Porter's 5 Forces Model

Porter's 5 Forces Model is a framework for industy analysis and business strategy development developed by Michael E. Porter in 1979. Whenever conducting an external environmental analysis, it is essential to use this model because it determines the competetiveness and attractivess of a market. The 5 Forces Model is proven to be very effective for determining the industry attractiveness. The model considers the degree of power that current and new competitors, suppliers, buyers, and substitute products have in the industry.



Now, let's look at the FAST FOOD industry using the Porter's 5 Forces Model:



1. Threats of entry posed by new or potential competitors ---> Medium
-medium to high economies of scale
-low to medium capital requirements needed to enter the industry
-medium brand loyalty of existing firms--> because the customer compare both the price and the taste of the food
-government regulation --> a license is required from the health department, food handling, etc.
-there is no switching cost for the customers
-high access to key supplies

2. Degree of rivalry among existing firms ---> Medium to High
-price ---> if there is a change in the price of one firm, it is very likely the others will follow
-demand conditions---> the demand in the fast food industry is constant
-ability of firms to exit market--> it's costly for firms to exit market due to the franchise contract

3. Bargaining power of suppliers ---> Low
-since there are many food suppliers available, they have little influence over this industry

4. Bargaining power of buyers ---> High
- it is up to the consumers's decision of wether or not to buy food from you because they have the ability to turn to someone else without cost a penny to themselves.

5. Closeness of substitute products ---> Medium to High
-it is very easy for customers to find alternatives or substitue products, they may decide to cook themselves, eat from restaurant, but it's time consuming to cook themselves and eat in restauant is not as convenient as fast food is.

Overall, according to the Porter's 5 Forces Model, we can conclude that the attractiveness of the fast food industry is Medium.

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