Strategic Management of Five Guys

This paper focuses on the development of strategic management of the Five Guys enterprise to expand its business in Italy. It develops the strategies in terms of external and internal environmental analysis.

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Strategic Management of Five Guys
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STRATEGIC MANAGEMENT OF FIVE GUYS
Executive Summary
This paper focuses on the development of strategic management of the Five Guys enterprise
to expand its business in Italy. It develops the strategies in terms of external and internal
environmental analysis. Using porter’s five force model and pestle analysis it analyses the
impact of external factors that can impact the economy of the firm. To minimize the cost and
increase the productivity the strategic plan is developed. The porter’s five force model
analyses bargaining power of supplier which is a weak force and bargaining power of buyer
which is a strong force, also new entrants and industrial competitors give a tough competition
for food segment, and the substitutes as a strong force results in low switching cost. The
value chain analysis which recognizes the strength and weakness of the firm states that the
cost strategy and product differentiation for better competition in the fast food segment. The
strategic directions shows the opportunity to be expanded in different field (market, product,
service). The paper analyses the strategic plan of implementation in the fast food segment of
Five Guys and states the threats and weakness to be minimized.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
External Environmental analysis for identifying opportunities and threats...............................5
Internal environment analysis for identifying strengths and weakness:..................................11
Identification of competitive strategies....................................................................................13
Conclusion................................................................................................................................15
References................................................................................................................................16

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Introduction
The purpose of this paper is to analyse and develop a strategic plan for Five Guys
enterprise in Italy. They started a restaurant with two advisors Jerry and Janie in the year
2003. Five Guys Enterprise are now expanding their business in Italy. In a short span they
started their business with a huge profit by selling more than 300 units within 18 months of
initiation of business. Starting a new business franchise in Italy by developing new strategic
management will lead to competitive success. The new strategy for Five Guys will help to
analyse the internal and external opportunities and threats facing which helps to expand and
increase the market position of the franchise.
The strategic management includes the study of external macro environment using
PESTEL framework and external micro environment using porter’s five force framework.
External environment also affects the business which includes factors like political,
economic, social, technological, legal and environmental. The internal analysis in the
franchise is also needed for creating and sustaining business performance using Michael
Porter’s value chain analysis. The value chain as a decision support tool which performs a set
of activities to deliver best valuable product and service for the market. To meet the
competitive advantage there is a need of analysis which recognises the strength of the
franchise in terms of growth and focuses on reducing the weakness by effective strategic
plan. The challenges of five guys in a new market area need to be analysed to compete with
other competitors in same segment. The Five Guys enterprise needs to analyse the customer’s
interest in food industry which helps in directing the franchise to choose specific product and
service to be provided to the customers. This paper aims at developing a unique strategy
which helps Five Guys Enterprise in growth and sustainability in Italy market (Mutunga and
Minja 2014).

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Discussion
The paper discusses about the strategic management to be practiced for the
development and growth of the franchise business in Italy. The food industry is a great
resource in Italy about 1.4 million employees are engaged over a million companies.
According to the report there is an increase in the competitiveness of the Italian agro-food
industry. Italian food industries have increased by 23% in last five years and reached the
export sales value of 41 billion euro in 2017. Both macro and micro environment always
have an impact on the business world. To influence the environment for profit, the business
strategy used in the implementation process is PESTEL analysis which focuses on the
external factors. It affects the growth of the business and finance to reduce cost. The porter’s
five force model analyses competition of the business among all food industry sectors. The
five factors such as competitive rivalry, threat of new entry, buyer power, threat of
substitution, and supplier power draws the economy of the organisation for more profitability.
The internal environmental analysis using value chain analysis helps the franchise to
recognize which is the most valuable factor i.e. the source of cost or the product
differentiation advantage to distinguish from other competitors. Below are the external
environmental analysis which identifies the opportunities to be enhanced and threats to be
recovered (Williamson et al. 2013).

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External Environmental analysis for identifying opportunities and threats
The external environment is impacted by the factors of the society, environment,
physical resources and climate that influences the buying behaviour of customers. The
external analysis is necessary as an effective marketing strategy cannot be developed without
the analysis of the environment in which the operations are performed in a company (Wei
and Davis-Ngatai 2017).
Macro Environment using PESTEL
The macro environment consists of forces such as political, economic, social,
technological, environmental, and logical which includes factors such as green issues,
demographics, and higher environmental and societal forces (Oraman et al. 2018 ; Grant
2016).
Political:
Political factors include agencies, influencing groups, and laws that limits the
organisation in a society. The dimensions includes the foreign market, the stability of the
business and financial policies of a country. The political factors affected by the government
policies through the regulatory bodies are the dept. of environment and dept. of trade and
industry. These regulates the trade, restrictions and increase the standard of the business. The
political background is different for different countries, which agrees to the opportunities
identified by the company. Product design is also affected by political factors influenced by
government and regulations. Price regulation is another factor that a company needs to focus
when introducing in the market internationally. Government sometime controls the price set
for products which indirectly impacts the business.

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Economic:
The economic factors consists of factors related to consumer purchasing power and
pattern of spending. In Italy the actual percentage of population interested to buy the
particular product, also affected by the economic factor. The change in the trend of economy
bounded by government policy can be an issue for business and marketers which affects the
consumer spending power. If consumer gains prosperity then the consumer’s disposable
income is high and tends to spend more money. Price becomes less prior and which
eventually affects the marketing strategy. During recession period, the buying behaviour
changes which tends the customer to spend less as a result price becomes relevant. Price
variation is due to difference in income level. The price setting is influenced by stages of
economic and industrial development. The limited purchasing power is due to low literacy
rate which poses problems for marketers on promotion. Every organisation has a wide choice
of promotional tools but effective tools in some business is limited.
Technological:
The technological advancement provides an opportunity for international business,
access to customers in terms of communication. This also leads to change in social habits and
fashions change much quicker. However, technological factors influences the lifestyle and
change in attitude in demand of product and how the products are sold to customers.
Technological factors projects to create new technologies, new product which drives for new
opportunities. The systematic projection of technology for different segment of people,
planning strategy and positioning the technology helps the franchise to maintain the standard
of business.

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Social:
The social shift in spending power is due to the effect of socio demographic trends.
The fluctuation in the population is analysed which suggests the marketers having different
age group who demands for particular goods. The social factors also impacts due to change in
family members. The change in demographics can also affect the development, promotion,
designing and packaging the products. It also structures in setting the organisational strategies
and strategic planning. The time limited for consumption of meals has resulted in increase in
the size of food industry. Consumers are willing to spend less price for food which can be
available at any time with minimum efforts. Purchase mainly depends on cultures which
influence in buying behaviour such as values, behaviours, perceptions.
Environmental:
The environmental factor influences the demand and type of product available in the
market. The physical terrain and climate is considered to be most appraising factor to enter
into a new market. Some of the climatic conditions such as altitude, humidity and increased
temperature can affect the product growth. It is important to produce a product which is
environmental friendly like reducing the use of plastic bags and other factors that help in
decrease the use of harmful waste.
Legal:
The legal factors of the organisation covers many aspects of company policies. It is
complicated when marketing a product contains some legal ramifications. Each country has
its own legal system which needs to be followed strictly and if the company expands its
business internationally then it should keep within these legal systems. When the marketing
mix is developed in foreign markets it adapts the company’s approach. The legal environment
helps to determine the launch of a product in a new market area. Law imposes the minimum

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standard of the product as per shape, components used, type and brand name for the product
used. The law also restricts the freedom of advertising of a product, also regards to the
message delivered to the customers and visual presentation in social media.
Micro Environment using porter’s five force model
The Italians are known for the love for food and maintains perfectionist outlook
towards food. The introduction of globalization has scope for new entry of food segments
into the Italian market. The Five Guys enterprise analyses Michael porter’s five force model
to determine the competitive intensity and study the marketing strategy. Porter introduces the
five force framework where the forces are close to the company that affects the profitability
and the ability of the franchise to serve the customers. The change in the model would also
affect the whole strategy and would need to reassess the place of market (Oraman 2018 ;Wei
and Davis-Ngatai 2017).
New entrants: (moderate force)
New entrants can affect the performance of five guys. The five force model analyses
the effect of new entry in the fast food industry. The following are the external factors that
lead to moderate threat of new entrants against five guys-
 Threat of new entry: low switching cost as there are psychological and time
based switching costs, disadvantage of moderate cost, access to new
technologies gives high competition.
 Government action: policy consistency is the set of rules for making decisions
which is expected from government actions.

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Industry Competitors: (strong force)
The Five Guys enterprise competes with other tough competitors which is determined
by the five force analysis model. The Five Guys enterprise provides quick service to the
customers in the market. The competitive rivalry is the strong force due to low switching
cost, also eases the customers not to switch to other firms. The business must allow variety
of firms for different types of products, target market and other characteristics. The
following are the external factors that create strong force of competitive rivalry.
 Competitors Rivalry: high number of competitors in this segment, many
firms have entered with different variety of products, low switching cost due
to best quality product.
 Barriers to Exit: emotional barriers by advertisement, one-time cost of exit
Suppliers: (weak force)
Suppliers impact the service of franchise through pricing and supply control. This
impact is analysed through five force model of Five Guys enterprise. There are more number
of suppliers who give tough competition in providing the products. Below is the bargaining
power of suppliers which create a weak bargaining power. These conditions also result in the
control of distribution in the market.
 Bargaining power of suppliers: due to more number of suppliers in the
market it lowers the bargaining power, high supply of goods is available in the
market which weakens bargaining of price, forward integration is very low.

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Substitutes: (strong force)
Substitute economically affects the status of Five Guys. The five force model helps to
determine the impact of substitution in fast food industry. The following are the external
forces which have a strong force-
 Availability of substitutes: availability of substitutes is high, and the
performance level is satisfactory of the substitutes.
 Threat of substitutes: customers can easily shift from five guys to other
substitute (low switching cost is the strong force) this condition strengthen the
threat of substitute against Five Guys, customers substitute in terms of cost,
taste and good quality.
Buyers :(Strong force)
Customer affects Five Guys business performance and the environment of quick
service restaurant industry. This force bounds the customers to make decisions that directly
affects the firm. The benefits of customer provided by variety of substitutes gives more
number of choices. It also increases the bargaining power of buyers by increasing the demand
for product. The five force model influences the customers by attracting them to buy. The
following are the external factors that lead to strong force of bargaining-
 Bargaining power of buyers: switching cost is very low, availability of
substitute is high, and it has moderate presence of consumer in the firm.

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Internal environment analysis for identifying strengths and weakness:
Value Chain Analysis
A value chain analysis is a set of activities that a Five Guys performs in order to
produce valuable product or service. Value chain analysis helps in deep analysis of business
in terms of raw material delivered to the end user. The main objective is to deliver maximum
value by minimizing total cost.
The primary activities involved in value chain analysis are-
Inbound Logistics- through inbound logistics the Five Guys enterprise can purchase the raw
materials from a constant supplier who can provide the benefit of discount or cheaper the
purchase amount. This can increase the capital and labour of Five Guys which will also result
in high productivity. The productivity can also increase by reducing cost and ensure better
quality product.
Operations- Five Guys should focus on the ease of working or the design to produce large
amount of variety food. There is a need of large grill where only one person is needed to do
the task results in less work force. A different counter where customer could find to order all
types of beverages and desserts, to attract more customers. A system which will keep track of
all the activities and bill the order.
Outbound logistics- Five Guys should focus on high quality food and good service with
clean environment. It analyses the requirement of customers their psychology to increase
more footsteps into the restaurant. The franchise must focus on energy consumption to ease
the work by new technologies, sustainable packaging and proper management of waste.
Continuous process in innovation and improving the process can profit the franchise in terms
of uniqueness and developing friendly environment.

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Marketing and sales- Five Guys should advertise their product in newspaper, television and
other social media, as effective advertisement plays an important role in the advertising
strategy of the company.
Service- if Five Guys can provide free Wi-Fi which can help the customer to do simultaneous
business while eating. If they provide a card to the customers which will provide them with
discount and membership card is to gain trust and loyalty.
The support activities involved in value chain analysis are-
Human resource management- the employees working under this franchise must be
provided with some additional benefits compared to other competitors.
Firm infrastructure- it should focus on green activities and must enhance in advanced IT to
compete with the competitors in the same field. It should also focus on the location where it
is located and must have eco-friendly workplace.
Technology development- in terms of modernizing restaurant, adding new items to the menu
and engineering value.
Procurement- the procurement system is the main reason of success of all firms that provide
effective supply chain management. It will provide the logistic information to the supply
chain management which informs the need of products (Sharma 2014).

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Identification of competitive strategies
Porter’s Generic Strategies
The porter’s generic strategy model is used to minimize the cost by offering products at low
price. Five Guys enterprise must offer products that are relatively low compared to other
competitors. The differentiation strategy is used to support generic strategy. It is used to
develop the product’s unique attribute understanding the customer’s need (Aithal 2017;
Tanwar 2013).
Porter’s three generic strategies are-
Broad of cost leadership- this strategy minimizes the cost of delivering the firm’s product
and service.
Broad of differentiation- this strategy helps the firm to produce the product and service
which provide unique attribute based on customers which make them distinct from
competitors.
Focused strategy- focuses on evolving changes in the above two strategies to make it
unique.
Strategic directions
Strategic direction provides a brief analysis of the business in these particular areas-
Market- Five Guys enterprise should use market penetration as the primary intensive
strategy for growth. This firm must reach to more number of customers in Italian market to
attract more in numbers from shifting to other restaurant. The strategic objective of the firm is
expansion of business globally in new locations. Low cost and low pricing strategy empowers
the penetration level in the market.

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Product- Product provided by Five Guys must ensure quality and packaging. It is important
to study the psychology of the customer in which the franchise must enhance its productivity
by providing different menu from others. The product which they will deliver to the
customers must be based on the target market. The menu must contain the items which Italian
market delivers with some additional items which can make the firm different from others.
Services- The service that Five Guys will provide to the Italian customers should be based on
their culture and values. A satisfactory service will build good image of the firm and will
maintain brand loyalty (Hanson et al. 2016).
Methods of expansion
 Finding the right location analysing the target market.
 Scaling the employees and designate their required operations.
 Introducing new technologies for better competition.
 Maintain product, supplies and equipment to avoid heavy loss and cost.

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Conclusion
The conclusion for the strategic management of Five Guys for a fast food restaurant
expansion shows that it will benefit the company in terms of external and internal
environment. The external environment of the firm which is expressed through pestle
analysis shows that the external factors affects the firm’s environment. By analysing the
factors and recognising the opportunities it is effective decision to expand its business in
Italy. The porter’s five force model results that new entrants are problem for the expansion.
More number of suppliers for the same market field puts strong competition with less
bargaining power. In terms of identification of competitive strategies, the firm analyses more
opportunities to minimize the cost and product differentiation. The value chain analysis
helped to stratify the activities of internal firm and to recognise which activity needs to be
more prioritized in the cost part and differentiation advantage part. The strategic direction
highlights on the specific market, product and service of the firm. The method of expansion
by introducing new technologies, allocating the employees with their job description,
analysing the right firm location and maintain an equal flow of product, service and
equipment. So the idea of expanding the firm in Italy will be a whole success in the market
with the help of unique strategic management.

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