Global Franchising Operations Management: A Case Study Of Guzman Y Gomez Essay.

Question:

Discuss About The Global Franchising Operations Management?

Guzman Y Gomez is a restaurant chain operating in Australia. The restaurant chain specializes in foods such as nachos, quesadillas, burritos and other traditional dishes. The model of the business is a franchise and it has more than 64 stores operating in Australia. The franchises also operate several outlets in Singapore and some in Japan. The company has an aggressive expansion strategy that has helped the company to expand in Australia over the years and also outside Australia. The first outlet was opened in the year 2006 in Newton, Sydney. Within a year of opening the first restaurant, two more followed closely with Bondi Junction and the Kings Cross branches opening. The first Guzman and Gomez branch in Melbourne was opened in the year 2012.The businesses strategic plan is to expand to all the major urban areas in Australia while at the same time expanding internationally. The local market has a lot of potential for growth and therefore, the company is dedicated to committing its resources to enable expand. The aim of the expansion plan is to help increase the profit margins while at the same time growing their brand name. The company has five restaurants in Singapore which are performing extremely well. The restaurants are gaining a lot of customers in Singapore due to their specialization in Tex-Mex dishes. The business began with 15 staff in its Newtown and currently, it has more than 100 staff. The initial investment by the company was about $450,000. Currently, the business has annual revenues in excess of $4 million (Perritt, Henry 2016). This case study analyzes the history of the company, the ownership model and the strategies that the business has employed to become successful in the market. The case study report also identifies the

In its expansion plan. The business needs to put into consideration the various factors that could have an impact on the business. The first idea is the changing in the form of business to make it a franchise. The factors such as the effect on the ownership forms and the financing method need to be discussed before making important financing decisions. Currently, Guzman and Gomez have been the fastest growing brand in Australia for the past one year. The restaurant serves Mexican food and it has an eye for good customer relationship and service. The literature review evaluates the mission and vision of Guzman and Gomez. The mission of the company is to become a global leading restaurant chain specializing in Mexican dishes. The vision of GYG is to expand and reach customers both locally and abroad while fulfilling the needs of consumers and giving customers value for their money. The literature review also signifies the importance of specialization in the growth of Guzman. The company’s specialization in the Mexican dishes has helped GYG to cut a niche for itself in the competitive restaurant chain.

Expansion Plan

The case study mainly focuses on the companies` expansion plans. The study analyzes the core factors that are important for the company to expand successfully. These factors are the potential of the new market, the marketing mix of the company, communication plan, promotion strategies and the resources available to finance the expansion. The management of the company intends to expand the company because of the increased demand it has witnessed from customers. The ability of the company to meet the needs of the customers has endeared it to many customers in different locations in Australia. The standards of service at the Guzman Y Gomez also make it an attractive restaurant for many customers who love Mexican dishes. Due to this demand, the ownership of the company saw it fit to adopt the franchise model in order to help reach the unexploited market. Failure to exploit this market may lead to competitors taking advantage of the gap and hence the company will lose an important investment opportunity. The franchisee model will allow a new strategic investor to inject capital into the business in exchange for a share of the company. The new capital will be used to open new branches for the company and hence reaching more customers and making the brand more popular.

The management of the restaurant believes that there are two kinds of customers. The first type of customer is the one who prefers fresh guacamole and the second one is wrong (Ritzer, 2011). The restaurant aims at offering customers fresh food and of the best quality without compromising anything. This has been important in retaining existing customers and in attracting new customers.

The literature review also explains the benefits of expanding the Guzman and Gomez. The main purpose of franchising the business is to help expand the geographical coverage of the company. The franchising is meant to help the company open many more branches in various locations locally and abroad. The expansion will also help the company to hire new personnel and hire more facilities to open up new branches. The other importance of expanding the business is that the business to increase its customer base. The increase in the number of customers will help the company to increase its sales volumes. This, in turn, will help to increase profits for the company. The expansion of Guzman and Gomez will help the company to expand its brand to other countries and the brand value of hence the company will become more valuable. The literature review also explains that the transformation of the business will give the company a solid financial base. This is important in ensuring the business improves standards and maintains a good liquidity position. The financial muscle will be useful in helping the company to take advantage of new opportunities that may arise (Plunkett, 2017). The relocation of the business to foreign countries will help the company to tap into the markets especially in South East Asia where the Mexican dishes may be popular. The literature review does not adequately address the costs that the expansion will incur to the business. The literature review in this section only discusses the positives that will come as a result of this expansion and fails to explain the disadvantages that may come as a result of the franchise.

Literature Review

Guzman and Gomez need to analyze and weigh the decision to expand the business using franchising model. In order to evaluate this decision, it is important to use the business expansion strategies. These strategies aid in assessing the impact of each of the factors that may have an impact on the business. The strategies will help Guzman Y Gomez to access the risks that exist in this business. The strategies also help to identify the trends in this industry. In addition to these, the expansion strategies will aid the company in assessing the policies and legislation that are significant for this business to open new branches in other countries (Plunkett, 2007). Franchise agreements need to be carefully analyzed in order to help the owners get the best deal out of negotiations. Expansion of the business regionally poses a big challenge to the management since it requires a lot of dedication and traveling to ensure that the new branches are keeping up with the standards set by the company (Allen & Albala, 2007)

The understanding of foreign markets may need Guzman Y Gomez to reach an agreement with partners who will help to make the operations of the company in the foreign countries. The policies and industry trends for Thailand, for instance, are not the same as those of Australia. It is therefore crucially important for Guzman Y Gomez to understand the complexities and the trends in the new country it is starting operations. This has to start with the company authorizing a market research to be carried out. The market research shall focus on the food and restaurant industry in general. This is important to help the company gain insight on the entire industry and understand know the competitors.

Another study should be initiated with the aim of understanding the needs, tastes, and preferences of consumers. The consumers are becoming more and more complicated and therefore before venturing into the new market, it is important for the business to understand the consumer. The new markets may not be so much into Mexican dishes and therefore, It is very important for the business to understand what the consumer in the new market prefers. This will help the restaurant chain to offer services and products that are suitable for this market. To understand the legal requirements and handles in expanding to new countries, the restaurant chain needs to identify a legal company to help it in acquiring the right documentation to help start the business (Mcmurray & clendon, 2011).

Business Expansion Strategies

In its expansion efforts, Guzman Y Gomez needs to identify ensure that they have ample supply of raw materials. The restaurant needs to identify potential suppliers who will supply them with the materials that are needed to start the business. For the sake of quality and standards, it is very crucial for the company to contract farmers who will be able to farm to and sell to the company at an agreed. The contracted farmer's agreement can be very helpful for the Guzman Y Gomez since it will help the company to ensure a constant supply of raw materials and hence assuring a constant supply of meals to the customer. Lacking reliable suppliers for the hotel industry can be very disastrous since it will result in a situation where the supply is less than the demand.(Chan &Zakkour, 2014 )At the end of the day, customers will go back home dissatisfied and disappointed since they will not have fulfilled their needs. When this continues for a while, customers will run away and buy from other restaurants. The loss of customer loyalty leads to loss of revenue for the company and reduction of sales.  This will also hurt the image and brand name of the company. The absence of a proper agreement with the suppliers who in this case are the farmers of farm produce required to prepare this meals may lead to a decline in the standards set by Guzman Y Gomez. The quality of the farm produce supplied may be poor and this may scare away customers and therefore the company will end up losing a lot of revenue.

The literature review also discusses the benefits and reasons why Guzman Y Gomez is choosing the franchising model over other models that would have helped the company achieve its expansion plans. The author argues that the franchising model is the safest of all the options available. He argues that the model is free from any potential risks. Franchising model has benefits to both sellers and to the buyers of the franchise. The franchiser mainly benefits by getting financial assistance from another person, the franchise. Through this funding, the franchiser is able to expand his/her business and therefore increase their returns. The franchise model will also enable the company to initiate new training and employee development scheme. This will help to improve customer service and efficiency of employees. The selling power of Guzman Y Gomez will also be enhanced through the franchising agreement. The agreement will help to provide extra funds which can be used to market the brand name of the restaurant and the business. This, in turn, results in increased customers hence increase in sales. Some of the most successful franchising enterprises include McDonald`s and Panera Bread.(Alon,2012) Both of these companies operate in the fast food and restaurant industry.

 One of the disadvantages of the models is that it requires the company to use colors of the company it has entered into an agreement with. This means that the Independence of the brand will be interfered with and this may confuse customers. The franchising model will interfere with the profit and loss sharing margins. Even thou the franchise will help to grow the franchiser's business, the franchise needs to recover the invested money and this can only happen by them gaining a substantial portion of the profits generated over the years(Gagnon &Gagnon, 2011). Another major shortcoming that is associated with the franchising model is that the franchise has the power to make decisions and is involved in the management of the business. In a case where the visions and ideas of the franchiser and the franchisee are not in line, the company may be mismanaged and this may lead to failure of the business. It is therefore very important for both parties to be in agreement to understand the goals and objectives of one another in order to prevent failure of the business.

There exist various different models of franchises for restaurant chains. These models include the fast casual, fast food and full service. The fast food model is also known as quick service restaurants which do not specialize in table service. Fast-casual is considered to be on between the full restaurant and the fast food restaurant and it may include cafes` and take-away hotels. The third model is the full service. These usually offer a complete selection of menus and also offer table service. The Guzman Y Gomez is under the full-service model where customers have to make choices on the dishes and also have table service.

The expansion of Guzman Y Gomez will also be very appropriate through the franchise model since the model will give the franchiser to focus on products and research on the market and hence help to meet the needs of the customers better. The ownership of the restaurant chain does not change and therefore, the franchiser will remain motivated to become successful and to increase the profit margins. It is advantageous for Guzman Y Gomez to seek a franchise since the franchisees will help the business to expand at a fast rate. The fast expansion of the business leads to an increased customer base and increased revenues (Perritt & Henry, 2016). In a case where the company decides to expand on its own effort, it may take very many years for the company to expand beyond the boundaries and this leads to loss of opportunities and revenue. Since there is a lot of competition in the market, it is very necessary for the company to adopt an expansion strategy to help the company become the market leader before the competitors take over the market. Market leadership in this niche market will help Guzman Y Gomez to have a competitive advantage over its rivals, the competitive advantage may be in form of financial resources or human resources as well as experience in the market. The financial resource advantage can be helpful to the company to help it begin differentiated products and services which the competitors are not able to finance. The company can also attract and recruit highly qualified and experienced staff who will contribute significantly to the growth of the company.

The literature review on Guzman Y Gomez does not clearly explain the marketing plans that the company has in order to ensure that the expansion is met with enthusiasm from customers. The review also fails to identify

Guzman Y Gomez (GYG) is a fast food chain of restaurants specializing in Australian dishes. The restaurant chain has taken Australia by storm and everyone is excited about the products of the company as well as the services it offers. The company is about to become one of the most popular takeaway outlets in Australia. The company is operating in an industry where there are many competitors. The competitors include direct and indirect competitors. The main competitors of GYG are the popular fast food joints such as MacDonald`s, Pizza Hut Australia, Subway and Yum restaurants Australia (Jou, 2017). Thou MacDonald`s does in not specialize in Mexican dishes, it is seen as the main competitors to GYG since they are both in the fast food industry and the products offered to customers are almost similar. This section will, therefore, analyze MacDonald`s as the main competitor of GYG. The section analyzes the products that the competitors offer and how these products relate with those of GYG. It also evaluates the strengths and weaknesses of the competitor in order to identify their competitive advantage. This also helps to understand the weaknesses of the competitors which can be taken advantage of by GYG and exploited to become good business opportunities for the company (Pilcher,2014). This section also identifies the trends in this industry as well as the industry drivers in the fast food industry in Australia.

MacDonald`s is a fast food company which was formed in the USA in the year 1940. It was operated by Richard and Maurice McDonald in California. The company grew in the USA and later expanded to other countries such as Australia. Currently, MacDonald`s Australia is the market leader in the fast food market in Australia. The company has grown over the years to the point of almost dominating the fast food market in Australia. Over the past few years, competition has been increasing from companies such as GYG, subway, and Dominos

MacDonald`s has a wide range of products and brands. Some of these brands include; Hamburgers, chicken, French fries, soft drinks, salads, desserts, coffee, breakfast, and milkshakes. The company has a wide product portfolio which helps to increase its revenue. MacDonald`s has received a lot of criticism from consumers and other stakeholders due to the unhealthy nature of its products (Walker, 2008). This criticism resulted in a change in McDonald`s strategy and the company introduced new products such as fish, salads and fruits.

 Most of McDonald`s restaurants are operated by a franchisee. The company owns all the land on which the restaurants are located. Most of the company’s revenue in Australia comes from rental payments from franchisees. The company also has a few outlets that are operated and directly managed by the company itself.

Just like every company, MacDonald`s has many strengths and weaknesses. The strengths of the company are the factors that have given the company a competitive advantage hence helping the company to become competitive over all those years. The weaknesses are the challenges that the business is facing or the loopholes which can be corrected to make the company competitive.

One of the biggest strength of MacDonald`s is that it is the second biggest chain of fast food restaurants in the world. The company operates more than 36,000 restaurants globally including franchised outlets. The company operates in more than 120 countries globally (Hayes & Laudan, 2009). This helps to give the company a competitive advantage over the competitors. This is because the company is able to obtain revenue from different streams and in case one of the outlets s not performing well, this can be offset by the good performance of the other restaurants. The location of the restaurants across many locations helps McDonald`s to spread risk and to reach a higher number of customers. McDonald`s records the highest yearly sales. In the 2017 financial records, the company announced sales revenue of US$24.622 billion.

Due to the huge size of the business, McDonald`s is able to enjoy economies of scale. When this is compared to the size of GYG, McDonald is a very big giant in the industry. The fixed costs of the company are shared across all the branches that it operates hence helping to minimize costs for the company.

Another strength of McDonald`s is that the company has operated since 1940 and hence has over 70 years of experience in this industry. GYG has been in operation for barely 11 years now. The long stay in the industry helps the company to understand the industry trends and tricks and hence be able to manage risks better and to design more effective strategies (Best, 2017).

McDonald`s has a capacity to attract more skilled and highly qualified employees compared to its rivals such as GYG. This is because the companies` brand is more attractive and recognized and they have better remuneration terms than many other competitors in the industry.

MacDonald`s can also use its market power over suppliers to influence them to reduce price which helps the company to reduce the costs of production. This can be transferred to the final consumer and the company’s products are cheaper and affordable to the customer hence attracting more customers.

Another strength that McDonald`s possesses that makes it enjoy a competitive advantage over rivals is that the company is the most recognizable brand internationally. In the year 2015, McDonald`s was ranked as the 9th most valuable brand globally by Forbes magazine (Best, 2017). The brand awareness helps in the introduction of new products to existing and new customers.

Despite the many strengths indicated of the business, there are also various weaknesses of McDonald`s. The biggest weakness is that the company’s products are viewed mostly as unhealthy and therefore customers are being cautious on what they consume. The increasing health concern for customers has brought about a decline in companies` sales.

The market share of McDonald`s has been declining in the recent past. This has been mainly due to their unhealthy products or due to increased competition from companies such as KFC GYG and Subway (Dempster, 2010). This stiff competition has eaten into the market share of McDonald`s.

There has been a challenge of disgruntled franchisees. The challenge has been brought about due to the tough restrictions and conditions put by the company while negotiating the deals. The franchisees are dissatisfied because they are not able to gain the profit share they targeted.

The new product development has been very slow in McDonald`s. The company has introduced very few new products with products like salads being introduced just recently due to pressure from various stakeholders. This has really affected the standing of the company in the industry which is becoming ever competitive by the day.

McDonald`s has an opportunity to expand even further and exploit new emerging markets such as China and India.

The company also has an opportunity to enter into Joint Venture with retailers like supermarkets. This would help in distribution of the companies` products.

There is the need and opportunity for the company to respond to social change through innovation. The company should focus on developing products that are healthier and change the positioning of the company in the industry.

There is an opportunity for the company to use CRM and database marketing in order to market more accurately to the desired target group. This will help the company to reduce the costs of marketing.

There is a threat of the industry becoming mature soon rather than later. This, therefore, means that the declining stage is about to begin and it will be characterized by decreasing sales and declining profit margins.

The threat of competition is also very huge and real. Smaller companies` have become even more competitive in the recent past. They have been on the mission of developing new products and expanding rapidly to various countries globally. Such companies include the GYG which specializes in Mexican dishes and Subway as well as KFC. This company threatens to eat into the market share of the McDonald`s.

The changing demographics mean that the consumer tastes and preferences have changed and hence there is need to understand what the consumers want.

The emergence of more health-conscious customers has become a threat to most of the companies in this industry since most of the products are viewed as contributing to being overweight and other health complications.

The global combined revenues of the companies in the fast food industry are over $570 billion. In the United States alone, the revenues were estimated to be slightly above $200 billion in the year 2015. This is a huge growth from the 1970s overall revenues of about $6 billion. The global fast food industry is expected to grow at a rate of 2.5% per year for the next five years.

The consumers in this industry mainly focus on tastes, prices, and quality of products being offered. Customers also focus on the quality of service, consistency of customer experience, affordability as well as speed.

Fast food restaurants and fast casuals make up a significant portion of the industries` market share. The restaurants have a reputation for consistency, simplicity, good feel and music. Customers order and pay at the counter and then take the food out or grab a tray to sit and enjoy the meal. There is no table service in this model. The Mexican food has been slowly eating into the market share of hamburgers which were the most popular fast food in the restaurant. This has contributed to the growth of outlets such as the Guzman Y Gomez.

There are a variety of challenges facing the global fast food industry. These challenges include:

Perceptions of unhealthy menus. The fast foods have a reputation for being unhealthy and this has been challenged since the tastes of the customer are shifting more to healthy food.

The other challenge is that of poor working relations and low wages. The workers in the fast-food restaurant are paid so poorly and this affects their morale. A study conducted in the United States in the recent past indicates that the workers are paid so poorly that more than half of them depend on public assistance programs.

The industry has also suffered cultural degradation with the introduction of Taco Bell which is not real Mexican food.

There has been a trend where consumers are so concerned about their health and what they eat. To deal with this challenge, many companies in this industry have introduced healthier foods such as salads and fruits. Mexican dishes are also becoming increasingly popular.

The consumer is also very considerate of the prices. This has prompted many of the industry players to come up with ways in which they can minimize costs in order to offer more competitive pricing.

New micro franchising cuisines are becoming increasingly popular. This includes chicken and burger franchises as well as the Mexican and Chinese dishes franchises.

The location of the restaurants is also changing. Drive-thru and stand-alone stores are becoming unpopular with counter service becoming more accepted.

Conclusion

This case study has been able to thoroughly review the literature review conducted on Guzman Y Gomez. It contains a detailed critical analysis of the Guzman Y Gomez expansion plan through franchising. The paper identifies and discusses the advantages and disadvantages of franchising to both the franchiser and the franchisee. In addition to this, the review helps to identify the important trends and factors that the company needs to understand when expanding to new countries. This paper also contains an in-depth analysis of McDonald`s Australia which is one of the biggest competitors of Guzman Y Gomez. The final section of the paper is an analysis of the industry to identify the new trends and the challenges facing this industry.

References

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