Business Environment Analysis

PESTEL model is used to analyze the macro external environment of the Shake
Shack restaurant. PESTEL model will help to investigate this interesting market and provide
needed insights before using franchising for Shake Shack under Foreign Direct Investment.

Political
 The political system 
 Trade relation
 Food and safety guidelines
 Safety Standard

Economics
 Economic growth
 Level of dept
 The household Consumption Expenditure
 Consumer consumption

Sociology
 Lifestyle factor 
 Health consciousness
 Dietary Restriction

Technology 
 Digital era, technology advantage
 Internet connection speed
 Automation
Future prospects
 Improving production technology by machines 
 Improving through Application Shake Shack 

Environment
 Impact of meat
 Impact of seasons

Legal
 COVID-19 pandemic, closed all dining rooms and temporarily shifted to a "to-go"
only.
 Mandated shutdowns 
 Stay-at-home orders
 Industry regulations: Food Sanitation Act
 Business Environment Analysis
PESTEL model is used to analyze the macro external environment of the Shake
Shack restaurant. PESTEL model will help to investigate this interesting market and provide
needed insights before using franchising for Shake Shack under Foreign Direct Investment.

Political
The political system in South Korea has seen many transitions varying from
dictatorship to pro-democratic forms of governments (Nabil, 2018). South Korea enjoys good
diplomatic and trade relations with major countries, which is one of the top reasons being
choose Franchising as the entry mode in South Korea. However, the country is going
through political rebuilding phase, a strong and transparent form of government is needed to
regain the trust of international community on political front.
The food industry has high standards for safety matters (Lee, 2018) on how food
should be transported, stored, and prepared. Including directions of temperatures reach,
cleanliness, and so on. As such, Shake Shack need to be extremely careful to ensure to stay
within the bounds of these rules to prevent costly lawsuits.
Shake Shack is considered a fast food restaurant and must abide by political factors.
Following the restrictions of the health and safety regulations is the company’s top priority.
From packaging to distribution, Shake Shack always handles the responsibility of food
products and make sure to follow the rules in each location strictly or lose favor with the
customers.

Economics
South Korea, ranking 12th among the world's largest economic powers and 4th in
Asia, is now on track for one of its worst two-year growth periods, battered by China's
economic slowdown and uncertainties over the trade war between Beijing and Washington.
Stagnant investment and the failure to spill the boom of chip sector over into other industries
limited economic growth to an estimated 2% in 2019, against 2.7% in 2018 (Nordea trade,
2020). Moreover, due to the outbreak of the COVID-19, GDP growth is expected to fall to
-1.2% in 2020 and pick up to 3.4% in 2021, subject to the post-pandemic global economic
recovery. 
According to the above, Even Koreans pay much attention to image and status
reasons, the economic slowdown and the high level of debt have pushed some Koreans to
pay attention to their spending or showing off to create a carefully curated image of the good
life because increasing household debt means consumption decreases
The household Consumption Expenditure (OECD Stats, 2017) shows that Food and
non-alcoholic beverages has 13.8% which purchases are made in new types of stores for
example Food retailers including Shake Shack restaurant. Moreover, Koreans are more
purchases of foreign products which is an opportunity for an authentic, high-quality American
burger that stands different from the numerous other burgers sold at fast-food chains in
Korea.
 Source: OECD Stats

Sociology
In South Korea, consumers are conscious more about the relationship between food
and their bodies than ever before. As a result, many individuals are looking for healthier
ways to fuel their bodies. Shake Shack will have to adapt to stay relevant. For example, to
move away from traditional, high-calorie fried foods towards healthier alternatives like
salads. Moreover, Shake Shack will have to make changes to keep clients happy. because
now consumers are also more knowledgeable about their individual dietary restrictions. For
example, the negative impact of gluten in those with Celiac disease.
As the lifestyle changes among each generation, nowadays individuals cook less and
eat out more often, this is an opportunity for Shake Shack as restaurant fine dining burger
destination. More Interestingly, Koreans are increasingly less attracted to domestic products
while purchases of foreign products are growing.

Technology
South Korea is well-known for its advanced technologies with the world’s fastest
average internet connection speed (Chong 2018). As a result, Shake Shack in South Korea
has huge advantages for born in digital era. There are Korean foodstagramming trends on
social media which help increasing engagement of people sharing their experiences with
Shake Shack. So that, when digital has been continuously developed, Shake Shack has to
better connect with customers and generate the best experience with then through
technology advantage. For example, the application Shake Shack that allowed the chain to
gather information to understand customer behavior and performance of their menu in order
to predict demand more efficiently.
Moreover, As the Covid-19 Outbreak, On April 29, 2020, Shake Shack were
temporarily closed and the majority of Shacks were operating with reduced hours and in a
limited capacity. However, there are some positive signs since the Company has
experienced steady increases in domestic sales driven by growth in its own digital channels
and the expansion of its integrated delivery partnerships. So that, shake shack can took is
opportunity to order machines for restaurants in South Korea because many Koreans prefer
this way as they would not have to interact with the staff. Also, many International students
cannot speak Korean well, so an ordering machine with English version is definitely a great
way to help.
In addition, various types of automation are more and more in the food industry. The
best example is the use of self-checkout screens at fast food venues or a hotel’s robot
cooking up omelettes. There will be less need for laborers to improve profitability and reduce
the likelihood of human error.
Environment
Koreans not only aware of the health consequences of the food but also for the
environmental effects. One problematic food group from an environmental point of view is
meat. The production of meat, especially red meats, uses huge amounts of water and
creates a meaningful carbon footprint which resulting in tearing down large amounts of the
forest to create new space for farms. More and more individuals are switching to plant-based
diets. Shake Shack will have to recognize the impact of this shift in the long term.
South Korea has four distinct seasons: Spring, Summer, Autumn, and Winter. The
temperature varies accordingly and can get as high as 45 Celsius degree in the Summer
and as low as minus 10 in the Winter. The weather is unpredictable like this may influence
on customer purchasing power.

Legal
During the COVID-19 pandemic, the Shake Shack's operations based in U.S. and
South Korea have been materially impacted. The Company closed all dining rooms and
temporarily shifted to a "to-go" only. As mandated shutdowns and stay-at-home orders went
into effect across the country, the Company experienced an immediate and drastic reduction
in sales levels compared to the prior year.
However, understanding and respecting food hygiene, the Food Sanitation Act with a
2017 revision that provides general and in-detail provisions related to food manufacture, sale
and distribution of food products, as well as regulations on food packaging and food
additives. This Act is one critical point for the Shake Shack to be successfully launched and
operated.
 References

https://investor.shakeshack.com/investors-overview/news/press-release-details/2020/Shake-
Shack-Announces-First-Quarter-2020-Financial-Results/default.aspx 

https://www.slideshare.net/NabilAhmad4/pestle-analysis-south-korea 

https://www.nordeatrade.com/fi/explore-new-market/south-korea/economical-context

https://santandertrade.com/en/portal/analyse-markets/south-korea/reaching-the-consumers