Power of Suppliers and Power of Buyers

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  • Topic: Take-out, Food, Types of restaurants
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  • Published : November 6, 2006
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A Porter analysis examines five different forces that affect the success of a particular industry. This analysis is then used to establish if a certain industry is attractive to potential shareholders and investors. The following will elaborate on the power of suppliers and the power of buyers in the "family restaurant" industry; including restaurants such as: Boston Pizza, East Side Mario's, and etcetera. The different strengths and weaknesses of these forces depend on many different factors that will also be summarized. Finally the overall influence of each force on this industry will be specified to give a greater understanding of the strength of this industry in relation to its suppliers and buyers.

Firstly, the power of suppliers in the "family restaurant" industry will be discussed. In order to be successful a restaurant business must have the proper equipment, the desired furniture, decorations and dinnerware, and of course the proper food. Other companies supply all of these products to this industry. Nonetheless in North America and around the world there are many different companies that are in the business of selling supplies to restaurants. With this many different companies having the same intention, the restaurant industry has a large degree of choice in whom to buy from. For example, if a restaurant is not happy with one company's price for bar stools, the owner can easily find a different company with a better price for bar stools. The excess of companies to supply restaurants reveals that these suppliers do not have a large influence on the success of the restaurant industry.

In addition the majority of supplies that are needed for the restaurant industry are not unique from restaurant to restaurant. Different companies do not need different types of plates in order to be successful. The lack of rareness that is apparent in all types of restaurant supplies, from food to furniture, proves that once again the power of suppliers is weak in this aspect.

Moreover, if a restaurant is unhappy with a certain product, many other suppliers are available to choose from, as stated previously. Say a company like Boston Pizza decides to buy pizza crust from a different supplier because of a rise in prices of their current supplier. This change requires the company to find a supplier with a similar type of pizza crust at a better price. This change in suppliers is relatively easy for Boston Pizza because of the large amount of other companies that supply pizza crusts to restaurants at competitive prices. This shows that for the restaurant industry it is easy and cost efficient to switch from one supplier to another, depending on the product, because of the vast rate of competition between the supplying companies.

Another factor affecting the power of suppliers is the threat of forward integration. The restaurant industry does not have to fear this at all. A restaurant prepares and sells meals and provides an amiable atmosphere for the public to dine in. Suppliers of restaurants do not intend to sell these products, but intend to sell the products that are used to cook these meals and used to create an environment that is enjoyable to dine in. Thus the threat of forward integration is not evident in the restaurant industry.

In most cases companies that supply the restaurant industry do not require these restaurants in order to be successful. If a supplier cannot sell its furniture, decorations and dinnerware to a restaurant, that supplier will simply supply these products to other industries such as department stores. Also, the supply of restaurant food or equipment can be easily sold to other types of restaurants such as "fast food" or "fine dining" establishments. The ability for these suppliers to find other markets shows that "family restaurants" are insignificant to them, giving them a slight degree of strength.

In summary the restaurant industry has a large number of companies to choose from to find...
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