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.
Subscribe to:
Post Comments (Atom)
3 comments:
I agree with you that the fast food industry is medium attractiveness. There are a lot of different kind of fast food, such as Chinese, Mexican, McDonald, Subway, and so on. Customers have many choices, and also they will compare on the prices. I don't think they will loyal to only one fast food restaurant because fast food is not that healthy. However, there are still a lot of customers like to buy fastfood because it is fast or save their time.
I agree with your analysis of the fast food industry, there is some sort of attractiveness in it, but at the same time, not enough. What do you think of the idea of franchising? Instead of creating your own fast food restaurant, pick a nice location such as a school or near by and open up a Mcdonald or some other well known one. Although you might be paying a fee to them for awhile, they teach you how to run it also. Maybe in the long run you can win. I worked at Burger King before and the owner of that branch actually owns several of them. He doesn't stay in one particular store because he hands down the manager position to someone else, then I think he just runs around to his other stores to collect money. That seems pretty cool. Does that seem attractive to you?
To enter fast food industry is not very easy. I believe there are high capital requirements, lots of licensing requirements, which makes it difficult to enter. Also, constantly new government regulations, such as trans fat ban might be costly to the firms.
The degree of rivalry among existing fast food restaurants is somewhat high. You made a right comment, that if one of them reduces the price or invents something new, then the rest of them follows.
Suppliers however I think do have power. There are major suppliers and they can easily control the quantity and prices of the ingredients. The smaller ones might not have lots of power.
They buyers are powerful too. A lot of fast food restaurants offer similar foods. The buyer have a lot of options to choose from, thus the restaurants have to match the demands. Also, there are lots of substitutes for the fast food, but most fast food fans would not trade it for other food.
Overall, I will agree that the fast food industry is medium attractive.
Post a Comment