Organizations operate in an environment that is highly uncertain and that is largely beyond their control. Environmental analysis not only feeds the marketing process but is the backbone of any planning process of an organization (Comeford and Callaghan , nd). For any organization to have successful business strategies it is imperative for the external environment to be analyzed. This paper will therefore explore the environmental factors that affect the business operations of the California Pizza Chicken-USA, hereinafter referred to as the CPK. To conduct the external environmental analysis the paper will explore the macro- environment (PEST analysis) and the micro-environment (Porters five forces). The acronym PEST in the former analysis stands for political, economic, social and technological factors and will be an exploration of the macro environmental factors that affect the CPK. Porter’s five forces (analyzing the microenvironment) will be an analysis of the food industry in which CPK operates. The latter analysis will explore the bargaining power of customers, the bargaining power of suppliers, the threat of new entrants, threat of substitute of products and the competitive rivalry in the industry. Secondary data will be obtained from periodicals, newspapers, books and journals among other secondary sources. After the data has been analyzed and the respective analysis conducted, a conclusion on the general external environment in which the CPK-USA operates will be made.
This paper will explore the environmental factors that affect the business operations of the CPK. To conduct the external environmental analysis the paper will explore the macro- environment (PEST analysis) and the micro-environment (Porters five forces). Review of available literature on the CPK will b used to identify and analyze the said environmental factors.
1.0 PEST Analysis
The PEST analysis also referred to as the PESTLE analysis will look at the external business environment and particularly the macro- environment in which CPK-USA operates. As explored above PEST is an acronym for political, economic, social and technological factors that impact on business operations. As the synonym implies the analysis sometimes includes environmental and legal factors but these factors will be subsumed in the other factors in this particular analysis. The analysis will therefore examine the impact of each factor and their interplay on each other on the California pizza kitchen. It is worth noting that the results of the PEST analysis can be essential not only to the CPK but to many businesses in making contingency plans for threats and also for drawing strategic plans.
1.1 Political Factors
The political and legal arena has a huge influence on the business regulations and also on consumer spending. The American political environment thrives on the wheels of stability and as such legal factors have a higher impact on CPK. The operations of the CPK are governed by various federal and state laws and are subject to regulations on sanitation, fire, local health and safety. Expansion of the CPK chain is also governed by environmental regulations like applicable zoning. The CPK is subject to local, state and federal taxes. In accordance with labor laws, minimum wages and mandated health benefits are followed by the company. It is worth noting that just like many restaurants in California the CPK has seen a rise in purported class action suits which have adverse effects that impact on the company’s profitability.
1.2 Economic Factors
Economic factors determine the profitability of a company because they affect the demand of products and also the availability of capital. The late part of the last decade and early this decade is a period in which the American economy has suffered greatly from the effects of recession. The restaurant industry is highly sensitive to economic changes and the recession has affected consumer buying of the CPK products. Some of these economic factors include unemployment, recessionary economic cycles, increase in commodity price and higher tax rates just to name a few. Additionally the recent financial market turmoil had adverse effects on consumer spending patterns of the CPK products. These conditions have the potential of reducing the customer traffic or limiting the company of its profit margins by regulating what it charges for commodities. Higher costs like fuel costs inflate CPK’s cost of sales adversely affecting the company’s financial condition.
1.3 Social Factors
America is a melting pot of diversity and its culture impacts strongly on the restaurant industry and more so the CPK. The menu at CPK which includes pizzas like the BBQ chicken pizza and Thai chicken pizza is designed to satisfy customers who seek a diverse range of pizzas just like the culture. Many Americans are between 15-64 years with a growth rate of 0.97% and a literacy rate of 99%. The country has a market oriented economy and as such individuals make decisions on products they want to purchase.
1.4 Technological Factors
Technology is a chief driver of getting a competitive edge especially in the restaurant industry which is shrouded with competition. Technology- management information system used by the CPK has improved operating efficiencies and it made easier to produce timely quality products. Systems used in American restaurants provide more innovative products like the point of sale system. Additionally distribution has changed with online customer ordering being a common feature in restaurants. Technology has also offered American restaurants like the CPK new ways of communicating with customers for instance CPK has a system where customers customize menu items as desired.
2.0 Porter Five Forces Analysis
In analyzing the micro-environment, Porter identified five forces which impact on the organization in regards to competition in the market (McKinney , 2008). The five factors that will be analyzed below are the bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threat of substitutes and the competitive rivalry in the restaurant industry. Herein the factors will be analyzed to explore the external environment that impacts on the business operations of the CPK.
2.1 Bargaining Power of Suppliers
Suppliers especially of differentiated products herald a certain power as they can charge whatever price they like. However in the restaurant industry there is a wide array of suppliers. In America there is a sea of suppliers of pizza products and this is just a tip of the iceberg. For decades now, CPK has prided itself in selling ‘innovative high quality pizzas’. Due to this mantra the choice of suppliers to CPK is more limited. Additionally, in the economy stability is key and suppliers who inflate prices lose business (Laperriere, 2010). Supplier power is also low because CPK only opens branches in locations which have satisfied their demographic requirements
2.2 Bargaining Power of Customers
The demand of a product depends on the customer’s willingness to pay and as such buyers’ herald great power in the restaurant industry.CPK has a unique menu and thrives on the niche it has established for itself. For example Domino Memphis offers BBQ chicken pizza but it lacks Gouda cheese and fresh cilantro provided by the CPK. Buyers’ power is therefore medium because although they may switch to a competitor maybe for cheaper products, the unique taste of CPK’s products will not be available.
2.3 Threat of New entrants
This is quite high because there are no technological barriers and often capital is the only restraint for new entrants.
2.4 Threat of substitute Products
This is low because CPK is termed as the creator of premium pizza a fact that cannot be eliminated by substitution only. By virtue of their brand name being widely recognized this is not such a threat because consumers opt for well recognized brands.
2.5 Intensity of competitive Rivalry in the Hotel Industry
There are numerous competitors for example Domino’s. Pizza hut and Papa John but CPK is distinguished from the competitors by its unique menu/premium products (Hoovers.com, 2010). Most of these competitors thrive on quantity rather than quality sales. Irrespective of intense competition it is difficult to rival CPK which has exclusive locations, hotel layout, wide selection and superior combination of ingredients.
CPK has a number of threats like competitors, legal factors and consumer power but its opportunities are cemented in its exclusivity and provision of premium products.
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Hoovers.com. (2010, October 11). Carlifornia Pizza Kitchen, Inc. Competitors. Retrieved February 4, 2011, from Hoovers.com: http://www.hoovers.com/company/Calirfornia Pizza Kitchen Inc/ckjjsi-1-1njea3.html
Laperriere, J. (2010, October 6). California Pizza Kitchen: Porter’s 5 Forces and PEST Analysis. Retrieved February 4, 2011, from Scribd.com: http://www.scribd.com/doc/45614464/summer-2010-MGT599-Mod2-case Laperriere.j
McKinney, R. (2008, September 17). Analyzing Attractiveness of an Industry. Retrieved February 4, 2011, from tmg-smc.com: http://www.tmg-smc.com/Articlles/Porter%27s-Five-Forces