Analysis of industry
A business has to understand the dynamics of its industry and market in order to compete effectively and intensively in the marketplace. The forces which derive on competition and attractiveness of a market. The competitive environment is created by the interaction of these five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of buyers, and the threat of substitute products or services. Michael E. Porter suggested that the intensity of competition is determined by the relative strengths of these forces. The Five Forces directly are interconnected with the effect on the company’s ability to serve its customers and to make a profit. A change in any of these forces generally requires a company to re-assess its competitive strategies. Competitive rivalry
According to Porter’s Five Forces Model, if entry into a market is easy then rivalry is likely to be high. Considering McDonald’s competitive rivalry, there is intense competition in fast food industry that many small fast food businesses fight with each other to improve their customer base. This makes a competition the major focus between businesses. Although, McDonald’s, with more than 32,000 local restaurants serving more than 60 million people in 117 countries each day, has a number of fast food outlet competitors across the countries such as Burger King, Taco Bell, KFC, Wendy’s, it is currently the leader of the industry in market capitalization with a cap of $39.31 billion. Supplier bargaining power
The bargaining power of suppliers of McDonald’s is high because McDonald’s restaurants use the same products from the same suppliers and it doesn’t matter if you are in Rochester, MN or Beijing, China you can get the same Big Mac everywhere. This is a feature McDonald’s want to keep going on by encouraging consistency among its restaurants. Supplying these products to McDonald’s across the globe is the whole business for the suppliers and, however, if McDonald’s would lose even one supplier it would have to change one or more of its product lines and perhaps the whole menu what the McDonald’s customers were used to. This gives the suppliers of McDonald’s a high bargaining power. Buyer bargaining power
Bargaining power of customers of McDonald’s is low because of low customer switching costs which are nearly zero; however, for example, one-fifth of the USA population eats in a fast food restaurant every day. Thus, fast food industry does not worry about customers’ loyalty. Fast food products industry is differentiated which are usually or almost always promoted by advertising – that is because of a vast competition between fast food firms. Product differentiation is very important in fast food industry to make your product stand out against the crowded fast food industry products. Furthermore, quality of the product or service in the fast food industry is very important as customers have full information of the products they buy and consume. Furthermore, if the fast food industry does not match the demands of the buyers and the general consumer trends, then the buyers can choose not to buy their product and convince others to do the same. A good example of this is the movie ‘Super Size Me’. It is a movie showing an ordinary consumer trying to live off of McDonald’s fast food, and the purpose of the movie was to see what the traditional fast food from McDonalds could do to your health if you were to eat their products for every meal. This movie shows what the buyers possible reactions could be if not satisfied or not being pleased. The reactions from the whole market were a large change in consumer preferences and brand preferences. Key strategic factors in the industry
All of the competitors serving fast food around the world and are focused on providing a product that is based on low...