Five Guys Italy Market Strategy

Introduction

The expansion of the market in new countries requires the companies to execute effective industry analysis of the country to identify the present macroenvironmental and microenvironmental condition of the external industry environment. This is required to understand and frame better business strategy so that the business can be established in a successful manner in the country. In this report, the strategic position of Five Guys in the food industry of Italy is being discussed by analysis PESTEL, Porter’s Five Forces and VIRO Framework. Moreover, Porter's generic strategies of competition framework are being used to identify the strategic recommendation for Five Guys to expand in the EU market. Lastly, strategic direct and future methods of strategic expansion of Five Guys in Italy are being discussed in the report.

Strategic Positioning of Five Guys in Italy market

External environment

PESTEL Analysis

Analysis

The restricted promotion and selling of foods by the government create a negative impact on the restaurant and food companies as they cannot freely trade within the country (Sonntag et al. 2015). Five Guys key products are hamburgers, hot shakes, French fries and others that are not native food of Italy. Thus, the imposition of restriction to sell foreign foods in Italy is going to act negatively in case of Five Guys as they cannot freely strengthening their market in every location within Italy to expand their business in a proper manner. Moreover, restriction of fast food restaurant openings in places in Italy is going to create a negative situation for Five Guys as they are a fast food chain. This nature of restriction would bar them to open restaurant in places in Italy to smoothly expand their business. The ban to eat of food in city centre areas in Italy would also negatively affect Five Guys as they have to arrange dining places as compulsory to let their customers eat food in closed areas without facing fine. In order to arrange dining places, Five Guys require investing more finances to establish their business, in turn, raising their cost of managing business while strengthening their position in Italy.

In Italy, the fast food industry is seen to be growing rapidly which is evident as high turnover is seen from the food industry (gain.fas.usda.gov, 2017). This fact would have a positive effect on Five Guys to strengthening their position in Italy as growing fast food industry indicates that they would have better economic opportunity in the market to gain increased finances through business operation. Further, it is revealed that €80 billion is spent by the Italian household to avail food outside home (www.pwc.com, 2018). It reveals that the Italians spent quite a huge amount of money to eat food outside home. This means that Five Guys have the opportunity in Italy to have greater investment from the public towards buying their food as it is readymade and available outside home. The individuals in Italy are seen to spend increased amount towards availing fast food compared to traditional foods as they are cheaper in nature (www.pwc.com, 2018). This fact would affect the business expansion of Five Guys in Italy in a positive way as they also offer cheaper fast foods. Thus, their business in Italy would be flourished as demands of their foods could be seen amount the Italian individuals. In Rome, the government are arranging independent food technology accelerator (www.gamberorosso.it, 2016). This is going to help Five Guys that have effective opportunity to use upgraded technology in preparing foods while strengthening their business position in Italy. Moreover, the e-delivery of foods has also increased in Italy (www.gamberorosso.it, 2016). This means that the Five Guys as seen in the US offers home delivery of their foods through online bookings would execute the same services in Italy while strengthening their business position so that they have increased demands and better customer base in the country.

In Italy, it is seen that food producers are using eco-friendly packaging for carrying foods (www.freshplaza.com, 2018). This means that Five Guys require adopting eco-friendly packaging in delivering their foods so that they can actively participate to reduce pollution within the country. The lack of maintaining environment-friendly producers leads companies to face avoidance from the customers as they feel buying from the organisation means they are destroying their own environment (Peng et al. 2018). Thus, the eco-friendly way of packaging and preparing food as seen in Italy is to be adopted by Five Guys so that they can attract potential customers of Italy towards them to have a successful business expansion. As mentioned by Herrmann (2016), avoidance of laws leads organisation to face lawsuits which negatively portrays their image in the industry. This result consumer avoids buying from them as they feel the investment of money towards food products by such organisation is wastage of finances. The government in Italy have developed various food preparations and packing legislations which are to be abided by food companies while expanding in the country (agriexchange.apeda.gov.in, 2013). Thus, Five Guys require abiding by the food preparation and packaging laws mentioned by the government in Italy to expand their business ethically and without facing legal punishments.

Porter’s Five Forces Analysis

Competitive Rivalry: In Italy, there are many competitors such as Starbucks, Mc Donald, Burger King and others (qsrmedia.co.uk, 2018). Thus, Five Guys being a fast food offering restaurant is going to face high competitive rivalry while strengthening their position in Italy which is going to affects its scope, productivity and costs in a negative way. This is because presence of increased number of competitors in the market indicates that the each of the companies would try to arrange rival strategies such as lower prices, evil plans to defame competitors and others so that each of them can be able to avail advantage in the market (Luca and Zervas, 2016).

Threat of New Entrants: The threat of new entrants is going to medium to high for Five Guys while expanding in Italy. As mentioned by Newbery (2016), new entrants in the market required increased amount of time to establish their business. This is because they have to form a new customer base to their business by attracting customers of competitors and existing companies in the industry to buy from them. Since Five Guys is new in Italy, they are going to require increased amount of time to expand in the market.

Bargaining power of suppliers: There are many suppliers of food resources present in the Italian food industry (www.fao.org, 2019). Thus, the bargaining power of the suppliers would be low for Five Guys as they can avail more than one supplier if the existing suppliers do not cooperate with them in business terms.

Bargaining power of buyers: The consumers in Italy are presently going through economic crisis due to which they are trying to avail foods that are lower in prices (www.forbes.com, 2019). Five Guys are offering foods that are cost-effective in nature. Thus, the bargaining power of the buyers would be low for Five Guys in Italy as they are already offering them food in cheap prices so the public has no position to bargain with the food outlet to lower food prices.

Threat of substitutes: In Italy, it is seen that more public is orienting to have organic and healthy foods (www.fao.org, 2019). Thus, there is high threat of substitution for Five Guys as their fast food may be substituted by the increasing demand for healthy food in the market which would negatively impact their business. This means that they would face hindrance to strengthen their business in Italy.

Internal environment

VIRO Framework

Sales: The Five Guys are seen to have reached sales figure of US$ 831.95 million as revenue in 2016 by operating in 15,000 locations over the world (www.fiveguys.com, 2019). However, few of its main competitors in Italy that are Starbucks which have also recently opened its outlet in Italy is seen to have incurred US$22 billion as revenue in 2017 by operating in 28,000 locations, McDonald incurred US$21.025 as revenue in 2017 by operating in 37,855 locations, Burger King incurred US$1.65 billion as revenue in 2017 by operating in 17,000 locations (s22.q4cdn.com, 2017; corporate.mcdonalds.com, 2018; www.rbi.com, 2017). This informs that the revenue collection through sales of the Five Guys compared to most of its competitors except Starbucks which is presently one of their key competitors in Italy is comparatively high. This means that the Five Guys is quite valuable in Italy compared to its competitors expect Starbucks who are better in business and value compared to them. Moreover, the revenue collection figures through sales inform that to imitate Five Guys by most of its competitors is quite difficult not impossible as their one of the key competitor that is Starbucks is doing better business than them in the market. In Italy, it is seen that Five Guys is offering drinks at 3.50 Euros which is quite cost-effective (themilancityjournal.com, 2018). Thus, the price set for the products by Five Guys is not rare and can be exploited by any organisation to use for selling their products making the competitors tough for Five Guys, in turn, offering them competitive advantage.

Brand Name: Five Guys is seen to be operating the in fast food industry selling burgers and shakes over 33 years at15, 000 locations worldwide (www.fiveguys.com, 2019). In comparison, Starbucks is in the business for 48 years, Burger King for 66 years and Mc Donald for 78 years (www.starbucks.com, 2019; www.bk.com, 2019; www.mcdonalds.com, 2019). This indicates that the brand is quite valuable as without value they could not have been able to expand their business in such nature over the years even though the presence of their competitors for longer than time in the market compared to them. Moreover, the brand name of Five Guys is not easy to imitate as they have established the image of their brand by working over the years. However, the imitation of their brand image is not rare and can be achieved by any organisation which means that the competitive advantage experienced by them in the market is temporary.

Credit Facility: In 2016, Five Guys have received total income of US$57.68 million along with the company have assets amounting to US$393.29 million (www.fiveguys.com, 2019). This indicates that Five Guys have stable credit facility but it can be imitated by its competitors and other companies in the industry as it is not unrealistic to be achieved. Thus, the credit facility of the company is not rare and can be imitated by other organisation meaning their competitive advantage in the market is temporary.

Global Operations: Five Guys is seen to be operating in Italy, France, Canada, US and various other locations over the world (www.fiveguys.com, 2019). This means that they have global presence but the fact is not rare and possible to be imitated by any organisation those have effective knowledge about global market entry strategy and skills making the aspect to offer temporary competitive advantage for the company in the market.

Strategic recommendations for Five Guys to strength their current position in the EU market

The current and future competitive strategies of Five Guys can be effectively identified by using Bowman’s Strategic Clock Framework. Five Guys according to its current competitive strategy is seen in the Hybrid position in the clock. In order to be in the hybrid position, the company require implementing some nature of low cost along with differentiation of products to achieve the niche market they have targeted (Qehaja et al. 2017).

Current competitive strategies of Five Guys

The application of low price is maintained in such a way so that it is relative to the competitors and not much lower than the market standards (Brea‐Solís et al. 2015) At the present, it is seen that Five Guys has considered becoming the lowest cost producer of fast food products in the market in order to follow cost leadership strategy. As mentioned by Ivanov and Mayorova (2015), lowest cost-producers offer the company the advantage to increase the sales of their products compared to its competitors. This is because low cost provides opportunity to the public to avail similar food products from the company at lower prices, in turn, ensuring they are spending economically. However, Five Guys have also focussed on ensuring to keep the quality of their products high and similar to their rivals while lowering cost to develop leadership. This is because lower quality goods at lower prices make the public avoid to buy as they think it is wastage of money (Cabras and Higgins, 2016). Five Guys is assuring quality with low prices is evident as they offer “fresh” food products of all nature in their list within the restaurant to the public. As argued by Laureani and Antony (2017), lower price to achieve leadership in market negatively affects the company in intense situation. This is because the organisation adopting the strategy has to keep their cost reduced even though it is at the expense of the business during lower market performance. Thus, Five Guys due to current low-cost strategy may face hindrance in reducing the cost of their products at the expense of the business. The product differentiation is vital to avail competitive advantage in the market as it helps the company to informs consumers why they are better and unique than the existing other organisation in the industry (Menon and Yao, 2017). Five Guys currently creates differentiation of their products by offering foods which are made with fresh ingredients. Moreover, they are creating differentiation in comparison to their rivals by offering services to customers in the best possible way in polite manner through trained staffs to offer the consumer better experience while having food (Mpuga, 2017). The differentiation of product and low cost are to be maintained by the company by understanding their current niche market. In this process, companies try to understand the different dynamics of the market and accordingly develop products with lower cost to attract consumers (Lubis et al. 2016). In case of Five Guys, it is seen that their key focus is to attract the lower class and middle-class individuals in availing fast food products from them. Thus, they have ensured on offering the consumer low-priced food along with high-quality with freshness and better services as differentiation to attract existing consumers.

In future, Five Guys has strategized to be still in the Hybrid position as per the Bowman’s Strategic Clock to achieve competitive advantage in the EU food industry. In this aspect, they have the strategy to let the cost of their products to be kept low in comparison to their competitors while expanding in the EU market. This is because in Italy as well as within the EU after the recession people are still coping to get economically stable (www.forbes.com, 2019). Thus, in this condition by keeping the price of their products low is going to help Five Guys to offer better value for the food in the form of cost-effective aspect for the consumers. However, in relation to create differentiation, Five Guys have the future strategy to prepared food freshly in front of their customers while they order in the restaurant. This is because such action would practically show that their promise of offering fresh food to the consumers is not fake and they actually have proof for the customers to be assured that they are availing food as per promise and promoted content by the company. Moreover, Five Guys seek to create differentiation by including diverse variety of hamburgers, hot dogs and shakes to be offered to the consumers that are still not being made or offered by the competitors. The focus of Five Guys in the future will be to attract the middle and lower class consumers as they still are doing.

Strategic Direction

Future methods of strategic expansion

The strategic decision of Five Guys to expand in EU countries such as Italy and others are as follows:

Market Segment: In the EU, the middle-class individuals are the most in number among the population compared to the elite class (www.pewglobal.org, 2017). Thus, the future expansion decision of Five Guys is to attract the middle-class consumers of different age and profession towards their products as it will offer them an increased number of consumer to attract. It will also offer them scope to get increased profit through sales by more investment by the rising middle-class population in Italy and other EU countries.

Product: In relation to product, Five Guys in the future to expand in Italy and other parts of EU have decided to create variation of the existing nature of food products they offer in which they specialise rather than including new products. For instance, they have decided to use different range of sauce in changing the favours of hot dogs. Moreover, they have decided to include different size that is middle and big along with large sizes of hamburgers with different range of preparations to change as well as create product differentiation in the market.

Services: The offering of satisfactory services to consumers makes them prefer to buy products from the particular company (Wali and Nwokah, 2018). Five Guys have decided to train their employees in using better technological services to provide better services to their consumers in future.

Market Expansion strategy

The market expansion strategy to be used by Five Guys to expand in the EU countries like Italy is market development. Market development refers to the condition in which the existing company introduces their products or services to new regions and markets (). Five Guys is going to execute market development by entering the local areas in different places in EU countries where they still have no outlets present. In order to execute this, they are going to develop joint venture with existing local fast food outlets in EU countries to identify the specific nature of demands regarding fast food the locals have while eating outside.

Conclusion

The above discussion informs that present political condition in Italy is not favourable for Five Guys to expand there but the economic, social and technological factors are acting in favour of them to help them have a promising business expansion. The VIRO Framework indicates that in terms of sales, brand name, credit facility and global operation Five Guys have temporary competitive advantage. The current and future strategy of the company to expand in EU is to be in the Hybrid position in the Bowman’s Strategic Clock. However, they have strategic decision to create better differentiation and attract middle-class consumers in the market to expand in EU. Five Guys are going to use market development strategy as the strategic way to expand in the EU food industry.

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