Strategic Analysis of Five Guys Expansion in the Italian Market

This report provides a comprehensive strategic analysis of Five Guys' potential expansion into the Italian market. It begins with an executive summary outlining the key aspects of the report, including the impact of macro and micro factors on the company's growth and the use of PESTEL and Porter's Five Forces analyses to identify factors influencing expansion. The introduction discusses the challenges of operating in a changing business environment, particularly for fast-food companies, and highlights the growth of the quick-service restaurant (QSR) sector. The report then delves into the current strategic positioning of Five Guys in the EU market, followed by detailed external and internal analyses. The external analysis includes a PESTEL analysis of political, economic, social, technological, environmental, and legal factors in Italy, as well as an application of Porter's Five Forces framework to assess industry competition. The internal analysis uses the VRIO framework to evaluate Five Guys' resources and competitive advantages. Finally, the report offers strategic recommendations for Five Guys to strengthen its position in the EU market and concludes with a summary of the key findings and implications for the company's expansion strategy.

Strategic management

EXECUTIVE SUMMARY
The assignment describes in detail about macro and micro factors that is affecting Five
Guys in expanding in Italy. Also, it is discussed about how pestle and porter analysis identifies
factor which impact growth of company. The report described about what strategies can be
implemented by Five Guys to expand in Italy. Also, some recommendations are made that can be
taken into consideration.

Table of Contents
INTRODUCTION...........................................................................................................................1
1) What is the current strategic positioning of Five Guys in the EU market?.............................1
EXTERNAL ANALYSIS...........................................................................................................2
INTERNAL ANALYSIS.............................................................................................................4
2) What strategic recommendations can Five Guys follow to strengthen its current position in
the EU Market?............................................................................................................................7
IDENTIFICATION OF COMPETITIVE STRATEGIES...........................................................8
STRATEGIC DIRECTIONS.......................................................................................................9
Conclusion.....................................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In present era, it is very difficult to do business in such a changing environment. It is
because of frequent change in external factors. This is impacting on operation and strategies.
Food companies are finding it difficult to expand their operation. Businesses is surrounded by
macro and micro factors (Wheelen and et.al., 2017). They have to analyze them to enter in new
market. Also, there are many other things which has to be thoroughly evaluated in order to select
an appropriate strategy for expansion.
Since last few years a new segment in fast food has emerged. It is known as quick service
restaurants (QSR). There has been high growth in this sector. It accounts for more than 50% of
total sales in restaurant sector. Also, the fast food industry is growing at rapid rate. many new
and small size companies have entered in this sector and providing different products and
services. This has led to stiff competition among them. Due to this they are finding it hard to
survive for long term. Hence, they are focusing on expanding in Italy. The major impact of
competition is on big organizations. They are facing intense competition from local companies.
Furthermore, government has imposed some restrictions on use of some ingredients that are used
in making fast foods. Thus, it has restricted companies to operate in different nations.
Similarly, Five Guys is also facing some challenges regarding expansion. In recent times,
there is downfall in sales and profits of company (Ethiraj, Gambardella and Helfat, 2017). it has
enforced them to focus on Italy to attract more customers. the change in external and internal
factors has created a great impact on their growth. Moreover, due to new entrants in local
market, firm is not able to retain their customers. there are issues regarding quality of services.
Due to change in social factors Five Guys has to close down their outlets in many countries. This
has affected their growth and development. Therefore, it is essential for them to analyze
surrounding factors so that expansion strategies can be developed.
History of five guys
Five Guys is fast casual restaurant chain headquartered in Lorton, Virginia. It was
founded in 1986. It operates in fast food sector. The company is having over 300 franchise in
1500 locations. They provide variety of fast food products such as hamburgers, French fries, hot
dogs, soft drinks, etc.
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Five guys is having a low competitive advantage in UK. This is because of other fast food chain
operating there. Also, it focuses on vales by providing high quality services and food items at
low cost. It operates at large level but is engaged mainly in US.
1) What is the current strategic positioning of Five Guys in the EU market?
It is very essential for Five Guys to analyse the external environment of Italy before
entering in it. this is because it helps in finding out how change in any factor will impact on
operation and growth. Also, it describes overall positioning of business in other countries. Five
Guys is successfully operating in US but they want to expand in Italy. Therefore, pestle is
conducted as follows :
EXTERNAL ANALYSIS
It refers to macro factors or environment outside business. Any change in it can not be
controlled by company. thus, it affects operation to a large extent. Therefore, strategies are
developed in order to reduce its impact.
PESTEL
 Political – it is related to political stability of a Italy. the government is responsible for
creation of laws and regulation. Any change in political factor will disturb entire situation
of nation. This impact on industries growth (Trigeorgis and Reuer, 2017). In many
nation government has developed some strict policies on food quality. Also, in some
nations non veg food is banned. Italy is a member of EU. The country works according to
policies and laws of EU. So, any change in it will affect five guys growth in Italy.
 Economic- it includes factors such as currency rate, tariff and trade policies, etc. that is
regulated and controlled by government and central bank of a Italy. Brexit has also
impacted on economy of EU. The currency rate Euro has also fallen down. Italy is having
their own tariff and trade policies. they easily trade with EU countries. but decline in
economy of EU will affect Italy growth as well. This will directly impact on five guys
operations.
 Social – it is related to society and culture of Italy. In includes living standard, income
level, class, needs, etc. (Michael, Storey and Thomas, 2017) the change in taste and
preference of customer forces business to modify product features or develop new ones.
Italy culture is high class. People prefer to live a high standards life. They want healthy
and nutritious food to fulfil their needs. Thus, in recent time people needs are changed.
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They are more concerned towards heathy food. So, it will impact on five guys expansion
in Italy.
 Technological- – As name depicts it is related to change or advancement in technology
of Italy. In today’s digital world there are numerous innovations in technology. It has
allowed developed countries to utilize them for innovations. In Italy people and
companies use advance and latest technological tools and equipment’s. so, if there is any
change in this factor it will be beneficial for industry. In fast food sector, services are now
provided online. Also, payment, order, etc. are taken and problems are solved in real
time. another positive change is marketing and promotion are done through social media
(Engert, Rauter and Baumgartner, 2016). So, it has resulted in attracting large number
of people. five guys will get an advantage if they expand business in Italy.
 Environmental- This is the most important factor that is related to change in
environmental laws and regulations, CSR activities, etc. food industry needs to ensure
that society culture is maintained. Italy is member of EU, so they follow rules imposed by
EU. Italy is focusing on green environment and using renewable source of energy. As
five guys is already operating in UK, they are aware about policies. hence, it will be an
advantage to expand in Italy.
 Legal- they are considered as rules, policies, standards, etc. related to particular industry.
It includes employment, safety laws, working hours, etc. (Morschett, Schramm-Klein
and Zentes, 2015) Italy is a member of EU. In recent time, there has been change in
minimum wage act of EU. It will enforce company to follow it. due to this their expenses
will increase. Hence, any further change in future in legislation will affect five guys
operations in Italy.
5 Forces framework
It is a model that helps in finding out the competition among industry. this can be applied
to find attractiveness and profitability (Porter’s five forces. 2018). With help of it five guys will
be able to find out market condition in Italy. There are five elements in it as described below :-
Competition in industry- As name depicts, it refers to finding out number of competitors and
level of competition within Italy. A company growth is directly related to it. if there is more
competition then each company possess less power. But when rivalry is low more competitive
advantage can be gained. in fast food industry there is intense competition. There are many
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companies already operating in Italy (Yorio, Willmer and Moore, 2015 ). This has resulted in
increase in competition among them. thus, it will be difficult for five guys to gain competitive
advantage.
Power of suppliers – it shows how suppliers can be influence the price of products. if there are
more suppliers’ prices can be easily influenced as company holds less power and vice versa.
There are only few suppliers that supply raw materials required in food and beverage industry in
Italy. hence, they hold more power and business highly depends on them. thus, suppliers
associated with five guys can easily influence prices of products.
Power of buyers- in similar way, it refers to how buyers can be influence price of goods. if there
are more suppliers’ prices can be easily influenced as company holds less power and vice versa.
In Italy, each fast food company is having large number of buyers. Thus, they frequently switch
companies according to their needs. Moreover, they compare prices to get select appropriate one.
In food industry there is small client base, so it can easily influence five guys products prices.
Threat of substitutes- this is most crucial factor that depicts competitive advantage within
industry. availability of substitute can influence people to easily switch from one company to
another. if there are many substitutes available it will highly affect company power (Mitchell
and Leiponen, 2016). There are variety of food items available in Italy for people to fulfil their
needs. Thus, it makes it easy for customers to get products at low prices. Therefore, it can affect
five guys growth.
Threat of new entrants – it also affects company power. The new business can enter in Italy
and provide similar or modified goods. The entrants will affect Five Guys competitive
advantage. But an industry having strong barriers will restrict new business to enter. Food and
beverage industry is expanded in to wide area. There are many segments in it. so, there is high
threat of new business to enter with new concept in Italy. due to this five guys growth will be
affected.
By analysing the internal and external factors it can be stated that five guys will get
advantage in Italy at some point if they expand. But on the other hand they will face critical
challenges due to change in any factor.
INTERNAL ANALYSIS
It is known as micro environment that exists within organisation. this can be controlled
by taking proper and effective measures. The VRIO consists of four elements that are value,
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rareness, imitability and organisation. it is a framework through which company resources and
competitive advantage can be determined (Nerur, Rasheed and Pandey, 2016). With the help of
it, goals and objectives are developed and strategies are formulated. The VRIO of five guys is
given below:-
VRIO
Value- it refers to the value that is generated by resources utilised by company. it enables
organisation to increase customer value that leads to gain competitive advantage. Also, it is
important to review resources due to change in external factors so that value can be maintained.
Five guys use advance and high technological resources to provide services to people. they have
implemented a FoodLogiQ application (Carroll, Primo and Richter, 2016). This has supported
them in operating restaurant in effective way. they are able to provide safe and healthy food
items to people.
Rareness- it is referred as rareness of resources used by other companies. they give temporary
competitive advantage as other firm acquire or use identical resources. so, it is important to
generate value from it so that business can stay in market for long term.
Imitability – this means that resources which are costly cannot be imitated or copied by other
firms. Imitation occurs in two way that are by copying the resources or substituting it. thus,
business must keep its resources rare so that it is hard to imitate.
Organisation- value can be generated from organisation as well. It includes process, structure,
culture, etc. this supports in giving competitive advantage as well. Thus, organisation should
recognise these all so that it is not copied by rivals. Five guys value chain
Activity Core competency
Operations Value – this save time as well as cost of five guys.
Rareness- each business have their own concept of ding operations
Imitability- they can be easily identified and copied
Organisation – many substitutes are available in food and
beverage industry.
Sales and marketing Value – five guys promotes their products and services online.
They have generated customer value due to quick and effective
services.
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Rareness- there are many businesses offering similar food and
beverage items.
Imitability – the food items are easily imitated (Bettis and et.al.,
2015).
Organisation – due to this, competitors are giving touch
competition to five guys.
Services Value – offering home delivering and other services has generated
customer value
Rareness- other fast food chains are also providing such type of
services
Imitability- A strong network is created by five guys.
Organisation – customer can avail services easily.
Frim infrastructure Value – five guys outlets are very attractive and can be seen in
high streets.
Rareness- they are very similar with other food outlets.
Imitability- different outlets may have different interior design and
structure (Peng, 2017).
Organisation – the structure can be easily copied by other.
Technology Value – five guys uses FoodLogiQ application to manage
operations
Rareness- many companies are already using it.
Imitability- it is imitated as available online.
Organisation – technological advancement will force five guys to
implement new one.
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2) What strategic recommendations can Five Guys follow to strengthen its current position in the
EU Market?
From above case study it can be analysed that five guys is already successfully operating
in UK. They are able to provide variety of differentiated products and services. this has enabled
them to attract large number of people and gain competitive advantage (Apenko, 2017 ). For this
they have developed and implemented effective strategies that has allowed them to compete with
rivals. But in order to strengthen their position in EU, they can follow porter’s generic strategies
that is stated below :- (Porter’s generic competitive strategies. 2016).
IDENTIFICATION OF COMPETITIVE STRATEGIES
Cost leadership – this strategy enabled firm to become low cost provider in industry. in order to
expand in different countries, business analyses its economy, market, etc. and then set a price
that is low as compared to rivals. The cost of product can be reduced by using technology,
minimising impact of external factors, etc. it is useful for business to gain competitive advantage
in industry on basis of cost leadership (Trigeorgis and Reuer, 2017). But they will perform on
average which means profit margin will be low.
Differentiation – As name suggests, it means to differentiate products from competitors by
adding some extra or unique features. In this business select certain attributes that can help in
developing unique products. with help of it, many buyers are attracted. It is useful in creating a
distinct image in industry. along with this, premium pricing is set for that product. This reflects
an image of high quality goods in minds of people.
Focus – It is a strategy in which a firm focuses only on specific or particular target market. this is
done by doing market analysis and then targeting particular segment. generally, it can be done in
two ways as discussed below :-
 A business can focus on cost. it gives cost advantage in target market.
 Another way is differentiation focus in target market.
In both of these strategy focus is on either strategy (Michael, Storey and Thomas,
2017). it can be stated that in cost difference is made cost behaviour whereas in differentiation
special needs of customers are focused
Here, five guys can use the differentiation strategy to strengthen their position in UK.
They can add some variety of food items in their menu (Yorio, Willmer and Moore, 2015).
Also, food items with some special benefits can be developed and offered to people. this will be
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useful in retaining customers. five guys can differentiate products by combining two continental
food styles. Besides this, some other variety in beverage can be introduced. It will help in
providing a new taste to customer. They will get a new dishes and recipes to eat. It can focus on
providing healthy meals like salads, light burgers, fat free fries, etc. according to lifestyle of
society.
Bowman clock – there are eight strategies defined in it that are as follows :-
Low price and low value added- it allows company to remain competitive by low price and
perceiving very less customer value
Low price- the business tries to become cost leaders in the market. they do this by providing
goods at low cost and reducing their profit margin.
Hybrid – it refers to combining both price and differentiation strategy. the goal is to attract
customer with low price and good product value.
Differentiation- here, focus in only on differentiating product and services. it is done by doing
effective marketing and branding.
Focused differentiation – in this products are placed at high price to generate high value from
customers. this is done by premium marketing and pricing of product.
Risky high margins – in this business set high price of product without giving any extra value
of benefits. A high amount of risk is involved in it.
Monopoly pricing – as name suggests, business dominate the market by offering products at
high price and perceiving customer value.
Loss of market share – it refers to setting medium range market price of goods and offering low
perceived value. There is risk of loss of market share.
STRATEGIC DIRECTIONS
Market – it refers to other market in which five guys can expand. They can target more
countries within EU for growth and development. Through this, they will be able to create a
large customer base in Europe. In addition, by focusing on different markets more sales and
profit can be generated. Business will be able to compete and establish distinct image. For
example, five guys can target new nations such as Germany, France, Belgium, etc. where they
are not operating. Firm can evaluate market condition of EU and then decide to enter in
particular nation (Engert, Rauter and Baumgartner, 2016). By following this strategy, five guys
will be able to grow and sustain for long term.
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Products and services – this is another strategy that can be followed by five guys to expand
their growth. here, they can develop new products and services to attract people. it can be done
by determining needs of people in different market. moreover, by providing variety of goods and
services customer can be retained. Also, when company frequently develops new products it
automatically attracts people. this brings in change in taste and preference as well. Therefore,
this strategy will enable five guys in developing a huge customer base. Besides this, some other
variety in beverage can be introduced. It will help in providing a new taste to customer. They
will get a new dishes and recipes to eat. It can focus on providing healthy meals like salads, light
burgers, fat free fries, etc. according to lifestyle of society.
Expansion- There are many other methods that can be used by five guys for expanding their
business. these are as follows :-
Corporate expansion- the strategy allows firm to expand as a whole in different country. It is
commonly followed by big firms as they are globally operating. Also, it becomes easy for as
their brand name attracts people. similarly, five guys can expand as whole in EU. in addition, it
has over 300 franchise in 1500 locations. This makes five guys a big food chain brand. There is
always a chance of earning high profits.
Joint venture- in this method of expansion one or more company merger with another one.
Usually, it is done to enter in new market and competing with large firms. Five guys can also
merge with another business (Mitchell and Leiponen, 2016). they can enter in partnership and
operate in different countries. Five guys can merge with local fast food chain. It will help them to
identify needs of people and offer products. also, they will be able to enjoy market share in
respective countries.
Dealership – it is a common method and is also known as franchising in which company
aim is to increase distribution of their products to generate sales. It results in earning more
revenue. By franchising it is useful for business to generate high revenues (Bettis and et.al.,
2015). Five guys is dealing with other firms and operating in some countries by franchise
method. But in EU this method is not possible as there are many franchises. Likewise, market
conditions is also different.
Five guys can follow corporate expansion strategy. it is because they are successfully
operating in UK. So, people are already aware about their brand name. moreover, business is
having capability to follow this strategy. they will not have to depend on other firms to enter in
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