Report on Strategic Analysis of New Zealand and its Economy

Executive Summary of Strategic Analysis of New Zealand and its Econmy

New Zealand is a developed country that has decent economic growth with agriculture being the major industry. The country also relies on tourism and food industry for its economic stability. Moreover, New Zealand is home to the people, who are highly obsessed with fast food, which has caused the fast food industry to grow substantially and become a $3 billion industry. Therefore, IN-N-OUT Burger is also planning to expand its operations to New Zealand to exploit the high market potential. The country has a very stable economic and political environment that enhances the business environment of the country. Moreover, the fair and equal legal system of the country provides the safety of capital and resources to the firms. However, the country has strict policies of environment and food safety that must be complied with by the fast-food firm. Also, the outbreak of COVID-19 has further made people and government cautious of food they consume. Thus, the challenges have increased for the fast-food companies. Besides, New Zealand offers a high volume of supplier of material for the fast-food companies, which increases the bargaining power of the fast-food chains. Also, the cost of entry and the threat of substitution is moderate in the country for fast-food firms. However, the competitive landscape and high bargaining power of the consumers are a substantial challenge for the new entrants like IN-N-OUT Burger. Nonetheless, the market potential and opportunities are high for IN-N-OUT Burger to expand its operations to New Zealand. The challenges of current pandemic and high competition can be mitigated effectively by planning and implementing an efficient expansion strategy.

 Table of Contents

The fast-food industry has been growing at a substantial rate for the last five years in New Zealand. The trend of fast food consumption has been increasing among the locals, especially in Wellington, Auckland, and Christchurch. According to a report by IBISWorld (2020), it was observed that the fast-food sales of these three major cities amount up to about $1 billion. Therefore, this is a testimony to the increasing interest of the people in fast foods. Additionally, 2700 new businesses opened up in the country in the hospitality industry that also offered fast food to its customers. However, the current pandemic of COVID-19 is the greatest challenge for the fast-food industry as businesses are locked down and fear among the people, has wiped out sales majorly. Therefore, this report carries out a detailed analysis of the fast-food industry of New Zealand concerning IN-N-OUT Burger. IN-N-OUT Burger is a fast-food restaurant company that is based primarily in America, with about 350 global outlets (IBISWorld, 2020). The firm is looking to expand to New Zealand, for which macro-environmental analysis is performed using PESTEL, along with competitive analysis, using Porter’s five forces. The report also makes crucial recommendations for the burger joint to expand its operations successfully to New Zealand.

This IN-N-OUT Burger is an American Regional fast food chain, after getting famous it started opening its chain in different areas of the world and among which New Zealand is the one. For the very first time it was being founded in 1948 in California. The industry of this IN-N-OUT Burger fast food chain is really big in United States but with the passage of time it has also opened its branch in Auckland, New Zealand. There is no doubt in it that the industry if this food chain is very big in USA as compared to the other countries but still they are expanding their branches with the passage of time. This IN-N-OUT Burger chain is not among the consolidated Industry but it is a Fragmented Industry.

The key drivers for this IN-N-OUT Burger food chain are:

Quality of food they provide to their customers. They have a unique and different flavour as compared to the other fast food chains. They also have a secret menu with some of the twists on some of their traditional items. All ingredients that are being delivered to this IN-N-OUT Burger shop are fresh.

The other factor is they sale their burgers by keeping care of the store cleanliness and the best services to their customers. They provide more benefits to their employees as compared to the other competitors. They keep their outlets clean all the time and the staff of this IN-N-OUT industry is really cooperative.

Last factor that I have found about this burger industry is that they are not expensive at all. They provide full meals in a very economical rate that everyone can enjoy and afford.

This IN-N-OUT Burger is competing with Whataburger, in terms of the market share the transactions are 42% among all while the transaction of IN-N-OUT Burger is comparatively less that is 26% and it is also being followed by the Five Guys that us 12% There are some of the key issues that are being found in this fast food chain are that how it is going to establish its line of succession in leading along with controlling all of the operations without getting franchised.

2           Macro-Environmental Analysis (PESTEL)
2.1         Political of Strategic Analysis of New Zealand and its Econmy

New Zealand enjoys one of the most stable political landscape in the world. With a democratic form of government, the country’s matters are controlled by a democratically elected parliament. Besides, the country is a constitutional monarchy as Queen Elizabeth II is the Queen of New Zealand (Commonwealth, 2020). The Queen appoints a governor-general for the country; however, most of the powers lie with the Prime Minister. The country has a peaceful political environment with very low rates of corruption, which makes it easier for businesses to operate. The fast-food industry of New Zealand, like other businesses, is free from political influence that makes it easier for fast food companies to operate. The government of New Zealand is working more to promote and ease the business environment to attract foreign investors and firms. Thus, keeping in view the political structure of the country, low corruption rates, and significant ease of doing business makes New Zealand an attractive location for IN-N-OUT Burger. Some other points related to this political point of view are for this IN-N-OUT Burger chain are:

Regional regulation for training the staff of New Zealand before they start to work at the restaurants on all aspects of the food quality along with the food safety and hygiene as well.

Handling of food properly.

Staff needs to wear the special aprons and caps that have a specific colour and sign on it to look all similar and maintain the hygiene.

In some of the countries among which New Zealand is the one that has a legislation against the obesity of child, the government campaigned to the young children to reverse out the trends for obesity by eating healthy food.

2.2         Economic of New Zealand

New Zealand is a developed economy with a GDP of $205 billion, ranking 51st in the global ranking (Britannica, 2020). In addition to this, the country is a free-market economy without high governmental influence on economic matters. Thus, the economy is ideal for the businesses as they have high liberty to trade and operate in the country. As of 2018, New Zealand has a GDP growth of 2.6%, with agriculture industry making the major portion of the GDP (IBISWorld, 2020). Also, industries like forestry, horticulture, mining, food and beverage, and tourism are growing rapidly in the country. The trend of dining out and going to cafes is prevalent in New Zealand, and a total of $5.6 billion were gathered in revenue by the restaurants and cafes. The fast-food industry enjoys a significant economic benefit as the cost of raw material is low, and the sales potential is high, which makes increases the profitability of the business in the country. However, the pandemic of COVID-9 has significantly harmed the economy of the country as various economic activities have closed down, leading to a decrease in sales of the fast-food industry. Hence, there is high economic potential for IN-N-OUT Burger in New Zealand, but the market been adversely affected by the pandemic. 

2.3         Social of Strategic Analysis of New Zealand and its Economy

New Zealand is a harmonious nation with a population of 4.7 million. The country is culturally diverse, with very low racism (Britannica, 2020). However, the recent events of Christchurch shooting on the Muslims was a shock for the country, which raised fear among the minorities. Nevertheless, the Kiwis has shown great love and affection for other social groups, and 88% of them believe that it is good to have a culturally diverse society. In addition, there is no official religion of the country; however, the majority of the population practices Christianity. Although there are not religious problems in the country, problems like thefts, drugs, long working hours, and low incomes are affecting society. These challenges are making it difficult for the country to cope up with the increasing gap between rich and poor, which is creating a complex social structure and causing crimes to increase. The fast-food industry is also affected by these issues as low-income families are unable to afford fast foods as easily as rich people. However, the Kiwis have a high obsession for fast-foods, which is a substantial opportunity for the fast-food industry. Furthermore, the recent global outbreak of coronavirus has incited fear among the people, who have become highly cautious about hygiene (FAO, 2020). Therefore, the consumers of fast food are urging fast-food companies to raise their quality standards and follow improved hygienic activities to ensure the safety of food and its consumers. Hence, the social environment of the country is a threat to IN-N-OUT Burger that is slightly costlier than McDonald’s.  

2.4         Technology of New Zealand

Technology in New Zealand has been growing very rapidly as the country has a highly developed technological infrastructure. The IT sector has high potential and is creating several jobs for the locals. The government of New Zealand is planning to make the IT sector the second largest industry of the country by 2025 (Britannica, 2020). Therefore, the government is promoting the use of technology in businesses. The fast-food industry is also benefiting from the advanced technological infrastructure as several of the processes like packaging, food labelling, and some part of food production have been automated. Moreover, technology making it easier for the fast-food industry to market their products cost-effectively. Therefore, IN-N-OUT Burger has a chance to make a robust entry into the market by implementing an effective marketing strategy. Also, the American burger joint has the opportunity to take advantage of the developed technological infrastructure to capture the market in New Zealand.  

2.5         Environmental of New Zealand

New Zealand’s landscape contains mountains and excessive natural vegetation along with multiple beaches. Therefore, the country is a popular holiday destination for tourists. To protect the environment, various rule and regulations have been imposed by the country. Amongst these rules, the Food Act of 2014 is the most critical law for food businesses that bounds them to operate sustainably without endangering the environment and ensuring the safety of food (Business, 2020). The government has urged upon the businesses to ensure proper disposal of waste and minimize the use of non-biodegradable packing like plastics. Thus, the strict laws of the environment add to the operational costs of the businesses as high-quality procedures have to be maintained. Hence, the environment of the country is little challenging for IN-N-OUT Burger as being a fast-food company, use of plastics is common.   

2.6         Legal of New Zealand

The legal system of New Zealand is fair and provides justice to all the businesses. There is no bias and unfair practices in the law, which provides support to all the businesses and investors by assuring the safety of their interests. The legal act of the New Zealand food safety system get to extend from the “farm to fork” this covers all of the food and beverages for the consumption of human along with the different other foods for different group as well. They develop and regulate the food standards and try to implement them as well. They control the products tightly that can be used in the agriculture. The IN-N-OUT Burger food chain also works on maintain the hygiene system of their outlet along with maintaining the cleanliness and quality of the products which they use. They also satisfy the customer needs as much as possible. Moreover, the Food Act of 2014 is a legal bounding for all the fast-food companies to follow, which requires them to register their business with the government (Business, 2020). The fast-food chains are liable to pay taxes to the government, which mainly includes the income tax. However, as a health concern for its citizens, the government is planning to add more taxes to this industry to reduce the trend of fast food consumption. Additionally, the labour and employment laws of the country have set the minimum wage to be $17.70 per hour (Business, 2020). Thus, every business is required to follow this law to ensure unhindered operations. Also, the recent pandemic of COVID-19 has forced the global food authorities like FAO as well as New Zealand Food Authority to impose enhanced food safety guidelines and policies (FAO, 2020). These policies demand the food companies ensure the safety of food during all the procedures so that its contamination can be avoided and the spread of the disease can be halted. Therefore, the legal infrastructure has become a considerable threat for the fast-food companies, and IN-N-OUT Burger will have to adapt to the changed global atmosphere after the current outbreak ends.

3           Competitive Analysis (Porter’s Five Forces)
3.1         Competitive Rivalry of New Zealand

The fast-food industry of New Zealand has a large number of market players with brands like McDonald’s, KFC, and Dominos. McDonald’s and KFC have multiple outlets in the country with one branch for every 27000 and 41,000 Kiwis, respectively. Thus, the fast-food industry is growing rapidly due to high demand by the locals and a large number of companies offering their services. According to IBISWorld (2020), there are about 6810 fast food businesses in New Zealand that offer a tough competition to the new entrants. Thus, there is substantial price competition in the market among the fast-food companies that are implementing price reduction strategies to capture the market. Hence, the competitive rivalry force is high in the New Zealand fast food industry. 

3.2         Threat of the Substitute Products or the Services

Presence of the substitute products along with the services makes an environment competitive much challenging for the IN-N-OUT Burger along with other present players as well. There are different high substitute threats which shows the customers can use other alternative products or the services from different other industries to meet all of the demands. Cheaper substitute products or services available from different other industries. All of the substitute product offers the same or even the superior quality of performance as is being offered by the IN-N-OUT Burger products. This franchise can easily reduce down the threat of substitute for the different products or services clearly by showing how products are different from other available substitutes. It can also raise the switching cost through working on the loyalty. Last thing is that it can improve the quality and maximise the value for money. (Eyles et al., 2018).

3.3         Buyer Power of New Zealand

Consumers are one of the major stakeholder and most important stakeholder of fast-food businesses. The fast-food companies need to satisfy the needs and interests of the buyers to maintain their loyalty towards the brand (Jani et al., 2018). A large number of operating fast-food chains in New Zealand provide consumers with multiple options for fast food. Therefore, the buyers can choose the products based on the tastes, services, and price provided by each of the brands. Additionally, the buyers of fast food enjoy the propensity to switch between different brands of fast foods, without any switching cost (Eyles et al., 2018). Thus, the force of buyer power is high in the fast-food industry of New Zealand as consumers have the liberty to choose the products based on their level of satisfaction and price compatibility.

3.4         Threat of Substitution of New Zealand

The focus of the people in New Zealand has been growing on the use of healthy and organic food as obesity is on the rise in New Zealand. The government is also pressing hard on people to avoid high consumption of fast food and adopt the use of healthy food products. Therefore, there is a considerable level of threat to fast foods to be replaced by food prepared at home. Additionally, organic food products are a big threat to fast foods, which are healthier for people (Vandevijvere et al., 2019). However, still, the fast-food industry saw a yearly rise in demand for fast foods, which shows that fast foods are the major interest of the Kiwis. Therefore, the threat of substitution for fast foods is moderate in New Zealand.

3.5         Threat of New Entry of New Zealand

The fast-food industry of New Zealand provides easy and cheap availability of the resources as the suppliers are high in number. Moreover, the labour cost of the country is also moderate, that reduces the operational costs of the firms. Thus, the new entrants can run their business cost-effectively in New Zealand. However, the initial requirements of capital to set up the operations, buy property and equipment, and market the brand, is high (Jani et al., 2018). Therefore, the new entrants have to invest a substantial amount of capital in initiating their operations in the country. Furthermore, the highly competitive environment of the fast-food industry with major market captured by KFC, McDonald’s, and Dominos, make it difficult for the new entrants to gain success in New Zealand (Eyles et al., 2018). Therefore, the threat of new entrant is moderate in the fast-food industry of the country.   

4           Conclusion of New Zealand

In the end, it can be concluded that the fast-food industry of New Zealand has high potential due to the high obsession of people with fast foods. The economic and political environment of the country is stable that provides safety for the firms to expand their operations in New Zealand. Moreover, the country is also socially decent, and racism is minimal, which allows foreign brands to operate in the market. However, the recent pandemic of COVID-19 has made the people highly cautious of the food substances and are demanding high safety and hygiene practices by the fast-food chains. Also, the government is forcing the food industry to ensure that every process is hygienic as no criminal negligence will be tolerated. Thus, the outbreak of the disease has become a challenge for fast-food firms. Moreover, the country has low supplier power, which provides the firms with an opportunity to of buying at low prices. However, the country has high competition and high bargaining power of the consumers, which makes it challenging for the fast-food firms to maintain and expand their market position. Thus, based on the analysis, it can be stated that New Zealand is a high potential market for IN-N-OUT Burger with few challenges, which can be handled with an effective planning and expansion strategy.