Introduction
Large companies are interested in new markets where their products can be sold. The hospitality industry, including the restaurant business, is no exception. The Five Guys network of fast-food restaurants is world-famous, providing customers with high-quality products. In many countries, restaurants of this network operate on a franchising system. It is proposed to analyze the strategic opportunities for Five Guys to enter the Taiwan market to increase profits and expand the network.
Facts and Background
Five Guys Enterprises LLC, known as Five Guys, is an American fast-food restaurant chain that serves a regular chain menu to diners. The restaurant has a long history of quality customer service, with the first restaurant opening in 1986 in Virginia (Venancio and Goncalves, 2022). The business began as a chain of family cafes; Janie and Jerry Murrell established a recognizable business name after the couple’s five sons (Venancio and Goncalves, 2022). Five Guys is one of the fastest-growing fast-food restaurant businesses.
In the early 2000s, Five Guys first began operating under a franchise system. By 2016, the company had more than 1,700 restaurants worldwide, with more than 3,000 outlets in the project (Five Guys Press, 2019). The turn to franchising attracted the attention of investors and the press, fueling the chain’s growing popularity. Adequate management net allowed Five Guys not to stop work during the pandemic. Following McDonald’s, a restaurant chain has opened establishments with the possibility of buying food without leaving the car.
Strategic Position
Five Guys position itself as a youth-focused chain looking for high quality at a low price. Five Guys is explicitly targeted at the young population, as they are open to innovation. Millennials are a significant part of the consumer segment, it is easily accessible, but requires a new approach. Millennials are always looking for a higher value and willing to pay a little more to get a better service. The restaurant chain lives up to its values: freshness, quality, and openness of information about its product (Five Guys.com, 2022b). Five Guys uses fresh ingredients to provide diners with regular burgers and fries in a casual setting (Five Guys.com, 2022b). The brand policy is aimed at refusing to freeze products, which allows customers to receive meals from fresh vegetables, fruits and meat.
The Five Guys are developing rapidly and are trying to accumulate and use information about various national markets. The brand aims to preserve the most recognizable style of restaurants; they prefer a simple interior. Furniture in all restaurants is red, black and white, all rooms look laconic (Five Guys.com, 2022b). Five Guys sees its mission in achieving the highest quality products, with a focus on cleanliness and quality service (Five Guys.com, 2022a). The main consumer audience of the Five Guys is fast food lovers (Five Guys.com, 2022a). Restaurants do not provide options on the menu that would suit people who keep to a healthy diet or vegetarians.
Strengths and Weaknesses
The focus on the younger generation can be called the brand’s strength. Such a market segment attracts many undemanding visitors, for whom distinctiveness and originality are essential. The openness of the policy regarding suppliers and products is also an important point. Clients of any fast-food chain, and restaurants in principle, are demanding the quality of products; violation of this requirement can lead to reputation damage. In this area, the Five Guys’ strategic position is crystal clear.
The weaknesses of the strategic policy of the Five Guys include the lack of adaptability and the difficulties of franchising. Most of the chain’s restaurants, and all restaurants outside the US, are franchises (Five Guys.com, 2022b). The problem of quality control, as a result of clear support from the franchisor, is the leading one in this area (Chacko et al., 2022). Franchisees must establish business processes from scratch – this is long and expensive (Chacko et al., 2022). The franchisor wants to share experience and build a strong partner network. However, due to the lack of standards and clear support, they cannot train partners and control quality in the field, thereby worsening its reputation in the market. The problem of maladjustment costs the Five Guys the loss of a significant proportion of buyers. Focusing not only on fast food lovers but also on offering several healthy food items on the menu could provide a greater flow of customers.
Opportunities and Threats
Five Guys demonstrate sustainable strategic development even within the franchise network. That is why the brand has the opportunity to become successful in the market of a country like Taiwan. Thanks to the process of globalization, intercultural penetration has been occurring rapidly in recent decades. Despite Taiwan’s radical differences from Western culture, customers are willing to accept such distinctive Western features as fast-food. Street food is also popular in Taiwan, consequently, the Five Guys would not have difficulties with customer demand.
Significant opportunities are associated with great difficulties associated with the development of a particular market. To overcome this threat of failure, it is necessary to clearly study the characteristics of the market and the behavior of consumers in order to build a clear structure for the expansion of the international market. First of all, the difficulties in the international market are associated with the complexities of the functioning of the franchising system. It is difficult to control the quality of products when the company is not legally subordinate to the head office. However, operating under the brand name of a global restaurant company, where quality is not controlled enough, can ruin the reputation of the entire company.
The biggest threat to Five Guys is competition from other global fast-food chains. McDonald’s poses the greatest threat, as Taiwanese customers are already familiar with the chain. It can be difficult for Five Guys to compete in the same segment with a company that has a solid reputation in the country. The only way to deal with serious competition is either to offer a lower price, a higher quality, or a wider range of dishes.
Global Hospitality Markets
Hospitality can be defined in broad sense as an industry that focuses on providing consumers with the means to engage in leisure activities, whether hotel stays or meals. It covers many industries, the largest of which are accommodation, food, and beverage services (Lashley, 2018). The global hospitality industry market comprises three main segments: hotels, resorts, and tours (Davahli et al., 2020). There is a trend toward searching for authenticity and new experiences among tourists (UNWTO, 2022). This segment is valued based on revenue generated from the provision of tourism and business travel services.
The next segment includes recreation, sports, and entertainment places: fitness clubs, golf courses, and theme parks. This segment is valued based on income from membership fees, admission fees, and indoor fees. Finally, the third part is restaurants: cafes, bars, fast food eateries, and catering (Davis et al., 2018). This segment is valued based on profits generated from the retail sale of food and beverages. The global hospitality industry market has recorded moderate overall growth over the past few years (Davis et al., 2018). The restaurant segment turned out to be the most profitable of all these areas.
Hospitality Market Developing Direction of Fast-Food Restaurants
The accelerating pace of life and the lack of free time among the economically active segments of the population are one of the main reasons for the sharp growth of the fast-food market. In recent years, this structure has changed dramatically; the main impact on it was the pandemic. Naturally, there will be a reduction in establishments in the traditional format; the market cannot withstand the current conditions. Delivery and takeout are still at the top of demand, but interest in traditional establishments is slowly returning to pre-COVID levels (WTM, 2021). Consumers in this situation make a lot of demands on catering, the main of which is safety.
The main trends that the new fast-food market will focus on are related to healthy eating and new forms of service delivery. In the early 2000s, the global fast-food empire McDonald’s was on the verge of a severe crisis, its popularity among children was called one of the leading causes of childhood obesity (Langert, 2019). One of the main methods of overcoming the crisis was to add healthy food items to the menu. This trend will determine the development of fast-food in the future since the focus on healthy lifestyles currently has a powerful influence on the catering market. It is generally accepted that the primary target audience of fast food is young people. Children and adolescents have grown up, but the preferences have primarily remained; only the requirements have changed. Many of these demands stem from the first trend, a focus on healthy eating. As the age of the target groups increases, this becomes more and more relevant.
To increase the share of sales shortly, prominent players will be forced to enter small cities as well; there is a demand, and it cannot be ignored. It is also necessary to consider the growing popularity of suburban housing. There, it is worth waiting for the opening of new fast-food outlets. Traditional fast food, with its relatively limited menu, does not lose its popularity, but among consumers, the demand for variety has become increasingly significant recently. In addition, the format of the institutions themselves is changing. Suppose earlier fast-food attracted to itself with a restaurant format, with tables, and the opportunity to spend time while being indoors. From the point of view of the business itself, there is also an economic justification here: a low entry threshold, low rent, and no need to build capital buildings.
Market Developing Direction in Taiwan
The fast-food industry was originated in the West, and the national characteristics of an eastern country such as Taiwan could not but leave an imprint on it. The underlying factors for the growing popularity of fast-food chains in Taiwan may have been the affordability and uniqueness of the food provided. The first Western fast-food chain – McDonald’s – appeared in Taiwan in 1984, quickly gaining popularity (Chen et al., 2018). Western companies could face difficulties from Taiwanese law: the protection policy did not allow even local businesses to develop (Schumann, 2019). However, the government lifted the restriction under US political pressure.
After that, Western fast-food establishments became more and more popular in Taiwan. To solve problems caused by external constraints, franchising systems are the most commonly used solution for the restaurant business (Moon et al., 2021). Fast food chains had to adapt to the unique needs of Taiwanese consumers. For example, McDonald’s was forced to introduce rice dishes to the menu to comply with food habits (Chen et al., 2018). Significant owners of Western fast-food chains have noticed that the Taiwanese require less food, reducing portions and significantly saving.
PESTLE Analysis
PESTEL analysis estimates the company’s external environment and helps identify its opportunities and threats. The market became more complex, due to which new factors significant for business appeared. The PESTLE analysis suggests that firms take into account political, economic, socio-cultural, technological, environmental, and legal factors (Nurmi and Niemelä, 2018). Considering all these areas will allow the company to draw conclusions regarding the strategic development in a particular market.
Using the PESTEL form, it is possible to analyze what difficulties the hospitality industry, particularly the fast-food restaurant business, may face when entering the Taiwan market. The PESTEL data table is presented in Appendix 1. According to the table, the main difficulty can be associated with the legal base since the legislation of this country is quite strict. That is why most companies prefer to avoid difficulties and use a franchising strategy, transferring management to local offices. Technological development should not be an obstacle for fast food restaurants. Taiwan occupies one of the leading positions in the information and communication technology industry (Ministry of Foreign Affairs, 2019). Socio-culturally and ecologically, the country is fully adapted to accept part of the cultural environment of the West. Taiwan’s policy is quite western-oriented and is ready to adapt to the demands of the market. Regarding economic development, Taiwan is showing rapid growth and a desire to play a more serious role in the global market.
Porter’s 5 Forces
A schematic representation of the forces influencing business development is presented in Appendix 2. Business development, according to Porter, is influenced by purchasing power, suppliers, competitors – old and new, and substitute products (Jamaludin, 2021). These factors are rather external since the company cannot significantly influence them. One of the leading forces influencing the development of the hospitality industry, including fast-food restaurants, is the customers.
In the Taiwan market, customers are already accustomed to Western fast-food restaurants. The problem of supplies also does not threaten the restaurant business since the lines of communication are established and function perfectly. Substitute products do not pose a serious threat to fast food chains, as the chains offer a roughly generic menu. In the case of Five Guys, the chain offers hamburgers and fries like the other restaurants. The appearance of substitute products is unlikely not only in the Taiwanese market, but in the entire industry in general. The main threat posing a danger to the restaurant business is related to competition. First, large chains like McDonald’s, KFS, and Burger King already occupy a severe niche. The emergence of new chains, for example, with traditional Taiwanese cuisine, which will be more popular than well-known chains, is dangerous for Five Guys.
Market Growth Strategy for Five Guys Enterprises
Ansoff Martix
The schematic construction of Ansoff’s matrices is presented in Appendix 3. Igor Ansoff’s matrix is a model that describes possible strategies for a company’s growth in the market. The Ansoff matrix is beneficial for the process of strategic enterprise management (Desai, 2019). The matrix systematizes the available information about the market and the company’s product and helps to choose the right direction for business development, taking into account the available resources and capabilities of the enterprise (Kurniawan et al., 2020). The Ansoff Matrix can be used to determine the correct strategy for Five Guys to enter the Taiwanese market.
Based on the existing model, four growth strategies for the company can be identified. The first strategy is to penetrate the market; that is, growth will occur by increasing the share of an existing product market. The market development strategy suggests the company develop by entering a new market. The third strategy involves increasing profits by introducing a new product to the old market. Finally, companies can develop vigorously due to introducing a new product into a new market.
An existing market means a market in which the company has been operating for some time and has a particular experience and reputation. A new market is a market in which the company has no experience; it wants to enter this market to expand its business possibilities. A new product is a product that does not yet exist in the company’s product portfolio. An existing product is a product that exists in the company’s product portfolio and has a sales history. For Five Guys, it is proposed to follow a combination of 2 and 4 development strategies, that is, to enter a new market with a partially new product for the company.
A sustainable development path for the Five Guys by entering the new market of Taiwan is possible. It will be successful thanks to the franchising system, which the company has been dealing with for a long time and is operating steadily. It is also proposed to appear in a new market with a new product. It is not proposed to completely change the menu, as it is a hallmark of the company. The Five Guys might do better if they do not perform with only traditional menus but with traditional Taiwanese food. The strategy described is risky; however, success stories from other large fast-food chains in Taiwan show that customers are ready to accept the new chain.
Porter Generic Strategies
An image of Porter’s matrix reflecting competitive advantage strategies is presented in Appendix 4. The basis for the competitive advantage matrix was laid down by two parameters: the size of the market and the type of advantage (Islami et al., 2020). The market can be broad or narrow, and a company can achieve an advantage by offering either low cost, high quality, or product uniqueness. Based on this data, three strategies for business development can be derived: cost leadership, differentiation, and specialization (Islami et al., 2020). The differentiation strategy involves the creation of a unique product, cost leadership – low prices, and specialization- focusing on a narrow circle of consumers.
It is impossible to use only one business development strategy; it is supposed to cross paths to increase profits. The fast-food industry market is not narrow and specialized, especially when it comes to entering a new market. The Five Guys can either use a pricing advantage strategy or offer customers a unique product in their industry. The ideal strategy for entering the Taiwanese market is to mix these paths. On the one hand, the price must be competitive with such giants as McDonald’s and Burger King. Offering a lower price may involve risks of losing profits, but such a strategy will provide a significant competitive advantage. On the other hand, it is necessary to offer a unique product for the fast-food industry: for example, dishes of national Taiwanese cuisine.
Strategy Implementation and Moving Forward
Based on the analyzed data, it can be concluded that the Five Guys should move to the new Taiwan market. The company may face the difficulties of franchising and the complexities of internal politics. However, the main threat that can be realized when entering the Taiwanese market is competition. Fast food giants such as McDonald’s, Burger King, and KFS have been operating in the country for many years. The Five Guys must offer customers a unique product and a competitive price to attract customers.
These strategies do not imply rapid implementation since they require several steps. First of all, this concerns the formal component of entering a new market. A new franchise must be created for Five Guys to operate successfully in Taiwan. Since the product’s quality is fundamental to any restaurant’s operation, it is necessary to develop a clear strategy to control the freshness and compliance with the standards of products on the ground. After solving the formal side of the issues, it is necessary to analyze the purchasing behavior and the characteristics of the local cuisine. It is required to develop a product that meets the requirements of national Taiwanese cuisine but does not contradict the policies of the Five Guys. Finally, a location analysis is required to open the first restaurant. It should be located in a large settlement with good transport accessibility, but not next to other fast-food chains.
Conclusion
The development of the hospitality business is associated with a gradual entry into new markets. The Five Guys Company has long been operating on the international market under a franchising scheme. Taiwan can be called a strategically correct country for opening new fast-food outlets. Despite the benefits of increasing profits when entering a new market, such a strategy is fraught with risks. One risk in entering the Taiwanese market comes from competing with large fast-food chains that have been successfully operating in the country for a long time. Therefore, it is necessary to offer a new product to the new market, such as a Taiwanese national dish. In addition, the company must offer a competitive price to be effective in the new market.
Recommendation to Five Guys Enterprises
The general recommendations for Five Guys are formulated based on the specifics of the Taiwanese market, as well as the general characteristics of the hospitality industry, in particular, fast-food restaurants. The company must make significant decisions based on consumer approval analysis. The hospitality industry as a whole must rely predominantly on the desire to please customers through the provision of affordable prices and quality products.
Due to the growing popularity of a healthy lifestyle and respect for one’s health, the love for fast food among the population may decrease. At the moment, apart from traditional burgers and snacks, Five Guys does not offer alternatives that are consistent with healthy eating. Adding several low-calorie or vegetarian items to the menu will make them more adaptable to consumer demand. More customers were able to find a dish to their liking, while the introduction of 1-2 positions will not affect the overall concept of the restaurant.
The next step that the Five Guys should pay attention to is the age of the customers the products are aimed at. At the moment, the restaurant chain is focused on the younger generation of fast-food lovers, but the organization will gain an advantage if it attracts buyers of mature age. It is necessary to change the concept in which fast food is considered food exclusively for young people; with the destruction of the stereotype, the company will only become more popular.
Finally, it is necessary to introduce a specific restaurant menu for the Taiwanese market. First of all, buyers will focus on a familiar dish while having a chance to try a new one. Such a strategy will attract young people who are open to change and older conservatives. So, for example, one of the traditional Taiwanese dishes – fried tofu pieces – can also be part of a menu item that meets vegetarian requests. There is always a need to adapt products to national markets, and the strategy is successfully proving its effectiveness. By making small changes to the menu, the company can achieve a buyer’s favor and consequently increase profits.
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Appendices
Appendix 1
PESTLE Analysis
Appendix 2
Porter’s 5 Forces
Appendix 3
Ansoff Matrix
