Mcdonalds Porters Five Forces Model

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Analysing McDonalds (fast food outlets) using Porters 5 Forces model – sometimes called the Competitive Forces model.

Introduction

McDonalds Canada opened in 1967, thirteen years after McDonalds had taken the United States by storm. This was the first restaurant to be opened outside of the United States. It was in 1965 that McDonalds went public and offered shares on Wall Street. Since then it has been important for McDonalds to continually monitor its performance, to make sure it is competitive and profitable while also being aware of its immediate community responsibilities. This can be achieved by using the Porters 5 Forces model so the company is able to determine where its business needs to change or improve in order to stay competitive in the fast food industry.

Using Porter’s competitive forces model to achieve a competitive advantage

1.Analyse McDonalds using a well known model to assess the competitive position that it occupies within its industry

Porter’s competitive forces model includes five forces that need to be analysed. These forces include the intensity of rivalry from traditional competitors, threat of new market entrants, threat of substitute products and services, bargaining power of customers and bargaining power of suppliers (Laudon & Laudon, 2007). See diagram below;

Traditional Competitors (competitive rivalry)
McDonalds traditional competitors include many of the other fast food outlets across the country, i.e. Burger King, Taco Bell, KFC, Wendy’s. It has been shown by Professor Michael Waterson (2004) that the presence of a Burger King, for example, will increase the likelihood that McDonalds will open near by. Thus it can be seen that the threat of competition from traditional rivals is intense and should never be over looked.

Threat of New Market Entrants
There are many new market entrants emerging all the time but not on the same scale as McDonalds. Some of the newer entrants include chains of Sushi restaurants like Sushi Itto and organic fast food restaurants like O!Burger. To stay competitive McDonalds need to constantly analyse what these new entrants are providing to the public in terms of product and service.

Threat of Substitute Products
Substitution of McDonald’s products and services is always possible, but we need to look at the ease in which these can be substituted by the consumer. If we are looking simply at the supply of food for consumption it can be seen that alternatives are generally available. We may choose; however, to look at the convenience of having food available as well as a place for children to play and having close washrooms, thus McDonalds is managing to provide all of these to the customer in one location. It is the provision of all of these products and services under one roof that manages to set McDonalds apart from its competitors.

Bargaining Power of Customers
The bargaining power of customers is, on one hand, one of the strongest forces in this model, and one that is least able to be manipulated. If McDonalds is not providing what customers are looking for then theyt will take their business else where. The consumer is there to be served, and a business would not survive if it did not provide what a customer needed. However, on the other hand, if McDonalds looses one customer through dissatisfaction then this would not affect the company significantly. It would only be an issue if there was a sudden and significant move away from McDonalds.

Bargaining Power of Suppliers
McDonalds has implemented what they call their ’three legged stool approach’. They believe that the “stool is only as good as any one of its legs” (McDonalds Canada, 2006). McDonalds maintains a close relationship with its suppliers (being one leg of the stool) so as to ensure that the overall product does not fall below the standard set. McDonalds prefers to source its products and supplies locally and, in Canada, they use over 120 local...
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