Question

Using Michael Porter's 5 Competitive Forces model, conduct an analysis of Restaurant Brand International's 5 Forces.

Answer 1

Introduction Of Michale Porter's five force analysis :- This is helps to analyzing the level of competition within a certain industry. It is especially useful when starting a new business or when entering a new industry sector. Competitiveness does not only come from competitors. Rather, the state of competition in an industry depends on five basic forces.

Porter Five Forces Analysis of McDonald’s :-

McDonald’s Corporation expands internationally through strategies that account for the external factors in the industry environment, as identifiable through a Five Forces analysis of the business. Michael Porter’s Five Forces Analysis model provides valuable information to support strategic management, especially in addressing relevant issues in the external environment of the business. These issues are based on external factors that represent the degree of competitive rivalry in the industry, the bargaining power of customers or buyers, the bargaining power of suppliers, the threat of substitution, and the threat of new entrants.

1. Competitive Rivalry - strong :- The fast food restaurant is one of the most competitive businesses today. With so many multinationals as well as local restaurants that have almost the same menus, the competition is becoming intense with each player in the industry striving for market share. There is a certain level of saturation that has developed. The competitors of McDonald are other fast food restaurants such as Wendy’s, Burger King, Johnny Rockets, and in many countries local restaurants as well. Each player is aggressively spending on advertising, innovating in their deals and menus, and continuously opening new franchises to increase their access to new potential customers. The increase in the number of competitors has made competitive rivalry for McDonald a strong force.

2. Threat of New Entrants – Moderate :- On the international level, the threat of new entrants is a weak force as there are a number of entry barriers. To become a successful competitor of McDonald’s, the entrant would have to create a large number of outlets throughout the globe which requires a massive capital investment and time, quickly establish economies of scale to become profitable, gain access to suppliers of meat and other raw materials, and carry out extensive marketing to create awareness amongst consumers. This makes it difficult for new entrants to step in and produce competition. However, the same threat is higher on a local scale where the investment is not high, 2 to 3 outlets are enough and economies of scale is easily established. These local outlets can give competition to McDonald’s easily. Thus, overall this is a moderate threat for McDonald’s.

3. Bargaining Power of Suppliers – Weak :- The raw materials such as chicken and potatoes that McDonald’s uses for its products are available through a large number of suppliers. Also, the orders of McDonald’s are massive on a routine basis. There are a number of suppliers that would be willing to become the suppliers of McDonald’s. Thus, the suppliers are in no position to bargain with McDonald’s or attempt to force it to increase its prices. McDonald’s can easily switch suppliers with little switching cost. Therefore, the bargaining power of the suppliers is a weak force for McDonald’s.

4. Bargaining Power of Buyers – Strong :- The buyers of McDonald’s have many options available in the market today. They can easily switch from one restaurant to another without any switching cost if they are unsatisfied. Customer loyalty to fast food restaurants is decreasing day by day with so many competitors. The buyers can easily protest any price increases by McDonald’s and shift to other competitors. This puts the buyers in a strong position of bargaining to influence McDonald’s to retain its prices if it wants return customers. Thus, bargaining power of the buyers is strong.

5. Threat of Substitutes –Strong :-The substitutes of meals of McDonald’s are meals of other slightly different fast food restaurants such as KFC and Pizza and also home cooked meals. Bakery products are also substitutes of McDonald’s products. Most of these substitutes are competitive in terms of consumer satisfaction and quality. Switching to these substitutes do not have any associated switching costs. Also, many health concerns have been raised against the products of McDonald’s causing consumers to switch to other healthier substitutes. Therefore, the threat of substitutes is a strong force against McDonald’s.