a Subway franchise. A Subway store start-up costs are exceptionally low,
and franchisees can often purchase certain outlet equipment through the Subway brand’s
purchasing power. In fact, in some cases, traditional Subway stores can be opened for as little as
$100,000. The total initial investment will depend on many factors including location, rent,
outlet size and equipment. The franchise agreement is for 20 years and renewable for 20 years
(Subway, 2016).
Royalties and fees paid to the Subway brand are based on gross sales minus sales tax.
The royalties are 8% to the Subway brand. A 4.5% advertising fee is paid to the 'Franchisee
Advertising Fund (FAF)'. Franchisees in some markets may vote to increase the marketing fee
percentage for local advertising purposes. The franchise fee of $10,000 for outlets is one of the
lowest in the market, despite the size of the chain. One reason the costs are so low is that Subway
stores feature a very simple operation. No cooking is involved, so franchisees do not have to
invest large sums into expensive grills and fryers. Also, the décor package is streamlined so that
money is not wasted on non-recoverable assets (Subway, 2016).
Threats for Subway
Subway cut its United States restaurant growth in half in last year. The world's largest
sandwich chain opened 313 new restaurants in 2014, down from 638 net restaurants in 2013 and
805 in 2014, according to Bloomberg. As Subway cut back on new restaurant growth last year,
sales fell by 3% to $11.9 billion, according to QSR magazine. Subway says boosting sales at
existing restaurants is its biggest priority right now. Subway’s development has not been a focus
over the past few years and has been put on the back burner, but Subway is still opening stores.
Subway’s current focus is working with franchisees to improve store sales (Peterson, 2015).
25
Minimum wage is rising. Union activists want to raise the minimum wage in the fast-
food industry to $15 an hour. However, fast-food restaurants operate on tiny profit margins.
Therefore, they could only afford such wages by significantly raising prices. Higher prices
would, in turn, drive customers away, forcing even larger price increases to cover costs.
Ultimately, the average fast-food restaurant would have to raise prices by nearly two-fifths. This
price increase would cause sales to drop by more than one-third, and profits to fall by more than
three-quarters (Sherk, 2014).
Artificially inflating wages would substantially increase fast-food restaurants’ total costs
because labor makes up a considerable portion of their budget. Chart 1 below shows the financial
statements of the average fast-food restaurant in 2013. Labor costs (26 percent) and food and
material costs (31 percent) make up the majority of the typical restaurant budget. Paying $15 an
hour would raise fast-food restaurants’ total costs by approximately 15 percent. Fast-food
restaurants could not pay this additional amount out of their profits. The typical restaurant has a
profit margin of just 3 percent before taxes. That works out to approximately $27,000 a year, less
than the annual cost of hiring one full-time employee at $15 an hour. For fast food restaurants to
raise wages, fast-food restaurants must raise prices (Sherk, 2014).
26
Chart 1- Small Profit Margin (Sherk, 2014)
Most Americans eat fast food because they want a quick and inexpensive meal. If fast-
food restaurants raised their prices, many of their customers would find a substitute for their
usual fast-food meal. Academic studies consistently confirm the price sensitivity of fast-food
clients. Table 1 below shows the results of all studies of U.S. fast-food demand published since
1990. The figures in the table show the estimated drop in sales when prices rise by 1 percent.
Most studies find that a 1 percent increase in prices causes sales to fall by almost 1 percent.
Larger price increases cause sales to fall by proportionally larger amounts. For example, Abigail
Okrent’s and Aylin Kumcu’s estimate implies that a 10 percent increase in fast-food prices
would cause fast-food sales to fall by 9 percent (Sherk, 2014).
27
Chart 2 – Demand to Price Changes - (Sherk, 2014)
Furthermore, the loss of sales would force fast-food establishments to raise prices even
more to cover fixed costs like rent, insurance, and marketing. These price increases would, in
turn, further reduce sales, necessitating further price increases.
28
Many economists analyzing the fast-food industry overlook this dynamic. They assume that fast-
food restaurants would only have to raise prices enough to cover the cost of wage increases,
ignoring the sales and revenue that fast-food restaurants lose because of these price increases.
Consumers’ price sensitivity means that fast-food prices must rise by more than the initial
increase in labor costs (Sherk, 2014).
Hepatitis A controversies. In September 1999, at least 32 customers in the north Seattle
area contracted hepatitis A after eating food contaminated with the virus at two Subway outlets.
The virus, which is spread by eating or drinking food or water contaminated with infected feces,
infects the liver causing nausea, vomiting, diarrhea, fatigue, and fever. Subsequent investigations
found that staff failed to adhere to thorough hand washing and the use of plastic gloves during
food preparation. A class-action lawsuit on behalf of 31 victims was resolved for $1.6 million.
The most severely affected victim, a 6-year-old boy, suffered acute liver failure and required a
liver transplant. He was awarded $10 million in an out-of-court settlement in 2001 (Kloap,
2000).
A previous outbreak of hepatitis A in 1996 had also involved a Subway outlet in the
Seattle area, although no legal action had resulted. In April 2015, the Arkansas Department of
Health issued a warning to the public that customers who had eaten at the Subway outlet in
Morrilton, Arkansas, may have been exposed to infection after an employee tested positive for
the virus. There was also no legal action that resulted (Marbry, 2015).
29
Sandwich sizes. On February 2, 2007, KNXV-TV, with the help of the Arizona
Department of Weights and Measures, reported that three of Subway's "Giant Sub" sandwiches,
nominally each 3-foot (91 cm) long, were actually 2 feet 8 inches (81 cm), 2 feet 8.25 inches
(81.92 cm), and 2 feet 8.5 inches (82.6 cm) long. The maximum variance in length allowed in
Arizona is 3% (1.08 inches (2.7 cm), for a three-foot sub). The report also showed the boxes
designed to store these sandwiches were 2 feet 10.75 inches (88.27 cm) in length; shorter than
the maximum allowable variance. In response to the report, Subway stated they were
reevaluating their advertising, training and packaging materials concerning the specific or
implied length of Giant Subs, and were advising their franchisees only to discuss with customers
the approximate number of expected servings and not a specific length of measurement
(Mangan, 2013).
In January 2013, an Australian teen complained on Facebook that Subway's "footlong"
sandwich was only 11 inches (28 cm) long, rather than 1 foot (30 cm). Subway responded by
saying, "With regards to the size of the bread and calling it a footlong, 'Subway Footlong' is a
registered trademark as a descriptive name for the sub sold in Subway Restaurants and not
intended to be a measurement of length." In most metricated countries such as Australia, the foot
is no longer a government recognized unit of measurement. The story was picked up by the New
York Post who found similar cases in their investigation. On January 22, 2013, two New Jersey
men are suing the company, a man from Chicago filed a suit, and another New Jersey man filed a
federal class action lawsuit with the same allegations in 2013. These allegations have since
gained momentum (Mangan, 2013).
30
Franchise relations. In 1995, Subway were held liable for breach of contract. An Illinois
jury awarded more than $10 million in damages to Nicholas and Victoria Jannotta after finding
lease and contract violations. The plaintiffs claimed misrepresentation of the asset value of
Subway Sandwich Shops, a leasing company used by Doctor's Associates for franchising
purposes while negotiating a 1985 lease agreement (Boyle, 2010).
The U.S. House of Representatives' small business committee studied the franchise
industry from 1992 to 1998. Dean Sagar noted, "Subway is the biggest problem in franchising
and emerges as one of the key examples of every abuse you can think of." In 1989, the U.S.
Small Business Administration refused small business loans to Subway franchise owners until
Subway removed a contract clause which gave Subway the power to seize and purchase any
franchise without cause. The Dallas Morning News reported Subway had taken American soldier
Leon Batie Jr.'s Subway stores in 2006 while he was serving in Afghanistan. Batie had been
deployed to support Operation Enduring Freedom in March 2005, three years after buying his
first restaurant. Batie alleged Subway had violated the U.S. Servicemembers Civil Relief Act.
Batie filed a federal lawsuit against Subway, which was dismissed. Batie then filed suit in state
court, in Dallas County, Texas. Both parties settled on "mutually agreeable" and confidential
terms in January 2010 (Boyle, 2010).
Subway’s artificial ingredients. Subway is joining the growing list of companies that
plan to drop artificial ingredients from their menu items. The sandwich chain plans to remove
artificial flavors, colors and preservatives from its food in North America by 2017, according to
the Associated Press. The chain is cutting artificial flavors and caramel coloring from its new
roast beef recipe that involves roasting beef "with increased levels of garlic and pepper."
31
Vinegar will replace propionic acid, a preservative in its turkey. Banana peppers will be
given their glossy sheen with turmeric, often used in Indian curries, instead of Yellow No. 5
(Luckerson, 2015). The use of artificial flavors in a “health trending” environment” could take
away from Subway’s Eat Fresh promotions.
Summary
Subway’s target market is young adults between the ages of 16 and 39 (Subway, 2015).
In 2012, a 30-mile radius of Holly Springs, MS, reaches a population of 327,405 people. Of the
327,405 population, there are 258,115 individuals 15 years or older (“ACS Population
Summary”, 2012). The median age of Holly Springs’ residents is 31 years old for both male and
female (“Holly Springs, MS Quick Facts,” 2013). Therefore, approximately 79% of individuals
in a 30-mile radius of Holly Springs, MS, can be included in the Subway franchise’s target
market.
Furthermore, the median household income for Holly Springs is $26,337 (Lifestyles &
Demographics, 2015). Between 1960 and 2007, the share of disposable personal income spent on
food purchased at restaurants, fast food places, and other away-from-home eating places
increased from 3.4 to 4.1 percent (USDA Economic Research Service, 2015). Therefore, of the
$26,337 median income of Holly Springs a minimum of $895.46 and a maximum of $1,079.82
will be used to purchase food at restaurants, fast food places, and other away-from-home eating
places per households.
Since the most northern side of Holly Springs, MS, currently has no fast food restaurants
it is very likely that residence will spend a significant amount on more convenient options. The
“healthy trend” further contributes to the assumption that residence will spend more money in a
more convenient fast food restaurant. Affordable menu prices also make a Subway appealing.
32
Attributes that could benefit the Subway franchise include the city’s anticipated growth,
health trends that are essential to Subway’s target market, and Mississippi’s continuous declining
health. Threats to a Subway franchise range from artificial ingredients from a “healthy”
restaurant to damaging franchisee relationships, to false advertisements, to spreading death
causing illnesses, to rising minimum wages for a business that thrives on low costs.
33
RESULTS
The purpose of this paper is to determine if the consumer market in Holly Springs, MS,
can support a Subway franchise of the north side of town. The results section of this research is
to provide findings that will examine Holly Springs’ north side consumers’ opinions and
preferences to determine if the consumers find Subway franchise beneficial, how often they will
support the location, and to collect specific demographics of respondents. The researcher will
have some indication of the correct course of action for their study and what may still be needed
for a Subway on the north side to become successful. Researchers need to know how the data for
this research was collected and used, what subjects were employed in the collection of data,
where the data was collected from, and how the data was tabulated.
Data Collection
The data collected for this research was gathered from survey respondents, various news
outlets, government websites, company websites, magazine articles, journals, and research
studies. The secondary sources data collection was necessary due to limitations placed on the
research and time constraints. Information extracted from news outlets, magazine articles, and
journals were well-known and established.
Word searches used within online databases were Holly Springs, MS, median income,
Holly Springs, MS, median age, fast food restaurants in Holly Springs, MS, consumers travel
distances, Subway franchises, lawsuits against Subway franchise, disposable income, Subway
controversies, higher minimum wage affects small businesses, Subway operational costs, Holly
Springs’s growth, health become a trend, and Marshall County health trends.
34
Information was gathered from 35 survey respondents, over ten news outlets, five
government websites, one company website, three magazine articles, five scholarly journals, and
one research study. Most collected data was within a 10-year time span of 2016, but some
articles were older in nature to support the historical nature of some aspects of the research.
There was no available information on the plausibility of a similar town supporting a restaurant
or any business in general. Therefore, some information is altered only to capture the relevant
area.
Data Analysis
Of 35 survey respondents, 35% agree, 31% strongly agree, 20% strongly disagree, 9% is
neutral, and 6% disagree that a Subway near Rust College would be more convenient for them
(refer to Chart 3 – Proximity Chart).
Chart 3 - Proximity Chart
35
Of 35 survey respondents, 40% disagree, 26% is neutral, 14% strongly disagree, 14%
agree, and 6% strongly agree that a Subway offers better food choices that what is available
(refer to Chart 4 – Availability Chart).
Chart 4 – Availability Chart
Of 35 survey respondents, 72% strongly agree, 20% is neutral, 9% agree, 0% strongly
disagree, and 0% disagree that they seek healthy food choices (refer to Chart 5 – Healthy Food).
Chart 5 – Healthy Food
36
Of 35 survey respondents, 43% is neutral, 26% strongly disagree, 14% agree, 9%
strongly disagree, and 9% disagree that they would be a customer of a Subway restaurant near
Rust (refer to Chart 6 – Customer Preference).
Chart 6 – Customer Preference
Of 35 survey respondents, most respondents live within one mile of Rust College, closely
followed by three miles. The least amount of respondents reside within two miles of intended
location. These findings indicate the consumer market is large is large enough to support a
franchise (refer to Chart 7 – Distance of Residence or Job).
Chart 7 – Distance of Residence or Job
37
Of 35 survey respondents, most respondents are willing to pay between $4 and $6 for a
meal. No respondents are will to pay $10 or more. This indicates that Subway prices match the
consumers’ budget (refer to Chart 8 – Suitable Price).
Chart 8 – Suitable Price
More than half of the respondents were female. Subway’s target market is not gender
specific, but females are more likely to be “health conscious” consumers. Therefore, the
franchise could possibly benefit from a female dense population (refer to Chart 9 – Gender).
Chart 8 – Suitable Price
38
There were 63% of respondents that were permanent residents. The considerable amount
of student and commuter population. The student population is in the target age range, which
will drastically contribute to sales. But, the student and commuter population will not have much
disposable income due to expense (refer to Chart 9 – Residential Status).
Chart 9 – Residential Status
There were 63% of respondents that eat at Subway one to two times a month. Consumers
not frequenting the franchise often could negatively affect a steady income and these respondents
may not be Subway loyalty customers (refer to Chart 10 – Frequent Subway).
Chapter 10 – Frequent Subway
39
Findings
There was a total of 35 respondents. The survey respondents were chosen for this study at
random by means of the participants volunteering their time. Participants were a mix of college
students, college employees or staff, Spring Garden Apartment residents, Murphy Lane
residents, Church Court residents, and various residents of nearby homes. The researcher
attempted to diversify participants as much as possible so that the survey data was not biased.
Using the survey and review of literature data the researcher can answer the research questions
as follows:
Affects of Drive Time on Consumer Base
The data collected suggests that consumers’ willingness to drive distance will interfere
with them shopping locally. According to the research, consumers are willing to drive 17
minutes to reach a restaurant. Holly Springs is considered a rural area and customers drive
further in rural communities more often than urban areas. This information suggests that local
businesses will have a much larger pool of competition, and this may adversely affect the
likelihood of success. In summary, consumers in rural communities are willing to drive further to
get to restaurants. Therefore, a Subway franchise on the north side of town will not be as
beneficial as expected. Consumers are likely fine with fast food proximities as is.
The researcher may accurately assume that judging by the traffic patterns of the highway
that the Subway restaurant would be situated near, the proximity to residential and occupational
areas, and the lack of competition in the immediate vicinity that the consumer market on the
north side of town is large enough to support a Subway franchise. But, other factors affect this
assumption.
40
As previously mentioned, consumers are willing to drive 17 minutes to reach a restaurant.
This willingness means that the Subway restaurant consumer market extends further than just the
north side of town. Although the Subway franchise may not appealing to the north side residents,
residents from Ashland, Lamar, Hudsonville, and other smaller communities would appreciate
saving an additional few minutes driving to the south side of town.
Effects of Low-Income Levels on Consumer Base
Holly Springs’ residents median household income is $26,337. Of the $26,337, a share
of, at a minimum, 3.4 and, at a maximum, of 4.1 is designated to disposable personal income
spent on food purchased at restaurants, fast food places, and other away-from-home eating
places. Holly Springs residents making median income could spend $895.46 at minimum and a
maximum of $1,079.82 a year. Correctly assuming that all of the resident’s disposable income
will not is spent at one location, the researcher deduces that although the restaurant would earn
enough to cover operational costs, there will not be sufficient income to make a continuous
profit.
Effects of Consumer Preference on Consumer Base
The survey respondents represent the majority of the north side residents and do not
request a Subway franchise. According to the survey data, most respondents enjoy Subway from
time to time, but it is not a constant food source for the respondents. Many responders made
comments that Subway “is just a sandwich” and that they could “make a sandwich a lot cheaper
at home.” The researcher concluded from those statements that Subway restaurant was
considered more of a leisure restaurant than a convenience.
Effects of Location on Consumer Base
41
The location of the Subway restaurant would generate a significant amount of pass-by
traffic because of the location on a highway. The Subway franchise’s consumer base would not
rely solely on the north side residence, but the franchise would need to establish a consumer base
within the immediate community. During less traveled times the location would need to rely on
that consumer base to have a steady flow of income.
Effects of Subway Threats on the Consumer Base
The many controversies surrounding Subway will cause lower sales. The artificial
ingredients issue is the direct opposition of the brand that Subway portrays. As consumers are
becoming more conscious about their health, it is critical that a restaurant, such as Subway, that
puts so much emphasizes on healthy eating puts care into ingredients. Furthermore, the Hepatitis
A, sandwich size discrepancies, and franchise relations are all a result of bad ethical choices in
addition to “hidden” ingredients.
Effects of Competition on the Consumer Base
There is currently no competition in the area or coming to the area that will directly
compete with a Subway franchise. Future town plans will expand the consumer market on the
north side of the city within the next 10 to 20 years according to Marshall County Industrial
Development Authority. Subway restaurants are considered more “leisure” than “convenience, ”
therefore, brand loyalty will be more of a contributing factor to this north side location.
Acceptance or Rejection of the Hypothesis
42
After analysis of the findings, the research rejects the hypothesis that confirms the
expectation that the consumer market in Holly Springs, MS, will support a Subway franchise on
the north side of town. The median income will not financially sustain a Subway franchise. The
consumer taste preference does not match what the restaurant is offering. The consumer base is
not strong enough for a Subway to locate near Rust College.
Recommendations
Based on the findings, a low-cost restaurant that is conducive to the taste preference of
the consumers should locate to the north side of Holly Springs to better accommodate the
consumer market on that side of town. The researcher would suggest a Checker’s/Rally’s. On the
other hand, no restaurants could locate to the north side of town. Entrepreneurs could wait until
the median income has risen. Since residents are willing to travel further distances, they may
have no problem traveling to the other side of town for fast food.
Conclusion
Additional research is necessary to understand the consumer market on the north side of
Holly Springs, determine businesses that would better suit the needs of the consumers, and how
to serve the community needs. Based on the research, the researcher would study traffic patterns
more diligently, expand the survey area and the amount of survey respondents, further examine
the socioeconomic advantages of entrepreneurship, complete a financial analysis, more
extensive, primary research, and seek funding to further the efforts.
43
REFERENCES
Collins, J. (2011). Healthy food environment recommendations: full list. Harvard T.H.
Chan. Retrieved on September 9, 2015 from the World Wide Web at:
http://www.hsph.harvard.edu/obesity-prevention-source/obesity-prevention/food-
environment/healthy-food-environment-recommendations-for-obesity-prevention-
complete-list/
Johnson, R. W. (2015). Marshall county snapshot. County Health Rankings & Roadmaps.
Retrieved on June 7, 2015 from the World Wide Web at:
http://www.countyhealthrankings.org/app/mississippi/2015/rankings/marshall/county/out
comes/overall/snapshot
Johnson, R. W. (2015). The state of obesity in mississippi. The State of Obesity.
Retrieved on December 1, 2015 from the World Wide Web at:
http://stateofobesity.org/states/ms/
Luckerson, V. (2015). Subway is dropping artificial ingredients. Time. Retrieved on
November 17, 2015 from the World Wide Web at: http://time.com/3908918/subway-
artificial-ingredients/
Marchant, R. (2014). Consumers will travel 17 minutes to reach a local business. Bright
Local. Retrieved on April 3, 2014 from the World Wide Web at:
https://www.brightlocal.com/2014/05/01/local-business-travel-times/
Picchi, A. (2015). Subway’s woes started well before the jared mess. CBS News.
Retrieved on September 10, 2015 from the World Wide Web at:
http://www.cbsnews.com/news/subways-woes-started-well-before-the-jared-mess/
QSR. (2002). A new look for Subway restaurants. QSR. Retrieved on April 25, 2014
44
from the World Wide Web at: https://www.qsrmagazine.com/news/new-look-subway-
restaurants
Sherk, J. (2014). Higher fast-food wages: higher fast-food prices. Heritage. Retrieved on
February 18, 2016 from the World Wide Web at:
http://www.heritage.org/research/reports/2014/09/higher-fast-food-wages-higher-fast-
food-prices
Spaeder, K. E. (2014). How to find the best location. Entrepreneur. Retrieved on July 13,
2014 from the World Wide Web at: http://www.entrepreneur.com/article/73784
Subway. (2016). About subway. Subway. Retrieved on January 17, 2014 from the World
Wide Web at: https://www.subway.com/menu/
United States Government. (2015). Holly springs, ms, quick fast. United States Census
Bureau. Retrieved on August 21, 2015 from the World Wide Web at:
http://quickfacts.census.gov/qfd/states/28/2833100.html
Wales, M. E. (2009). Understanding the role of convenience in consumer food choices: a
review article. SURG. Retrieved on June 11, 2015 from the World Wide Web at:
https://journal.lib.uoguelph.ca/index.php/surg/article/view/983/1431
Weimer, J. (2008). Accelerating the trend toward healthy eating. USDA. Retrieved on
December 1, 2015 from the World Wide Web at:
http://www.ers.usda.gov/media/91092/aib750s_1_.pdf

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Senior Project - Can the Workforce of Chickasaw Trails in Marshall County

  • 1. i CAN THE NORTH SIDE OF HOLLY SPRINGS, MS, SUPPORT A SUBWAY FRANCHISE? By: Shirley Ann Bean-Walker The Senior Project Presented in Partial Fulfillment of the Requirements for the Degree in Business Administration RUST COLLEGE March 2016
  • 2. 2 CAN THE NORTH SIDE OF HOLLY SPRINGS, MS, SUPPORT A SUBWAY FRANCHISE? By: Shirley Ann Bean-Walker March 2016 Approved: Accepted and Signed: Senior Project Advisor Date Accepted and Signed: Reader Two Date Accepted and Signed: Reader Two Date __________________ Mr. Richard J. Frederick, Chair Division of Business Date
  • 3. 3 ABSTRACT Lack of convenience and variety has left residents on the north side of Holly Springs, MS, the students of Rust College, and employees to gas station delis, highly processed food, and unhealthy options. The north side of Holly Springs is in dire need of more food choice options, but not able to sustain high maintenance restaurants. A more affordable option like a Subway restaurant could be an excellent beginning. The purpose of this paper is to analyze the consumer market on the north side of Holly Springs to determine if a Subway restaurant would be sustainable in the environments current state. Several factors that will assist in determining the strength of the consumer market for a Subway restaurant are introduced, discussed, and correlated with disposable income. Factors such as market feasibility, threats to Subway, and Marshall County’s expected growth, to name a few, are also reviewed. These factors will directly affect the success or failure of a restaurant.
  • 4. 4 TABLE OF CONTENTS INTRODUCTION Background of the Problem ……………………………………………………..6 Statement of the Problem ………………………………………………………..7 Purpose of the Study …………………………………………………………….8 Significance of the Problem ………………………………………………….….8 Research Questions ……………………………………………………………...9 Hypotheses ……………………………………………………………………....10 Definition of Terms ……………………………………………………………...11 Assumptions ……………………………………………………………………..13 Summary ………………………………………………………………………...13 REVIEW OF THE LITERATURE Market Feasibility………………………………………………………………..15 Demographics………………………………………………………………….16 Median Income………………………………………………………………...16 Traffic………………………………………………………………………….17 Competition…………………………………………………………………….17 Consumers Travel Distances…………………………………………………...17 Marshall County, MS, is Growing………………………………………………...18 Spring Economic Development Area Industrial Park…………………………..19 Health is Trending………………………………………………………………20
  • 5. 5 Marshall County’s Health………………………………………………………20 Subway……………………………………………………….................................21 Inside a Subway Restaurant…………………………………………………….22 Subway’s Current Position…………………………………………...................23 The Cost of a Subway Franchise………………………………………………..24 Threats for Subway………………………………………………………………...24 Minimum Wage is Rising……………………………………………………….25 Hepatitis A………………………………………………………………………28 Sandwich Sizes………………………………………………………………….29 Franchise Relations……………………………………………………………...30 Subway’s Artificial Ingredients…………………………………………………30 Summary…………………………………………………………………………...31 RESULTS Data Collection…………………………………………………………………….33 Data Analysis…………………………………………………………………........34 Findings…………………………………………………………………………….39 Recommendations………………………………………………………………….42 Conclusion………………………………………………………………………….42 REFERENCES APPENDIXES Appendix I Appendix II
  • 6. 6 INTRODUCTION After a long day of settling into a great new home, the health conscious resident is exhausted and would like to grab a quick meal before ending the day. In search of a quick meal, the resident sets out to find only two gas stations and no fast food options nearby. Not interested in the less than fresh ingredients, the resident continues searching. After a long, uncomfortable ride to the south side of town, the resident finally discovers a Subway restaurant located in a hidden corner behind yet another gas station. Lack of convenience and variety has left residents on the north side of town and the students of Rust College to gas station delis. The north side of Holly Springs is in dire need of options, but not able to sustain high maintenance restaurants. A more affordable option like Subway could be an excellent beginning. In 2010, Holly Springs' population was 7,699 residents; the larger percentage of residents lived on the north side of town closer to Rust College making it a possibly profitable area for a franchise venture. Today there are no fast food restaurants on the north side of Holly Springs (“Holly Springs, MS,” 2014). Subway's brand name is established and shows potential to become a lucrative business. The intentions of this research are to identify and understand the consumer market on the north side of Holly Springs to determine if a Subway franchise would be an ideal venture to explore. Background of the Problem Highway 78 was built in the 1990s running directly on the northern side of Holly Springs, MS, closer to Rust College. Highway-oriented businesses were located along Highway 78, dependent on pass-by traffic to maintain a steady flow of support. Roughly 20 years ago when Highway 178 was built on the south side of town closer to the WalMart Super Center it guided pass-by traffic away from Highway 78. Taking pass-by traffic to the southern side of town left
  • 7. 7 the northern side barren (Handy, Lockean, Kubly, Srinivasan, Jarret, Oden, & Mahmassani, 2001). In response to the stunning effects, the city responded by implementing the Comprehensive Plan of 1997. The primary objectives of the Comprehensive Plan of 1997 were to construct a new bypass off Highway 78 and Highway 178, relocate Walmart to the south side of Holly Springs reopening it as a Supercenter, upgrade Highway 78 to Interstate level (I-22), and closing industries on the north side of town. Since the onset of the Comprehensive Plan of 1997, all of the primary objectives have been met. The strategic plan had reunited highway- oriented business with its pass-by traffic (Watson, 2012). The Comprehensive Plan of 1997 has also increased the consumer market by upgrading Highway 78 to Interstate level (I-22), and in doing so, possibly created a large enough consumer base to support more businesses (Mitchell, 2013). Like most highway-oriented businesses, Subway franchises can also be found in high traffic areas (e.g. Walmart, shopping centers, etc.). Although there is as much opportunity near Highway 78, there is only one Subway franchise in Holly Springs, MS. The current Subway franchise is situated in an unappealing position without any landmarks near Highway 78 leaving open a consumer market of motorists not familiar with local restaurants or aware of the current Subway franchise (Artz, 2001). Statement of the Problem Holly Springs, MS has eight fast food restaurants, none of which are located on the north side of town (“Holly Springs, MS City-Data”, 2012). Residents on the north side of Holly Springs do not have the convenience of fast food restaurants. As a result, they are compelled to
  • 8. 8 drive to the south side of town to benefit from fast food options. In 2012, of the estimated 7,699 residents of Holly Springs, the majority resided in the north portion of the city (“Holly Springs, MS Quick Facts,” 2013). Currently, there are no fast food restaurants on the north portion of the city, but there should be more convenient options for the majority of Holly Springs, MS residents. Flowood, MS, comparably similar to Holly Springs in population, had a total population of 8,154 in 2012, but unlike Holly Springs, Flowood has 19 fast food restaurants located all over the town (“Welcome to the city of Flowood”, 2014). It is accurate to assume that the consumer market on the north side of Holly Springs may be sufficient to support a Subway franchise. Purpose of the Study The purpose of this quantitative research is to determine if the consumer market on the north side of Holly Springs, MS could successfully support a Subway franchise. Holly Springs’ residents on the north side of town lack fast food restaurants. To determine the strength of the consumer market, the researcher will compile the necessary data by asking residents on the north side of town to complete a survey. The information gathered will also include relevantly contributes to the success of a Subway franchise, such as median income, traffic flow, and consumer taste of the area. Concerning the likelihood of a Subway franchise (dependent variable) on the north side of town, this research will give reliable results in determining if the consumer market of Holly Springs, MS (independent variable) is strong enough to support the franchise. Significance of the Problem This quantitative research is being conducted to support the possibility of a Subway franchise operating successfully on the north side of Holly Springs, MS. This study will yield
  • 9. 9 information on the strength of the consumer market in underdeveloped towns. The likelihood of their success often depends on the median income of the community, the population of the immediate area, and location of the franchise. The researcher will also determine possible contributions a Subway franchise could have on the development of the north side of Holly Springs. Subway franchises' renowned low start-up costs and low operating expenses make it an excellent candidate to introduce to the low-income consumers who make up the north side of town. Subway's reasonable prices, brand name, and fast food make the restaurant appealing to residents of the community and any traffic on the north side seeking quick food (R. Hitchins, D. Elliott, & A. Gibson, 2004). Researching the likelihood of the consumer market supporting a second Subway franchise will benefit individuals interested in or beginning franchises in underdeveloped areas similar to the demographics found on the north side of Holly Springs. Subway franchises represent one of many small businesses in the United States contributing to expanding the United States economy. Small business participation in the U.S. economy accounts for half of the private-sector economic growth and more than 99 percent of all enterprises. These small businesses were at the core of expansion immediately following the economic downturn in mid-2009, which saw output, business income, and profits rise while business bankruptcies and unemployment declined (“Small Business Economy 2012,” 2012). Research Questions For the research to be useful to readers, the following questions are presented to prove/ disprove whether or not a potential second Subway franchise could successfully operate on the north side of Holly Springs, MS. 1. Will consumers’ willingness to drive distances interfere with them shopping locally?
  • 10. 10 2. Is the available consumer market on the north side of town large enough to support a Subway franchise on the north side of the city? 3. Would residence's income support a Subway restaurant? 4. Do the consumers on the north side of town want a Subway franchise? 5. Does the area generate a significant amount of pass-by traffic? Alternatively, would Subway consumer base rely solely on the north side residence? 6. Will Subway’s controversies cause lower sales or no effect on sales? 7. Is there any competition currently in the area or coming to the area? 8. Will future town plans expand the consumer market on the north side of town? 9. Will brand loyalty to Subway substantially contribute to sales at a possible north side location? In thoroughly researching the answers to the above questions a solution to the possibility of a Subway franchise successfully operating on the north side of Holly Springs may be determined. Hypotheses The succeeding hypothetical statement was devised to formulate an approach to this research. The theoretical statements may or may not support the probability of the consumer market supporting a Subway franchise on the north side of Holly Springs, MS. Such a declaration can be thoroughly determined by the assessment of secondary, scholarly business articles and journals, and the collection and evaluation of survey data from the intended population. The analysis of the north side of town's deposition and calculation of north side residence's median income will also be used. 1. The null hypothesis (H1o) confirms the expectation that the consumer market in Holly Springs, MS, will support a Subway franchise on the north side of town. The alternative
  • 11. 11 hypothesis (H1a) confirms that the consumer market in Holly Springs, MS, will not support a Subway franchise on the north side of town. Definition of Terms This research was compiled using information in a quantitative manner to process the subject area to determine if the consumer market on the north side of Holly Springs, MS, will support a Subway franchise. This research addresses the problem of no fast food restaurants on the north side of Holly Springs for the convenience of its residence. The researcher provides a thorough definition of field-specific terms throughout the paper. The list of terms and definitions are as followed: Underdeveloped Not normally or adequately developed; having a relatively low economic level of industrial production and standard of living (as from lack of capital). Residences are usually subjected to an insufficient amount of resources (Schwager, 1997). Franchise An agreement or license between two legally independent parties which gives a person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor), the franchisee the right to market a product or service using the operating methods of the franchisor, the franchisee the obligation to pay the franchisor fees for these rights, and the franchisor the obligation to provide rights and support to franchisees (Chan, 1991). Highway-Oriented Businesses
  • 12. 12 Businesses primarily oriented towards serving the traveling/transient public or that require immediate access to the regional transportation systems (Fort Wright Zoning Ordinance, 2013). Consumer Market The consumer market pertains to buyers who purchase goods and services for consumption rather than resale. Not all consumers are alike in their tastes, preferences and buying habits due to different characteristics that can distinguish particular customers from others. These particular consumer characteristics include various demographic, psychographic, behavioralists, and geographic traits. Marketers usually define these consumer characteristics through market segmentation, the process of separating and identifying key customer groups (Suttle, 2013). Household Income Total income of all people living in a particular household. Income refers not only to the salaries and benefits received but also to receipts from any personal business, investments, dividends, and other income. Household members do not need to be related to being part of a household. Household income is often used as an economic indicator to determine individual household’s disposable income (Davis, 2013). Traffic The volume of customers visiting a business establishment (Lemon, 2001). Assumptions Small businesses need to know the members of their target audience, what they want, where they are located and how they will react to product promotions. Consumer behaviors control the type of organizations that will establish themselves within these consumers'
  • 13. 13 communities (Dietrich, 2014). The development of this research has led to the following assumptions allowing the reader to formulate clear and concise opinions on the contents of the research. The only competition that should be taken into account are those locations located in Holly Springs. Additionally, North side residences participating in the survey analysis have answered all questions honestly and to the best of their ability. Furthermore, all data acquired for the purpose of this study is accurate and reliable. Secondary information is used for convenience due to restraints such as time, lack of resources, and no funding. Summary Quantitative data compiled for the purpose of this research on North Holly Springs, MS consumer market comes from primary and scholarly secondary sources. Of eight fast food restaurants, none is located on the north side of Holly Springs, causing north side residence the inconvenience of driving to the south side of town to benefit from fast food options. In 2012, of the estimated 7,669 residents of Holly Springs, the majority resided on the north side of the city. Cities of similar population, such as Flowood, MS, have a total of 19 fast food restaurants located all over the city. The researcher assesses determinants of a Subway franchise succeeding or failing on the north side of Holly Springs by asking residents on the north portion of the city to complete a survey. Other determinants will also include relevantly contributes to the success of a Subway franchise, such as median income, traffic flow, and consumer taste of the area. This research will yield information on the strength of the consumer market in Holly Springs’ north side and under- developed towns alike. Subway franchises' renowned low start-up costs and low operating expenses make it a strong candidate to introduce to the low-income north side consumers.
  • 14. 14 Subway's reasonable prices, brand name, and fast food make the restaurant appealing to residents of the community and any traffic on the north side seeking quick food. Concerning the likelihood of a Subway franchise (dependent variable) on the north side of town, this research will give reliable results to determine if the consumer market of Holly Springs, MS, and (independent variable) is strong enough to support the franchise. The literature review will follow to give further information on the environment of the intended franchise location and Subway's history.
  • 15. 15 REVIEW OF THE LITERATURE This review will examine Holly Springs’ north side environment to determine if the consumers will benefit from a convenient, fast food restaurant. The hypothesis stated that the consumer market on the north side of Holly Springs, MS, would not support a Subway franchise. The information that follows introduces several factors that influence the feasibility of a Subway franchise operating successfully on the north side of town and generating a comfortable income for the owner. The review will also underline some of the trends and analyze a comparison between the existing restaurants and a Subway franchise. Market Feasibility This section will address market conditions associated with demographics, human capital, anticipated growth, neighboring businesses, and location. This section will provide insight regarding the potential number of customers, potential sales, pull factors, and other measures of market strength (Brent, Campbell & Miller, 2015). Research shows that Holly Springs is losing revenue to neighboring communities, but there is an opportunity to capture this revenue by providing convenience (Brent, Campbell, & Miller, 2015). Marshall County, Holly Springs’ county, is harnessing only 50.4% of retail and commercial sales dollars potentially available within its local market. The intermodal facility and industries now located in Marshall County are positioning the area to attract additional retail that supports logistics supply chains, thus more disposable income for residents and workers in the area. Therefore, market conditions could support the need for a fast food restaurant in the Rust College area due to the population increase, traffic patterns, industrial development underway, and lifestyle changes (Brent, Campbell, & Miller, 2015).
  • 16. 16 Demographics. Subway’s target market is young adults between the ages of 16 and 39 (Subway, 2015). In 2013, of the estimated 7,625 residents of Holly Springs, the majority resided on the north side of town. In 2012, a 30-mile radius of Holly Springs, MS, reaches a population of 327,405 people. Of the 327,405 population, there are 258,115 individuals 15 years or older (“ACS Population Summary”, 2012). The median age of Holly Springs’ residents is 31 years old for both male and female (“Holly Springs, MS Quick Facts,” 2013). Therefore, approximately 79% of individuals in a 30-mile radius of Holly Springs, MS, can be included in the Subway franchise’s target market. Rust College is not in the census data provided, but Rust College enrolled 922 students in the 2013-2014 school year. Rust College’s student body population, staff, and employees could make further contributions to the success of a Subway franchise of the north side of Holly Springs. The town’s only institute of higher learning will drastically affect the consumer market on the north side. (McLoy-Lewis & Vaughn, 2014). Median income. According to the 2015 census, the median household income for Holly Springs is $26,337 (Lifestyles & Demographics, 2015). Between 1960 and 2007, the share of disposable personal income spent on food purchased at restaurants, fast food places, and other away-from-home eating places increased from 3.4 to 4.1 percent (USDA Economic Research Service, 2015). Therefore, of the $26,337 median income of Holly Springs a minimum of $895.46 and a maximum of $1,079.82 will be used to purchase food at restaurants, fast food places, and other away-from-home eating places per households.
  • 17. 17 Traffic. The Subway franchise should expect a substantial amount of foot traffic from nearby residences and the Rust College student population. According to the Dean of Students care registry records, only one of every 20 students has a vehicle on campus. Furthermore, within a one-mile radius, the majority of Holly Springs population can be reached, there are three factories with at least 50 employees each, the Marshall County Correctional Department, and Marshall County Detention Center. The Subway franchise’s location is also positioned right on Highway 7. Competition. The most northern side of Holly Springs, MS, currently has no fast food restaurants. There is a total of six fast food restaurants on the south side, 11 dine-in restaurants on the south side, and one dine-in restaurant near the north side of Holly Springs. The 18 fast food and dine-in restaurants consists of McDonalds, Sonics, Subway, Dominoes, Little Caesars, Huddle House, Popeyes, KFC, Taco Bell, JB’s Restaurant, Annie’s Restaurant, Copper Kettle, Victor’s Pizza, Panda Buffet, El Nopalito, Southern Eatery, Chicken Coup, and Wendy’s. Consumers travel distances. When marketing a local business, it can be difficult to judge how far to extend the catchment area for attracting new customers. Small businesses neither have the time nor the resources to waste on targeting consumers who may not consider them local enough to be a viable business to use. Bright Local conducted a research study to determine how far consumers are willing to travel to reach a local business. During this study age and gender were also taken into consideration (Marchant, 2014).
  • 18. 18 A panel of over 800 respondents was presented with 13 business categories and asked to enter a driving time for each group. The 13 business categories were restaurant/café, clothes shop, pub/bar, specialist shop, hair/beauty salon, wedding shop/venue, accountant/solicitor, general shop, doctor/dentist, gym/sports club, garage/car dealer, yoga class/alternative therapies, and realtor/surveyor. Respondents were willing to drive, on average, 17 minutes to reach a restaurant/café. Therefore, respondents are willing to drive farther to get to a restaurant/café than they are to yoga class/alternative therapies, gym/sports club, hair/beauty salon, pub/bar, clothes shop, or accountant/solicitor (Marchant, 2014). Subway franchise target market is young adults between the ages of 16 and 39. According to the research, the 18-24 and 25-34 are willing to drive 16.3 minutes to reach a local business, and 35-44 are prepared to drive 17 minutes to reach local businesses. Therefore, consumers between the ages of 18 and 34 should not be expected to drive over 16.3 minutes to reach the Subway franchise. Since the median age for Holly Springs residents is 31 years old for both male and female, the majority of the population will still be captured in the target market (Marchant, 2014). Marshall County, MS, is Growing Marshall County’s available land makes it a worthy competitor to surrounding counties. Marshall County is mainly undeveloped, which is attractive to industries because they have more flexibility at their discretion. Additionally, Marshall County’s proximity to the distribution hub of America, Memphis, TN, allows Marshall County industries to get all the same benefits as industries that are located in Shelby County or DeSoto County without the crowded and overpriced hassle (MCIDA, 2016).
  • 19. 19 Chickasaw Trail Industrial Park (CTIP) is responsible for the larger part of Marshall County’s success in bringing notoriety to Marshall County. CTIP encompasses 3,600 acres of developed industrial property located in Marshall County, MS and approximately 22.6 miles from Holly Springs. CTIP is now home to industries like Exel, ASICS America Corporation, Volvo Parts Distribution Center, and Post Consumer Brands. These great industries locating in Marshall County have other industries’ attention. Marshall County Industrial Development Authority has received international and Fortune 500 Company inquiries. Marshall County’s cost efficiency is causing growth and shows no sign of slowing down. City and state officials expect the county’s industries to double by 2026 (MCIDA, 2016). Spring economic development area industrial park. In April 2014, the Senate and both houses of the state Legislature have unanimously passed HB1640. The HB1640 authorizes Marshall County and the City of Holly Springs, through the Marshall County Industrial Development Authority, to create the new Springs Economic Development Area Industrial Park. The park will be situated northwest of the city and on both sides of Highway 78. The creation of the Spring Economic Development Area Industrial Park is in response to the anticipated growth. The area will be suitable for large industrial sites (Watson, 2015). The proposed site development for the Spring Economic Development Area Industrial Park includes retail, industrial, medical, and wetlands park and outdoor trails. The completion of Interstate 269 and the existing highway network is anticipated to have increasingly heavier traffic volumes in the area. A reasonable assumption is that retail development and more leisure amenities will follow (Brent, Campbell, & Miller, 2015).
  • 20. 20 Health is trending. Within the last few decades, there have been myriad nutrition education and information efforts to guide Americans to more healthful diets; these efforts have originated from both the government and private sectors. Some of these efforts are targeted to healthy Americans, that is, those who are not on prescribed diets to treat medical conditions. Other educational efforts target population groups considered to be nutritionally at risk due to low income and age or physiological condition (e.g., pregnant women, young children, the elderly), and who may be eligible to participate in food assistance programs. And some activities target nutrition education intermediaries allied professionals, teachers, and school food service workers (Weimer, 2008). The National Restaurant Association research shows that more than seven in 10 adults are trying to eat healthier at restaurants than they did in 2013. Restaurant operators are taking notice, with more than eight in 10 restaurant operators saying their guests pay more attention to the nutrition content of food now than they did in 2013. Strong majorities of consumers have also noticed that restaurants feature more nutritious options on menus now (National Restaurant Association, 2015). Marshall County’s health. According to County Health Rankings, 40 percent of adults report a body mass index (BMI) of 30 or more in Marshall County. The food environment index, an index of factors that contribute to a healthy food environment, received a 5.6 with zero being the worst and ten being the best. There is 23 percent of adults reporting fair or poor health (County Health Rankings, 2015). Furthermore, Mississippi now has the third highest adult obesity rate in the nation, according to The State of Obesity: Better Policies for a Healthier America. Mississippi's adult obesity rate is currently 35.5 percent, up from 23.7 percent in 2000 and 15.0 percent in 1990 (The State of Obesity, 2014).
  • 21. 21 Although the food in Holly Springs is safe to consume, the environment consumers live makes choosing healthy food very hard and choosing unhealthy food very accessible. It’s truly a toxic environment that eats away at healthy lifestyles and promotes obesity. Any positive changes in the food environment can begin to shift momentum. One of the first steps toward bettering the food environment is making healthy foods and drinks more convenient and affordable. Limiting access to high-calorie, low nutrient foods, and sugary drinks are of equal importance (Harvard T.H. Chan, 2013). Subway Fred DeLuca set out to fulfill his dream of becoming a medical doctor. A family friend suggested he open a submarine sandwich shop to help pay for his education. The first store was opened in Bridgeport, Connecticut in August 1965. Dr. Peter Beck and Fred DeLuca set a goal of having 32 stores opened in 10 years. Fred soon learned the basics of running a business, as well as the importance of serving a well-made, high-quality product, providing excellent customer service, keeping operating costs low and finding great locations. These early lessons continue to serve as the foundation for successful Subway restaurants around the world (Subway, 2016). By 1974, the duo owned and operated 16 submarine sandwich shops throughout Connecticut. Realizing they would not reach their 32 store goal in time, Fred and Dr. Beck began franchising, launching the SUBWAY® brand into a period of remarkable growth which continues to this day. Today, the SUBWAY® brand is the world's largest submarine sandwich chain with more than 44,000 locations around the world. Subway has become the leading choice for people seeking quick, nutritious meals that the whole family can enjoy. The SUBWAY® brand is guided by his passion for delighting customers by serving fresh, delicious, made-to- order sandwiches (Subway, 2016).
  • 22. 22 Inside a subway restaurant. When entering a Subway restaurant consumers notice a Tuscany Décor, an all-new design package that is the first complete interior and exterior revamp Subway has undertaken. The Tuscany Décor provides a warm and inviting fast-casual environment that enhances Subway's brand positioning of healthful, fresh, great-tasting sandwiches and salads. The warm colors and textures of the Tuscan countryside embody Old World charm and hospitality, which the new Tuscany Décor integrates into the design. The natural building materials of the region express the beauty and relaxed feel of the landscape (QSR, 2002). Next, the consumer will have an array of sandwich options. Subway menu offers 18 sandwiches: Black Forest Ham, Chicken & Bacon Ranch Melt, Cold Cut Combo, Italian B.M.T, Meatball Marinara, Roasted Chicken, Roast Beef, Spicy Italian, Steak & Cheese, Subway Club, Sweet Onion Chicken Teriyaki, Tuna, Turkey Breast, Turkey Breast & Black Forest Ham, Turkey Italiano Melt, Veggie Delite, Philly Cheese Steak, and Veggie Patty. All sandwiches can be served on Flatbread, Honey Oat, Wheat, Italian, Italian Herbs & Cheese, Monterey Cheddar, and Italian Herbs. Then pile their sandwich with over ten vegetables, seven kinds of cheese, and over ten sauces. The customer also has the option of having their sandwich as a breakfast sandwich with eggs or having their sandwich as a salad without the bread. Subway offers Fresh Fit for Kids for the children that offer a more limited selection of sandwiches with a drink, and side Subway sides and drinks include an assortment of cookies, chips, and drinks. (Subway, 2016).
  • 23. 23 Subway’s current position. Much of the Subway franchises success came from a strategy of aggressive expansion while also promoting healthy eating, as exemplified by Jared Fogle. Jared Fogle became the chain's pitchman in 2000 after shedding 245 pounds by sticking to a diet of two Subway sandwiches per day and exercising. Thanks to Jared Fogle, Subway franchises became the front runner of quick-serve restaurants (QSR) (Picchi, 2015). Subway has been coping with a shift in consumers' tastes lately, with many diners preferring the organic or sustainable foods served at smaller rivals such as Chipotle (CMG) and Panera (PNRA). While sales at those chains are growing, Subway was hit by a 3.3 percent decline in sales last year, according to research firm Technomic. Subway franchises have taken many of the same steps as its hipper rivals, such as removing trans-fats from its bread. Subway has also taken measures to eliminate a food additive called azodicarbonamide from their bread that has been linked to respiratory issues, but those changes do not seem to be making much of an impact on diners, given the flashier food at Chipotle, Shake Shack (SHAK) and other rivals (Picchi, 2015). Part of Subway’s troubles could be attributed to the recovering economy. As Americans get more money in their pockets, they are willing to pay extra when they eat out. Subway did well during the recession when a customer could buy a footlong sandwich for five dollars, but since customers can be less financially conscience, they are beginning to value quality over quantity (Picchi, 2015).
  • 24. 24 The cost of a Subway franchise. A Subway store start-up costs are exceptionally low, and franchisees can often purchase certain outlet equipment through the Subway brand’s purchasing power. In fact, in some cases, traditional Subway stores can be opened for as little as $100,000. The total initial investment will depend on many factors including location, rent, outlet size and equipment. The franchise agreement is for 20 years and renewable for 20 years (Subway, 2016). Royalties and fees paid to the Subway brand are based on gross sales minus sales tax. The royalties are 8% to the Subway brand. A 4.5% advertising fee is paid to the 'Franchisee Advertising Fund (FAF)'. Franchisees in some markets may vote to increase the marketing fee percentage for local advertising purposes. The franchise fee of $10,000 for outlets is one of the lowest in the market, despite the size of the chain. One reason the costs are so low is that Subway stores feature a very simple operation. No cooking is involved, so franchisees do not have to invest large sums into expensive grills and fryers. Also, the décor package is streamlined so that money is not wasted on non-recoverable assets (Subway, 2016). Threats for Subway Subway cut its United States restaurant growth in half in last year. The world's largest sandwich chain opened 313 new restaurants in 2014, down from 638 net restaurants in 2013 and 805 in 2014, according to Bloomberg. As Subway cut back on new restaurant growth last year, sales fell by 3% to $11.9 billion, according to QSR magazine. Subway says boosting sales at existing restaurants is its biggest priority right now. Subway’s development has not been a focus over the past few years and has been put on the back burner, but Subway is still opening stores. Subway’s current focus is working with franchisees to improve store sales (Peterson, 2015).
  • 25. 25 Minimum wage is rising. Union activists want to raise the minimum wage in the fast- food industry to $15 an hour. However, fast-food restaurants operate on tiny profit margins. Therefore, they could only afford such wages by significantly raising prices. Higher prices would, in turn, drive customers away, forcing even larger price increases to cover costs. Ultimately, the average fast-food restaurant would have to raise prices by nearly two-fifths. This price increase would cause sales to drop by more than one-third, and profits to fall by more than three-quarters (Sherk, 2014). Artificially inflating wages would substantially increase fast-food restaurants’ total costs because labor makes up a considerable portion of their budget. Chart 1 below shows the financial statements of the average fast-food restaurant in 2013. Labor costs (26 percent) and food and material costs (31 percent) make up the majority of the typical restaurant budget. Paying $15 an hour would raise fast-food restaurants’ total costs by approximately 15 percent. Fast-food restaurants could not pay this additional amount out of their profits. The typical restaurant has a profit margin of just 3 percent before taxes. That works out to approximately $27,000 a year, less than the annual cost of hiring one full-time employee at $15 an hour. For fast food restaurants to raise wages, fast-food restaurants must raise prices (Sherk, 2014).
  • 26. 26 Chart 1- Small Profit Margin (Sherk, 2014) Most Americans eat fast food because they want a quick and inexpensive meal. If fast- food restaurants raised their prices, many of their customers would find a substitute for their usual fast-food meal. Academic studies consistently confirm the price sensitivity of fast-food clients. Table 1 below shows the results of all studies of U.S. fast-food demand published since 1990. The figures in the table show the estimated drop in sales when prices rise by 1 percent. Most studies find that a 1 percent increase in prices causes sales to fall by almost 1 percent. Larger price increases cause sales to fall by proportionally larger amounts. For example, Abigail Okrent’s and Aylin Kumcu’s estimate implies that a 10 percent increase in fast-food prices would cause fast-food sales to fall by 9 percent (Sherk, 2014).
  • 27. 27 Chart 2 – Demand to Price Changes - (Sherk, 2014) Furthermore, the loss of sales would force fast-food establishments to raise prices even more to cover fixed costs like rent, insurance, and marketing. These price increases would, in turn, further reduce sales, necessitating further price increases.
  • 28. 28 Many economists analyzing the fast-food industry overlook this dynamic. They assume that fast- food restaurants would only have to raise prices enough to cover the cost of wage increases, ignoring the sales and revenue that fast-food restaurants lose because of these price increases. Consumers’ price sensitivity means that fast-food prices must rise by more than the initial increase in labor costs (Sherk, 2014). Hepatitis A controversies. In September 1999, at least 32 customers in the north Seattle area contracted hepatitis A after eating food contaminated with the virus at two Subway outlets. The virus, which is spread by eating or drinking food or water contaminated with infected feces, infects the liver causing nausea, vomiting, diarrhea, fatigue, and fever. Subsequent investigations found that staff failed to adhere to thorough hand washing and the use of plastic gloves during food preparation. A class-action lawsuit on behalf of 31 victims was resolved for $1.6 million. The most severely affected victim, a 6-year-old boy, suffered acute liver failure and required a liver transplant. He was awarded $10 million in an out-of-court settlement in 2001 (Kloap, 2000). A previous outbreak of hepatitis A in 1996 had also involved a Subway outlet in the Seattle area, although no legal action had resulted. In April 2015, the Arkansas Department of Health issued a warning to the public that customers who had eaten at the Subway outlet in Morrilton, Arkansas, may have been exposed to infection after an employee tested positive for the virus. There was also no legal action that resulted (Marbry, 2015).
  • 29. 29 Sandwich sizes. On February 2, 2007, KNXV-TV, with the help of the Arizona Department of Weights and Measures, reported that three of Subway's "Giant Sub" sandwiches, nominally each 3-foot (91 cm) long, were actually 2 feet 8 inches (81 cm), 2 feet 8.25 inches (81.92 cm), and 2 feet 8.5 inches (82.6 cm) long. The maximum variance in length allowed in Arizona is 3% (1.08 inches (2.7 cm), for a three-foot sub). The report also showed the boxes designed to store these sandwiches were 2 feet 10.75 inches (88.27 cm) in length; shorter than the maximum allowable variance. In response to the report, Subway stated they were reevaluating their advertising, training and packaging materials concerning the specific or implied length of Giant Subs, and were advising their franchisees only to discuss with customers the approximate number of expected servings and not a specific length of measurement (Mangan, 2013). In January 2013, an Australian teen complained on Facebook that Subway's "footlong" sandwich was only 11 inches (28 cm) long, rather than 1 foot (30 cm). Subway responded by saying, "With regards to the size of the bread and calling it a footlong, 'Subway Footlong' is a registered trademark as a descriptive name for the sub sold in Subway Restaurants and not intended to be a measurement of length." In most metricated countries such as Australia, the foot is no longer a government recognized unit of measurement. The story was picked up by the New York Post who found similar cases in their investigation. On January 22, 2013, two New Jersey men are suing the company, a man from Chicago filed a suit, and another New Jersey man filed a federal class action lawsuit with the same allegations in 2013. These allegations have since gained momentum (Mangan, 2013).
  • 30. 30 Franchise relations. In 1995, Subway were held liable for breach of contract. An Illinois jury awarded more than $10 million in damages to Nicholas and Victoria Jannotta after finding lease and contract violations. The plaintiffs claimed misrepresentation of the asset value of Subway Sandwich Shops, a leasing company used by Doctor's Associates for franchising purposes while negotiating a 1985 lease agreement (Boyle, 2010). The U.S. House of Representatives' small business committee studied the franchise industry from 1992 to 1998. Dean Sagar noted, "Subway is the biggest problem in franchising and emerges as one of the key examples of every abuse you can think of." In 1989, the U.S. Small Business Administration refused small business loans to Subway franchise owners until Subway removed a contract clause which gave Subway the power to seize and purchase any franchise without cause. The Dallas Morning News reported Subway had taken American soldier Leon Batie Jr.'s Subway stores in 2006 while he was serving in Afghanistan. Batie had been deployed to support Operation Enduring Freedom in March 2005, three years after buying his first restaurant. Batie alleged Subway had violated the U.S. Servicemembers Civil Relief Act. Batie filed a federal lawsuit against Subway, which was dismissed. Batie then filed suit in state court, in Dallas County, Texas. Both parties settled on "mutually agreeable" and confidential terms in January 2010 (Boyle, 2010). Subway’s artificial ingredients. Subway is joining the growing list of companies that plan to drop artificial ingredients from their menu items. The sandwich chain plans to remove artificial flavors, colors and preservatives from its food in North America by 2017, according to the Associated Press. The chain is cutting artificial flavors and caramel coloring from its new roast beef recipe that involves roasting beef "with increased levels of garlic and pepper."
  • 31. 31 Vinegar will replace propionic acid, a preservative in its turkey. Banana peppers will be given their glossy sheen with turmeric, often used in Indian curries, instead of Yellow No. 5 (Luckerson, 2015). The use of artificial flavors in a “health trending” environment” could take away from Subway’s Eat Fresh promotions. Summary Subway’s target market is young adults between the ages of 16 and 39 (Subway, 2015). In 2012, a 30-mile radius of Holly Springs, MS, reaches a population of 327,405 people. Of the 327,405 population, there are 258,115 individuals 15 years or older (“ACS Population Summary”, 2012). The median age of Holly Springs’ residents is 31 years old for both male and female (“Holly Springs, MS Quick Facts,” 2013). Therefore, approximately 79% of individuals in a 30-mile radius of Holly Springs, MS, can be included in the Subway franchise’s target market. Furthermore, the median household income for Holly Springs is $26,337 (Lifestyles & Demographics, 2015). Between 1960 and 2007, the share of disposable personal income spent on food purchased at restaurants, fast food places, and other away-from-home eating places increased from 3.4 to 4.1 percent (USDA Economic Research Service, 2015). Therefore, of the $26,337 median income of Holly Springs a minimum of $895.46 and a maximum of $1,079.82 will be used to purchase food at restaurants, fast food places, and other away-from-home eating places per households. Since the most northern side of Holly Springs, MS, currently has no fast food restaurants it is very likely that residence will spend a significant amount on more convenient options. The “healthy trend” further contributes to the assumption that residence will spend more money in a more convenient fast food restaurant. Affordable menu prices also make a Subway appealing.
  • 32. 32 Attributes that could benefit the Subway franchise include the city’s anticipated growth, health trends that are essential to Subway’s target market, and Mississippi’s continuous declining health. Threats to a Subway franchise range from artificial ingredients from a “healthy” restaurant to damaging franchisee relationships, to false advertisements, to spreading death causing illnesses, to rising minimum wages for a business that thrives on low costs.
  • 33. 33 RESULTS The purpose of this paper is to determine if the consumer market in Holly Springs, MS, can support a Subway franchise of the north side of town. The results section of this research is to provide findings that will examine Holly Springs’ north side consumers’ opinions and preferences to determine if the consumers find Subway franchise beneficial, how often they will support the location, and to collect specific demographics of respondents. The researcher will have some indication of the correct course of action for their study and what may still be needed for a Subway on the north side to become successful. Researchers need to know how the data for this research was collected and used, what subjects were employed in the collection of data, where the data was collected from, and how the data was tabulated. Data Collection The data collected for this research was gathered from survey respondents, various news outlets, government websites, company websites, magazine articles, journals, and research studies. The secondary sources data collection was necessary due to limitations placed on the research and time constraints. Information extracted from news outlets, magazine articles, and journals were well-known and established. Word searches used within online databases were Holly Springs, MS, median income, Holly Springs, MS, median age, fast food restaurants in Holly Springs, MS, consumers travel distances, Subway franchises, lawsuits against Subway franchise, disposable income, Subway controversies, higher minimum wage affects small businesses, Subway operational costs, Holly Springs’s growth, health become a trend, and Marshall County health trends.
  • 34. 34 Information was gathered from 35 survey respondents, over ten news outlets, five government websites, one company website, three magazine articles, five scholarly journals, and one research study. Most collected data was within a 10-year time span of 2016, but some articles were older in nature to support the historical nature of some aspects of the research. There was no available information on the plausibility of a similar town supporting a restaurant or any business in general. Therefore, some information is altered only to capture the relevant area. Data Analysis Of 35 survey respondents, 35% agree, 31% strongly agree, 20% strongly disagree, 9% is neutral, and 6% disagree that a Subway near Rust College would be more convenient for them (refer to Chart 3 – Proximity Chart). Chart 3 - Proximity Chart
  • 35. 35 Of 35 survey respondents, 40% disagree, 26% is neutral, 14% strongly disagree, 14% agree, and 6% strongly agree that a Subway offers better food choices that what is available (refer to Chart 4 – Availability Chart). Chart 4 – Availability Chart Of 35 survey respondents, 72% strongly agree, 20% is neutral, 9% agree, 0% strongly disagree, and 0% disagree that they seek healthy food choices (refer to Chart 5 – Healthy Food). Chart 5 – Healthy Food
  • 36. 36 Of 35 survey respondents, 43% is neutral, 26% strongly disagree, 14% agree, 9% strongly disagree, and 9% disagree that they would be a customer of a Subway restaurant near Rust (refer to Chart 6 – Customer Preference). Chart 6 – Customer Preference Of 35 survey respondents, most respondents live within one mile of Rust College, closely followed by three miles. The least amount of respondents reside within two miles of intended location. These findings indicate the consumer market is large is large enough to support a franchise (refer to Chart 7 – Distance of Residence or Job). Chart 7 – Distance of Residence or Job
  • 37. 37 Of 35 survey respondents, most respondents are willing to pay between $4 and $6 for a meal. No respondents are will to pay $10 or more. This indicates that Subway prices match the consumers’ budget (refer to Chart 8 – Suitable Price). Chart 8 – Suitable Price More than half of the respondents were female. Subway’s target market is not gender specific, but females are more likely to be “health conscious” consumers. Therefore, the franchise could possibly benefit from a female dense population (refer to Chart 9 – Gender). Chart 8 – Suitable Price
  • 38. 38 There were 63% of respondents that were permanent residents. The considerable amount of student and commuter population. The student population is in the target age range, which will drastically contribute to sales. But, the student and commuter population will not have much disposable income due to expense (refer to Chart 9 – Residential Status). Chart 9 – Residential Status There were 63% of respondents that eat at Subway one to two times a month. Consumers not frequenting the franchise often could negatively affect a steady income and these respondents may not be Subway loyalty customers (refer to Chart 10 – Frequent Subway). Chapter 10 – Frequent Subway
  • 39. 39 Findings There was a total of 35 respondents. The survey respondents were chosen for this study at random by means of the participants volunteering their time. Participants were a mix of college students, college employees or staff, Spring Garden Apartment residents, Murphy Lane residents, Church Court residents, and various residents of nearby homes. The researcher attempted to diversify participants as much as possible so that the survey data was not biased. Using the survey and review of literature data the researcher can answer the research questions as follows: Affects of Drive Time on Consumer Base The data collected suggests that consumers’ willingness to drive distance will interfere with them shopping locally. According to the research, consumers are willing to drive 17 minutes to reach a restaurant. Holly Springs is considered a rural area and customers drive further in rural communities more often than urban areas. This information suggests that local businesses will have a much larger pool of competition, and this may adversely affect the likelihood of success. In summary, consumers in rural communities are willing to drive further to get to restaurants. Therefore, a Subway franchise on the north side of town will not be as beneficial as expected. Consumers are likely fine with fast food proximities as is. The researcher may accurately assume that judging by the traffic patterns of the highway that the Subway restaurant would be situated near, the proximity to residential and occupational areas, and the lack of competition in the immediate vicinity that the consumer market on the north side of town is large enough to support a Subway franchise. But, other factors affect this assumption.
  • 40. 40 As previously mentioned, consumers are willing to drive 17 minutes to reach a restaurant. This willingness means that the Subway restaurant consumer market extends further than just the north side of town. Although the Subway franchise may not appealing to the north side residents, residents from Ashland, Lamar, Hudsonville, and other smaller communities would appreciate saving an additional few minutes driving to the south side of town. Effects of Low-Income Levels on Consumer Base Holly Springs’ residents median household income is $26,337. Of the $26,337, a share of, at a minimum, 3.4 and, at a maximum, of 4.1 is designated to disposable personal income spent on food purchased at restaurants, fast food places, and other away-from-home eating places. Holly Springs residents making median income could spend $895.46 at minimum and a maximum of $1,079.82 a year. Correctly assuming that all of the resident’s disposable income will not is spent at one location, the researcher deduces that although the restaurant would earn enough to cover operational costs, there will not be sufficient income to make a continuous profit. Effects of Consumer Preference on Consumer Base The survey respondents represent the majority of the north side residents and do not request a Subway franchise. According to the survey data, most respondents enjoy Subway from time to time, but it is not a constant food source for the respondents. Many responders made comments that Subway “is just a sandwich” and that they could “make a sandwich a lot cheaper at home.” The researcher concluded from those statements that Subway restaurant was considered more of a leisure restaurant than a convenience. Effects of Location on Consumer Base
  • 41. 41 The location of the Subway restaurant would generate a significant amount of pass-by traffic because of the location on a highway. The Subway franchise’s consumer base would not rely solely on the north side residence, but the franchise would need to establish a consumer base within the immediate community. During less traveled times the location would need to rely on that consumer base to have a steady flow of income. Effects of Subway Threats on the Consumer Base The many controversies surrounding Subway will cause lower sales. The artificial ingredients issue is the direct opposition of the brand that Subway portrays. As consumers are becoming more conscious about their health, it is critical that a restaurant, such as Subway, that puts so much emphasizes on healthy eating puts care into ingredients. Furthermore, the Hepatitis A, sandwich size discrepancies, and franchise relations are all a result of bad ethical choices in addition to “hidden” ingredients. Effects of Competition on the Consumer Base There is currently no competition in the area or coming to the area that will directly compete with a Subway franchise. Future town plans will expand the consumer market on the north side of the city within the next 10 to 20 years according to Marshall County Industrial Development Authority. Subway restaurants are considered more “leisure” than “convenience, ” therefore, brand loyalty will be more of a contributing factor to this north side location. Acceptance or Rejection of the Hypothesis
  • 42. 42 After analysis of the findings, the research rejects the hypothesis that confirms the expectation that the consumer market in Holly Springs, MS, will support a Subway franchise on the north side of town. The median income will not financially sustain a Subway franchise. The consumer taste preference does not match what the restaurant is offering. The consumer base is not strong enough for a Subway to locate near Rust College. Recommendations Based on the findings, a low-cost restaurant that is conducive to the taste preference of the consumers should locate to the north side of Holly Springs to better accommodate the consumer market on that side of town. The researcher would suggest a Checker’s/Rally’s. On the other hand, no restaurants could locate to the north side of town. Entrepreneurs could wait until the median income has risen. Since residents are willing to travel further distances, they may have no problem traveling to the other side of town for fast food. Conclusion Additional research is necessary to understand the consumer market on the north side of Holly Springs, determine businesses that would better suit the needs of the consumers, and how to serve the community needs. Based on the research, the researcher would study traffic patterns more diligently, expand the survey area and the amount of survey respondents, further examine the socioeconomic advantages of entrepreneurship, complete a financial analysis, more extensive, primary research, and seek funding to further the efforts.
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