Thursday, December 18, 2003

Starbucks vs. Subway

I don't know why Starbucks own their stores outright, and Subway has franchisees, but I'm pretty sure Arnold Kling is wrong. Subway is notorious for selling many franchises in a given geography.

According to a press release excerpting a study Pierre Azoulay (Sloan School of Management, MIT)

...another franchisor in the sample declared it was following the Subway franchises lead when denying exclusive territories to franchisees, apparently not realizing that Subway faces chronic litigation from franchisees because of encroachment-related disputes.

I'm not sure I believe CE Petit's claims about the relative difficulties of making sandwiches and coffee either. There is a world of difference between a good sandwich and a bad one. If you don't believe me, try a Subway turkey sandwich and compare it to one in shrink wrap from a convenience store. Think the only distinguishing factor is the knife they used to cut the bread?

So why have they chosen their respective strategies? I think Wayne Eastman's thoughts are the closest to mine. It's all about the brand...