External Environmental Analysis

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MJ Cahill|
External Environmental Analysis


Executive Summary

In this paper we have been asked to accomplish an external environment analysis of the California Pizza Kitchen. In the introduction section, the purpose, the outcomes, and the methodology adopted have been mentioned. . As part of the research for this paper, a PEST analysis was accomplished as well as looking at the Porter’s Five Forces Analysis. (QuickMBA, 2007; Value Based Management, 2009)

As part of the PEST analysis, the California Pizza Kitchen has to abide by numerous government regulations (federal and state), but it has not reflected negatively on the profits. The California Pizza Kitchen company will more than likely face some economic constraints in terms of costs of the supplies, expansion plans, credit supply, and insurance costs as it continues to move forward as a company. The California Pizza Kitchen is currently working through postings of the company’s possible sale again and may have to deal with negative impact on its future profits and EPS because of its lack of control on franchising and licensing partners. The company's profitability is also being affected by the current economic downturn with consumers being more conservative with their spending and consumer preferences about the current menu offerings will change especially in terms of nutrition and health related issues. The California Pizza Kitchen is abreast with technological advancements in the industry.

As part of the review of the Five Forces Analysis, one of the key points of the analysis is that bargaining power of suppliers is quite low as the nature of supplies is generic and easily available. The threat of new entrants to the pizza industry is very high, which can be attributed to very low entry barriers in the restaurant industry. The bargaining power of buyers is moderate as consumers are generally loyal as far as they get value for money. Threat of substitutes is again moderate as the company is already producing frozen pizza, and other products which can be the main substitutes, as the economy is still reeling under the recession, and most consumers do not have much disposable income, so they can opt for home cooked food instead. The competition is very fierce in the industry with innumerable restaurants present across the country and the key players are quite well-established.

Going forward, the California Pizza Kitchen should look forward to consolidate its current position by keep on differentiating its offerings rather than look for expansion in such liquidity crunching times.  


The purpose of this paper is to analyze the external environment of California Pizza Kitchen in a strategic manner. Through this, various opportunities and threats based on a variety of factors, which the company is facing currently will be unearthed. This will be quite helpful for the California Pizza Kitchen in making strategically sound decisions. To attain this, analysis of the political, economic, social, and technological factors (Value Based Management, 2009) will be conducted in conjunction with Five Forces analysis. (Henry, 2008).

PEST Analysis of California Pizza Kitchen

A PEST analysis is the external environment analysis in which the political, economic, social, and technological factors, which affect an organization are analyzed to understand the opportunities and threats which a firm is facing (Henry, 2008).

Political Factors - California Pizza Kitchen follows numerous regulations and has to get required licenses regarding health, hygiene, security, fire extinguishing standards, and food and liquor from the designated authorities of both the state as well the local level. The California Pizza Kitchen needs to abide by numerous federal and state regulations regarding new construction, franchising, employee matters, and environmental matters; but it has not experienced any negative impact or capital expenses because...
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