Five Forces About Fast Food Chains

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TETA‐2607Exercise2
 

PartI:briefintroductionoffastfoodrestaurants
The industry I selected is fast food restaurants which are also named as quick service restaurants. As a special type of restaurant, fast food restaurant is characterized both by its fast food cuisine and by its self table service. The majority of fast food restaurants are part of a restaurant chain or franchise operation so that each branch could be provisioned by standardized ingredients and controlled by unified management. Within this industry, several leaders should be identified. Founded in 1940, McDonald’s Corporation is the world’s largest chain of hamburger fast food restaurants, daily serving around 68 million customers in 119 countries. (mcdonalds.com & burgerbusiness.com) In the year of 2011, the net income has reached 27 billion USD with net profit of 5.5 billion USD. In the recent five years, McDonald’s revenue kept increasing and the average increase rate was 3.1 %.( McDonald’s annual report,2011). Subway which is owned and operated by Doctor’s Associate is an American restaurant franchise which mainly sells sandwiches and salads. Subway, as the largest single-brand restaurant chain globally, keeps the fastest growing franchises in the world with 37000 restaurants in more than 100 countries. (subway.com) KFC (Kentucky Fried Chicken) is the world’s largest chain of fried chicken fast food restaurants. It is also the second largest restaurant chain after McDonald’s, with over 17,000 outlets in 105 countries. (KFC.com)

PartII:IndustryanalysisbyFiveForces
In 1979, Michael Porter published “How Competitive Force Shapes Strategy” in the Harvard Business Review (HBR) which started a revolution in the strategic field. He proposed five competitive forces which could to great extent determine the profitability of an industry and strategy’s formulation. In this part, Five Forces will be utilized to analyze the fast food restaurant industry.

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TETA‐2607Exercise2
 

Threat of Suppliers
The suppliers of fast food restaurant mostly are meat producer, vegetable retailers, beverage companies and bakeries food retailers. As meat and vegetable are hard to differentiated, it is difficult for such a supplier to stand out. Also, most of these suppliers are local and small-sized while the quick service restaurants are international and giant; hence, it is easy for the fast food chain to be the dominant player. As for the fast food restaurants, in general, the switching costs are not high if they want to change their supplier of meat and vegetables. However, some supplier brands are quite powerful such as beverage company—Coca cola because their product is unique in the market. It is also possible for a supplier to be integrated forward such like building up corporation relationship with fast food restaurant to enlarge their supply power. To sum up, the supplier power in the fast food restaurant is low relatively especially among non-differentiated good suppliers.

Threat of Buyers
There are many small operators in the fast food restaurant industry which means buyers have many alternatives to choose the most suitable quick service restaurant. Meanwhile, there is almost no switching cost for customers to change their tastes. Additionally, the buying information is also abundant and available for the customers to select the most satisfactory restaurant. It seems that buyer power in the fast food restaurant is relatively high. However, the volume of each customer generally is not extremely important to overall sales of the companies and hence, each individual customer may not be valued much by the company. That diminishes the power of the buyer to some extent. Also, there is no threat of backward integration which means it is almost impossible for customers to build up cooperative relationship with fast food chains. Hence, buyer power would lowered by lack of possibilities of integration. The...
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