Five Guys Industry Analysis - Case Study Example

Five Guys: An Industry Analysis Submitted: Five Guys: An Industry analysis Five Guys was started in 1986 as a single Hamburger and fries outlet by Jerry Murrell and his four sons, the original five guys. For 16 years the restaurants were expanded and controlled directly by the family, with the fifth son soon contributing to the management. The idea behind the restaurant was to provide a limited menu with the kind of taste, quality and ambience that would provide nostalgic comfort to people. Even with no marketing budget, the strict control procedures like having hand cut fries and peanut oil fried patties along with the experience provided by the restaurants was enough to generate word-of-mouth publicity and create a good customer base for the restaurant. In 2002, the Five Guys model was opened for franchising and expanded rapidly- over 1000 outlets were expected to open by the end of 2011, with over $1 Billion in sales (Weiss, 2011). The standard Five Guys simple and authentic vibe is strictly maintained in all the different outlets. 1. Classification of the business: Five Guys is a fast food chain of restaurants which specialize in the three items of hamburgers, fries and hotdogs. However, their menu pricing, quality and service type places them in the sub category of fast casual dining. Fast Casual is used to describe service outlets which do not offer full table service but there is an expectation of better food quality and atmosphere than fast food restaurants. The ingredients used are of better quality and the kitchen is visible for the dinners. Five Guys promotes an atmosphere which invokes memories of a 1950’s diner combined with the same kind of homemade food. The limited menu also allows them to concentrate on providing the best of those items rather than diversifying and losing their personalized touch. Fast casual lies between fast food and casual dining, offering customers a better value for their money and a more comfortable dining atmosphere which is greatly appealing for the people of a nation hit by recession. While Five Guys was a pioneer in this category, many fast food restaurants are quickly adopting regenerated menus and a more personalized service to compete with and enter into the fast casual and quick service categories. 2. Primary competitors For the restaurant chain their emphasis has been on creating a more-for-slightly more value proposition. By charging over the average price charged by other chains, Five Guys provide much better food and service for their customers. This has helped them to distinguish themselves from other chains and gain an edge over their direct and indirect primary competitor. These competitors would include: Direct competitors: similar Fast Casual restaurants such as Chipotle or Panera bread, both of which offer quick service with better quality food and a comfortable environment to hangout in. These restaurants target the same core customers as Five Guys, people who either can’t afford or don’t want to splurge on casual dining but are still looking for a better eating out option than fast food. Indirect Competitors: All wide spread fast food chains are an indirect competitor to the chain; these would include McDonald, Wendy’s, Burger King and others specializing in hamburgers. These restaurants are increasingly trying to gain back their customers by both increasing value meals and combos and their premium offerings, while keeping the nutritional values in mind. The price changes are quickly blurring the line between the different categories of restaurant chains. 3. SWOT analysis Strengths The unique brand positioning of Five Guys is an important tool for the franchise- a unique atmosphere and product ensures customers remember it. The customer base is highly loyal, marketing the brand effectively through social media and buzz marketing and accepting their prices even during recession. The quality and ingredients of the chain are admired amongst fast food restaurants. The focus on taste has had a significant part in satisfying customers Increasing number of franchises means that the chain is set for greater growth and market reach. Weaknesses A limited menu can only cater to people who personally favor ‘the hamburger, fries and hotdog’ theme Health concerns, the food has extremely high calories content compared to other chains and no salad, alternate options are available. Rigid structure and offerings mean there is no room for innovation, experiments or segmented targeting Family control over the franchise again limits other owners. Opportunities A relatively untapped international market can be focus of the franchise’s expansion. There is a lot of room for innovation and increases in menu if the restaurant decides to diversify There are signs of an economic upturn in the country which would lead to an increase in spending. Threats Changing demographics mean that their primary customers may no longer be able to relate to the nostalgic theme of the restaurants With greater awareness about health issues the company could come under pressure for having an unhealthy menu selection. Permanent lifestyle changes due to the recent recession could greatly favor home cooked meals and decrease interest in fast casual dining Competitors changing strategies to gain back customers and penetrate the fast casual dining category Their tried and tested methods and environment may not be acceptable in all international locations; e.g emerging economies like India have very different tastes. 4. Long term strategies: In light of the SWOT analysis it is clear that one of the reason people are surprised by the success of the franchise is because of their apparent weaknesses and the threats which they are facing. Their sales and growth (38% just from 2009 to 2010) indicate, however, that their strengths are significant enough to carry them safely even through a hard hit recession. But as the economy gets back on its feet and a newer generation becomes the primary spender, the company will have to adopt some differing long term strategies in order to continue its growth and profitability without alienating its loyal customers. As they are already involved with market development for the franchise, Five Guys should adopt the Concentric Diversification strategy in the next five years. Their brand positioning is so strong at the moment that any change to their existing business model for hamburgers and fries would only serve to diminish their authenticity and cause them to lose loyal ‘fanatic’ customers in exchange for casual, brand shifting customers, which will be a loss in the long term. With starting or acquiring different dinning model for international or local markets, the franchise can introduce all kinds of different pricing, menu offering and taste with the same quality or ambience as they had maintained in the original restaurants. They can either keep the same proposition with more-for-slightly more but introduce different food categories or go for multi tiered pricing options in the same category of hamburger, hotdogs and fries. For the international market they can merge their old offering of old style American comforts with a healthier menu- they could keep the items less and concentrate on quality just as before but cater to the tastes of the region they are expanding into. Five Guys cannot afford to become complacent in the competitive food environment. They found a good formula to get customers in the door and leave satisfied, but there is no guarantee that the same formula will work everywhere. They have to introduce the possibility of changing with the needs and preferences of the customer, even as many people still enjoy their original offerings. Eventually the fast food restaurants are going to rise up with varied, better quality and more healthy food offerings and Five Guys will have to compete with them on more than just taste. References Sanburn, J. (2012). Fast-Casual Nation. Time, 179(16), 60-61. Coomes, S. (2009). Dinnerhouses pick up pace with fast-food strategies. Nations Restaurant News, 43(39), 1-38. York, E. (2009). FIVE GUYS. Advertising Age, 80(39), 28. DATAMONITOR: Five Guys Case Study. (2010). Five Guys Case Study: Maintaining Growth , in Fast Food with a Simple Menu & Quality Focus, 1-11. Weise, K. (2011). FIVE GUYS. Bloomberg Businessweek, (4242), 70-73. Cranage, D. & Hwang, J. (2010) Customer Health Perceptions of Selected Fast-Food Restaurants According to Their Nutritional Knowledge and Health Consciousness. Journal of Foodservice Business Research, V13, I.2, 68-84 Parnass, S. (2011).Economy Poll: From Lifestyles to Political Discontent, Economic Woes Still Take their Toll. ABC news, retrieved from: http://abcnews.go.com/blogs/politics/2011/07/from-lifestyles-to-political-discontent-economic-woes-still-take-their-toll/ Read More