Five Guys: External Business Environment and Strategic Analysis

This report provides a comprehensive analysis of the business environment of Five Guys, a fast-food restaurant chain. The report begins with an introduction to the concept of the business environment and its impact on organizational success. It then delves into a methodological structure, followed by a detailed PESTLE analysis, examining political, economic, social, technological, legal, and environmental factors influencing Five Guys. The report also applies Porter's Five Forces framework to assess the competitive dynamics within the fast-food industry. Furthermore, the Ansoff matrix is utilized to explore potential growth strategies, including market development, market penetration, diversification, and product development. Finally, the report evaluates key changing factors, such as customer preferences, competitor offerings, and technological advancements, and their impact on Five Guys' operations and strategic decisions. The report concludes with a summary of the findings and their implications for the company's future.

Business Environment

Table of Contents
INTRODUCTION ..........................................................................................................................1
Methodological structure............................................................................................................1
PESTLE analysis.........................................................................................................................1
Porter five forces analysis...........................................................................................................2
Ansoff matrix..............................................................................................................................3
Evaluating key changing factors and its impact on Five Guys...................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business environment refers to all the internal and external factors which have influence
upon the growth and success of business organization. Thus, company needs to consider all these
aspects while framing its business strategies and policies (Botha, Kourie and Snyman, 2014). In
the present report, external factors of Five Guys will be examined through PESTLE analysis.
Five Guys town is a fast food restaurant chain which offers hamburgers, hot dogs and French
fries to their customers. In addition to this, the report will also develop understanding about
Porter five forces, Ansoff matrix as well as key changing factors which closely affect the
achievement of organizational goals and objectives.
Methodological structure
Five guys is a large sized restaurant chain of US which operates in the food sector. It is
the fastest growing restaurant of UK. In order to assess the external business aspects of firm,
researcher undertakes PESTLE and Porter five forces analysis. It provides assistance to the
restaurant in framing suitable policies and strategies. For in-depth analysis, theme is prepared by
the researcher in terms of political, economic etc (Hamilton and Webster, 2015). This aspect
provides deeper insight to the organization about external business surrounding.
PESTLE analysis
It is the most effectual tool which helps Five Guys in coping up with the external
business aspects. PESTLE analysis refers to political, economic, social, technological, legal and
environmental factors which assist organization in framing effectual policy framework. External
business analysis of Five Guys is as follows:
 Political factors: Political system of US is highly stable and predictable that helps Five
Guys in achieving success in the competitive business arena. Besides this, labor and
environmental law as well as tax policy of the country also reflect stability in the political
conditions of US. Nevertheless, tax issues of other countries also restrict restaurant to
expand their chain in other countries of the world.
 Economic factors: Inflation and deflation are the indicators which provide deeper insight
about the situation of economic growth or downfall. Economic condition of US keeps
growing which is positive sign for the firm (Kim, Suresh and Kocabasoglu-Hillmer,
1

2013). Thus, restaurant can easily expand their business operations and functions in the
growing economy.
 Social factors: This factor includes population growth rate, age, income as well as
cultural aspect. Large number of US people prefers to make expenses on hamburgers, hot
dog and French fries. In addition to this, people of all age group like fast foods. Thus,
social factors of US are also very supportive and thereby help Five Guys in maximizing
their sales and profitability (Sena Ferreira and et.al, 2012). On contrary to this, restaurant
uses specific sources for beef which closely affects the brand image of firm.
 Technological factors: In order to cope with the competitors such as Mc Donalds,
Burger's king etc., restaurant needs to conduct research and development activity. It helps
organization in identifying the needs, wants and desires of their customers. In addition to
this, business enterprise also needs to create automation in the services which are offered
by them (Pestle analysis, 2016). Thus, company needs to be updated with the
technological change which takes place within the business environment.
 Legal factors: Consumer as well as health and safety law also has high level of impact
upon the working practices and policies of firm. Whenever, company makes plan for
their expansion then they require undertaking all these factors to influence the large
number of customers towards the products or services which are offered by them.
 Environmental factors: It includes changes which take place in the climate of country in
which business organization is going to operate (Srdjevic, Bajcetic and Srdjevic, 2012).
In addition to this, manufacturing process which is undertaken by the firm also affects its
corporate image.
Thus, restaurant needs to make evaluation of all the above mentioned factors while
preparing strategic framework. In addition to this, company also needs to consider all these
external factors while planning to enter in other countries.
Porter five forces analysis
 Bargaining power of buyer: By analyzing the business environment of Five Guys, it has
been identified that bargaining power of buyer is low to some extent. Moreover, customer
satisfaction and loyalty are high towards the burgers and other fast food products or
services. In addition to this, attitude of customers towards the fast food chain is positive
which shows low power of the customers. Nevertheless, large number of suppliers is also
2

available in the marketplace, so restaurant needs to differentiate their product or services
(Kolios and Read, 2013). It helps organization in attracting large number of customers
towards the fast food offered by them.
 Bargaining power of suppliers: Bargaining power of suppliers is also low because
restaurant pays high salary to their employees as compared to minimum wages. It is one
of the main factors which may cause of satisfaction among the workforce. Due to this,
employees of the restaurant are encouraged to stay longer within the business enterprise
(Taylor, 2012). This proves to be more fruitful for the firm because company has to
spend less on recruitment, selection as well as training and development of their
employees.
 Intensive competitive rivalry: Level of competition is high in fast food industry. There
are number of companies which offer quality burgers and other fast food products to their
customers namely Mc Donalds, Burger's king, subway etc. In this, company can build or
sustain competitive advantage only when they indulge uniqueness in their product or
services.
 Threat to substitute products: Large number of substitutes of burger is present in the
market. It imposes high level of threat in front of Five Guys. Moreover, when business
organization increases the price of their product or services then there is chance that
customers may switch to substitute products (Teece, 2010). Customers are usually price
conscious and make comparison of the quality of products with the price charged by firm.
Thus, restaurant needs to set competitive prices for their product which helps them in
attracting large number of customers.
 Threat to new entrants: In the present era, fast food industry is continuously growing.
Now, people of all age groups like to take fast food. In addition to this, sales and
profitability aspect of food industry is also high. It acts as a motivator in front of others
which attract them to enter in the fast food industry (Stephens, Gabriela Balan and
Callaghan, 2010). This aspect reflects that threat of new entrant is high in fast food sector
and thereby negatively affects the growth and development of Five Guys.
Ansoff matrix
It may be defined as a planning tool or process which provides assistance to the business
organization in making cost effective decisions in relation to their product. It may also be served
3

as growth marketing strategy which helps restaurant in getting the desired level of outcome or
success.
 Market development: It consists of selling of existing product in the new market. Five
Guys restaurant chain can grow by offering their product in the other parts of world along
with their home country. By taking into consideration the existing selling aspects as well
as market condition restaurant needs to grow in the other countries of world. Thus,
restaurant needs to open up its new restaurant in UK which proves to be more beneficial
for them. In addition to this, restaurant also needs to place emphasis on the promotional
strategies and campaign (Narayanan and Fahey, 2005). It provides assistance to the firm
in developing awareness among the customers about the fast food product which are
offered by them. Through this, firm is able to attain high level of profitability. Market penetration: It is kind of pricing strategy in which marketer makes focus upon the
selling of product alt competitive or lower prices. Long term growth as well as huge
market share is the main objective of firm (Grundy, 2006). In addition to this, by setting
lower prices as compared to their competitors. This aspect also helps organization in
encouraging customers towards the products or services offered by them. Diversification: Under this kind of growth strategy restaurant tries to introduce new
product in new market. This strategy imposes high level of risk in front of the
organization. Moreover, if company fails to evaluate the market trend, need and wants of
the customers in the right direction then it may result into the loss to the firm. Thus,
restaurant needs to make thorough analysis of the market in which restaurant wishes to
enter.
 Product development: Five Guys restaurant is also required to develop special menu for
kids. Moreover, decision making of the family is highly influenced by children. In
addition to this, business enterprise can attract more customers by adding more fast food
products in menu card. Along with it, restaurant can also build its effective image by
offering healthier substitutes (Porter, 2011). Now a day’s customers are highly conscious
towards their health aspects. Besides this, restaurant also requires to conduct research to
identify the taste and preferences of its customers. Therefore, by considering these entire
aspects restaurant is able to develop or offer new product at marketplace.
4

Evaluating key changing factors and its impact on Five Guys
In order to attain success in the dynamic business arena company requires making
changes in their existing policies and working aspects. Thus, it is required for the restaurant to
make continuous monitoring of the factors which have significant impact upon the sales revenue
of the firm. Factors which have high level of influence upon the growth and development aspect
of Five Guys are here under: Changes in the taste and preferences of the customers: Needs, taste and preferences of
the customers are highly dynamic in nature. It is most significant factor which closely
affects the growth aspect of firm. Usually, customers get fed up with the similar kind of
product after some time period. If company fails to serve suitable product or services to
their customers then it negatively hampers brand image. In order to overcome this, Five
Guys restaurant needs to encourage their customers to present their views and
suggestions in feedback form (Wright, Paroutis and Blettner, 2013). It enables restaurant
to make appropriate changes in their existing offering. Through this, restaurant can
achieve success in the highly competitive business area.
 Competitors offering: Products or services which are offered by competitors also have
high level of impact upon the operations and functions of the firm. Moreover, customers
make comparison of the products or services in relation to their feature, quality, price etc.
For instance: Mc Donald offers quality fast food to their customers at reasonable prices.
In this condition, if Five Guys offers similar kind of food at high prices then the
negatively affects the mindset of the customers. Thus, company also needs to make
review of the strategic aspects of the business organization. Through this, restaurant is
able to meet up the expectation level of their customers.
 Technological aspects: Changes which take place in the technological aspect may also
influence the operations and functions of restaurant. Technical aspects help organization
in providing convenience to their customers (Chesbrough and Appleyard, 2007). Thus,
company needs to update with the changes which takes place in the technological aspects.
For instance: Company can raise the satisfaction level of their customers by offering
online ordering and booking facility to them. In addition to this, business enterprise also
needs to include digital menu card which helps them in attracting number of customers.
5

Hence, by keeping in mind all these changes restaurant is able to increase their gross
margin.
CONCLUSION
From the above report it can be articulated that external environment of Five Guys
restaurant is highly stable to some extent. Besides this, it has revealed that bargaining power of
buyer and supplier is low. On other hand, restaurant has faced threat from their competitors and
potential entrants. Thus, company needs to make efforts which enables them to offer unique or
innovative product or services to their customers. Further, it can be concluded that taste and
preferences of the customers, competitors offering etc. are the main key changing factors which
have high level of impact upon Five Guys.
6

REFERENCES
Books and Journals
Botha, A., Kourie, D. and Snyman, R., 2014. Coping with continuous change in the business
environment: knowledge management and knowledge management technology. Elsevier.
Chesbrough, H.W. and Appleyard, M.M., 2007. Open innovation and strategy. California
management review. 50(1). pp.57-76.
Grundy, T., 2006. Rethinking and reinventing Michael Porter's five forces model. Strategic
Change. 15(5). pp.213-229.
Hamilton, L. and Webster, P., 2015. The international business environment. Oxford University
Press, USA.
Kim, M., Suresh, N.C. and Kocabasoglu-Hillmer, C., 2013. An impact of manufacturing
flexibility and technological dimensions of manufacturing strategy on improving supply
chain responsiveness: Business environment perspective. International Journal of
Production Research, 51(18), pp.5597-5611.
Kolios, A. and Read, G., 2013. A political, economic, social, technology, legal and
environmental (PESTLE) approach for risk identification of the tidal industry in the
United Kingdom. Energies. 6(10). pp.5023-5045.
Narayanan, V.K. and Fahey, L., 2005. The relevance of the institutional underpinnings of
Porter's five forces framework to emerging economies: An epistemological analysis.
Journal of Management Studies. 42(1). pp.207-223.
Porter, M.E., 2011. Competitive advantage of nations: creating and sustaining superior
performance. Simon and Schuster.
Sena Ferreira, P. and et.al., 2012. Framework for performance measurement and management in
a collaborative business environment. International Journal of Productivity and
Performance Management, 61(6), pp.672-690.
Srdjevic, Z., Bajcetic, R. and Srdjevic, B., 2012. Identifying the criteria set for multicriteria
decision making based on SWOT/PESTLE analysis: a case study of reconstructing a
water intake structure. Water resources management. 26(12). pp.3379-3393.
Stephens, S., Gabriela Balan, C. and Callaghan, S., 2010. Theory and practice: the experience of
marketing graduates. Education+ Training. 52(6/7). pp.552-560.
7

Taylor, E.C., 2012. Competitive Improvement Planning: Using Ansoff's Matrix With Abell's
Model To Inform The Strategic Management Process. In Allied Academies International
Conference. Academy of Strategic Management. Proceedings. Jordan Whitney
Enterprises, Inc.
Teece, D.J., 2010. Business models, business strategy and innovation. Long range planning.
43(2). pp.172-194.
Wright, R.P., Paroutis, S.E. and Blettner, D.P., 2013. How useful are the strategic tools we teach
in business schools?. Journal of Management Studies. 50(1). pp.92-125.
Online
Pestle analysis, 2016. Online. Available through: <http://pestleanalysis.com/what-is-pestle-
analysis/>. [Accessed on 23rd February 2016].
\
8

9