The Five Forces That Drive the Success of Fast Food Industries
In this paper we will discuss the five forces that drive the success of Fast Food Industries through market analysis. We will identify the sources that propel a competitive market and how these particular factors affect performance in the industry. Our research will be restricted to public companies listed on major North American stock exchanges.
2. Discussion of the five forces that drive the success of Fast Food Industries through market analysis:
In order to identify the sources of competition within an industry, one must analyze the following five forces: customer’s existent market power, supplier-seller impact in the market, product substitute threat to an existing market, entry threats, buyer power. These five forces help explain how public companies can succeed in such a highly competitive industry as Fast Food Industries.
2. 1 Customer’s Existent Market Power:
The Porters Five Forces model suggests that customers have great bargaining power when it comes to the fast food industry. Customers can use this power to pressure companies into lowering prices or improving product quality. In addition, customers are able to quickly switch to other products or brands if they are dissatisfied with a company’s offerings. This switching costs are relatively low, which further increases customer bargaining power. For example, if a customer does not like the taste of Burger King’s new chicken sandwich, they can easily go to McDonald’s and purchase a different sandwich.
2. 2 Supplier-Seller Impact in the Market:
The Porters Five Forces model also suggests that suppliers have great impact in the fast food industry. Suppliers provide key inputs such as beef, chicken, and potatoes that are necessary for companies to produce their products. If suppliers raise prices or decrease quality, it can put significant pressure on fast food companies. For example, if beef prices increase, McDonald’s might have to raise prices on their burgers in order to maintain profitability. This could lead to customers switching to other cheaper options, such as Wendy’s or Burger King.
2. 3 Product Substitute Threat to an existing Market:
Another force that affects competition in the fast food industry is product substitutes. Product substitutes are products or services that can be used in place of another product or service. For example, some people may choose to eat at a restaurant instead of going to a fast food joint. In addition, some people may choose to cook at home instead of eating out altogether. This threat is significant because it can limit the potential customer base for fast food companies.
2. 4 Entry Threats:
Another important force that affects competition in the fast food industry is entry threats. Entry threats refer to the barriers that prevent new companies from entering an industry. For the fast food industry, some of these barriers include high start-up costs, economies of scale, and brand recognition. These barriers make it difficult for new companies to enter the market and compete against existing firms.
2. 5 Buyer Power:
The final force that affects competition in the fast food industry is buyer power. Buyer power refers to the ability of buyers (customers) to pressure companies into lowering prices or providing better service/quality levels. In the fast food industry, buyers have considerable power because there are many companies competing for their business.
In conclusion, the fast food industry is a highly competitive industry that is driven by the five forces of customer’s existent market power, supplier-seller impact in the market, product substitute threat to an existing market, entry threats, and buyer power. These five forces help explain how public companies can succeed in such a highly competitive industry as Fast Food Industries.