Don't let the title trick you. This isn't a story about how to grind herbs. PESTLE is an acronym for a tool used to analyze businesses that stands for Political, Economic, Social, Technological, Legal and Environmental factors. Created by Harvard professor Francis Aguilar in 1967, a PESTLE analysis helps business owners assess environmental factors that are affecting their businesses and improve their company's decision-making and timing.
Certain factors in a business, such as salaries, inventory and sales goals can be controlled. However, businesses are also influenced by the environment in which they operate. In this situation, environment doesn't refer to the neighborhood or surrounding landscape. Think of environment on a much broader scale when it comes to PESTLE. How are the political, economic, social and technological aspects of the environment impacting your restaurant business?
Let's do a PESTLE analysis for a hypothetical restaurant:
- Political: A few things that could have an impact on your restaurant are tax reforms and health regulations, both of which fall under the umbrella of political impact. Once you've determined the taxes or health regulations that have the potential to affect your business, you can decide how best to react. For example, if the health grading system in your city is changing, you'll need to make sure your restaurant is up to code in order to receive the highest rating.
- Economic: There are many outside economic factors that can affect your business: the minimum wage and the health of the economy are two that could have a major impact on your restaurant. You can't control these external factors, but it's important to assess them and react to them accordingly. If the minimum wage goes up, you'll need to determine how many employees you can reasonably afford.
- Social: Which social and cultural factors might have an impact on your restaurant? There's an increased awareness in locally raised, organic food that might determine your menu. A greater acceptance of transgender customers may affect your bathroom policy. These are only two examples of the many cultural and social factors that can impact a restaurant.
- Technological: Technology is always advancing, and these advances impact how you run your business. Perhaps you can no longer rely on pen and paper for waiters, but need to implement a new computer system. Maybe you'll decide to accept payment via smartphones.
- Legal: Legislation can sometimes have a great impact on the restaurant business. Is there new zoning regulation on the horizon in your community? What about changes in liquor licensing for your state? Also, court cases that involve restaurants can cause you to change the way you do business. After all, almost every carry-out coffee cup in America now has the CAUTION: HOT warming imprinted on it.
- Environmental: The environment around your restaurant can affect your business in a variety of ways. New freeways can improve or discourage traffic flow near your building. A sudden influx of competitive restaurants can have a negative effect on the bottom line. Watching your restaurant's environment can be crucial for marketing decisions.
Running any kind of business is complicated, and restaurants are especially risky. You can control certain factors, but so much of your success will depend on the environmental factors defined by PESTLE. If you use PESTLE to analyze and assess what these factors are and how they can impact your restaurant business, you'll be one step ahead of the game.