External Environmental Analysis Essay Example

dining out, contributing to fierce competition in the industry from well-established restaurants nationwide. Therefore, during this period of financial strain, California Pizza Kitchen should prioritize differentiating its offerings rather than expanding further to maintain its current position. This paper aims to analyze California Pizza Kitchen's external environment strategically by conducting a PEST analysis that uncovers various opportunities and threats related to diverse factors affecting the company. Both Value Based Management (2009) analysis of political, economic, social, and technological factors and Henry's (2008) Five Forces analysis will be employed in achieving this goal.

California Pizza Kitchen is subject to various political regulations and licensing requirements related to health, hygiene, security, fire standards, and food and liquor. The company must comply with a range of federal and state laws governing construction, franchising, employee affairs, and the environment. Despite these regulations, the company has not suffered any negative impacts or capital expenses (California Pizza Kitchen Website, 2009).

The company faces economic risks due to various factors such as reduced consumer spending resulting from the current economic crisis and turbulent financial markets. Additionally, potential food and supply cost increases stemming from inflation and governmental policies could negatively impact its operations. With 88 restaurants in California alone, California Pizza Kitchen is particularly vulnerable to unfavorable economic conditions in California. The company must meet various criteria regarding creditworthiness and existing credit facilities while also considering additional financing options. Changes in franchising and licensing partners can impact profits and royalties earned by the company as well.

The 2009 annual report of California Pizza Kitchen reveals that the company is encountering obstacles in carrying out its expansion strategies because of the prevailing economic situation. Moreover,

the casual and cozy setting of the eatery complements its selection of pizzas, pastas, salads, and other menu items.

California Pizza Kitchen's success stems from being the first pizza restaurant to provide fresh and unconventional pizza ingredients. Even though American consumers have typically been less aware of nutrition when dining out, this business model aligns with regional consumer preferences. However, evolving tastes and an increased understanding of health concerns may affect these preferences (California Pizza Kitchen 2009 Annual Report). In terms of technology, the restaurant industry has made progress in areas such as point-of-sale systems, employee scheduling and management, inventory analysis, online ordering, and sales performance reporting. These tools allow for effective operations management and a competitive edge (Bensoussan, B.).

E. and Fleisher (2008) report that California Pizza Kitchen effectively employs the latest technological advances and constantly evaluates and upgrades them to remain competitive. Additionally, a Five Forces Analysis is an assessment of the competitive landscape for the company.

Grant (2005) identifies five forces that challenge firms: bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threat of substitutes, and competition among existing rivals. Regarding bargaining power of suppliers, Allen (2001) notes that it is quite low as supplies are widely available and lack differentiation. The threat of new entrants is also quite high, as barriers to entry in the restaurant industry are not too high but the failure rate for new restaurants is significant, especially during tough economic times. Capital requirements for starting a restaurant business vary depending on the region.

The Bargaining Power of Buyers at California Pizza Kitchen is of concern, as they have the ability to switch to a competing restaurant if

prices rise due to factors such as economic changes or a decrease in trust. In the past, consumers were willing to pay higher prices due to ambience and trust. The Threat of Substitutes is moderate, with the possibility of consumers switching to home-cooked meals during tough financial times. Additionally, there is a threat of frozen pizza, which California Pizza Kitchen has addressed by entering into a contract with Kraft Pizza Company in 1997, as stated in their 2009 Annual Report.