Five Forces Model
Rivalry Among Firms:
Currently in the fast food industry, there is intense competition for growth in the market. The market growth is rising because of the convenience factor and busy consumers not having enough time to cook a meal. The restaurant industry is also growing rapidly due to opportunities in other global markets. In McDonald’s case, they actually have a competitive advantage because they have already entered many different countries and are succeeding in these countries. Each firm within the food-service industry is susceptible to losing customers because there are relatively no switching costs for consumers, therefore the industry has to rely heavily on their brand image and quality of products. McDonald’s has a number of competitors; however they are currently the leader of the industry in market capitalization with a cap of $39.31 billion. Threat of New Entrants:
The threat of new entrants in the fast food industry is high because there are no legal barriers which would keep them from entering the industry. The major barriers in which a firm faces in the industry are the economies of scale and the access of the distribution. In order for a firm to enjoy success in the industry, they must spend a large amount of capital on advertising and marketing. The industry is very competitive because firms are always attempting to steal customers from each other. Access for distribution is crucial in the restaurant industry because if the customer can’t see you or access you easily it’s possible that they won’t go out of there way to eat there. Franchise options also make is easier to enter the market, for example Subway has built their strategic plan around franchise options. Therefore, initially the only cost to enter the market is the starting capital required to open a restaurant. However, it can cost upwards of millions of dollars for all the equipment, licensing, and the property. This costly barrier is the most probable reason that...
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