McDonald’s is the leading fast-food chain in the world founded in 1955 with an ambition to provide hygienic, quick, and quality food to the consumers. The company has collected a revenue of 21.03 billion US dollars in 2018 which is the evidence of global success as a fast-food chain. The company grew over time and currently serving the products in more than 100 countries (Statista, 2019). It is important to conduct Porter’s five forces model for McDonald’s to understand the changing industry dynamics and provide insights for future strategic planning.
Competitive Rivalry
Fast food products are globally accepted and it is the reason different multinationals and local companies all over the world are providing fast-food products. There is a presence of multiple international successful food chains that are operating in different countries of the world which is making the competition intense. McDonald’s is the leading brand in the world with a value of 130,368 million USD and Starbucks comes at the second spot with a value of 45,884 million USD. The KFC, Subway, Domino’s Pizza and Pizza Hut are on the 3rd, 4th, 5th, and 6th spot respectively with a value of 17,205, 17,124, 9,570, and 7,580 million USD at the global level (Statista, 2019). The value of Burger King is 7,063 million USD which makes it at the 7th spot in the list of fast-food chains (Statista, 2019). The value of these multinational brands shows the intensity of the competition in the market. Along with these giants, there are uncountable small level fast-food restaurants that are providing similar products to the people. In many markets, the competition has gone to the level of cut-throat competition which shows the intensity of the industry.
Bargaining Power of Buyers
The bargaining power of buyers in the fast-food industry is high due to the presence of a large number of options for the buyers. The multinational and local restaurants for fast food offer almost the same products and there is no big difference between the offerings of the fast-food chains. It is the reason that the buyers do not have to bear a high cost for switching the brand in this industry. This ease of switching from one brand to another is the reason for such a high bargaining power of the buyers. The other factor that is contributing to the power of buyers is the lack of radical differentiation between the offerings of the chains (Oraman et al., 2011). Therefore, the bargaining power of buyers is high.
Bargaining Power of Suppliers
The companies have a range of options for the purchasing of raw materials used in the industry. The preparation of fast food requires meat and cheese along with some vegetables and buns. Having a look at the number of suppliers available for these products in all countries, it can be safely said that the number of suppliers is uncountable and the companies are not bounded by the suppliers for the purchase. The level of innovation and differentiation by the suppliers is also limited which further takes the power away from the suppliers. The service is the only thing that provides a competitive advantage to the suppliers but it is not a factor that takes the power away from the companies (Royle, 2010). Therefore, the bargaining power of the suppliers in the fast food industry is low.
Threat of New Entrants
Setting up a setup of fast food does not require massive capital as it can be started from a small level from a street corner shop. The start-up of this business does not require a high level of skills and expertise which makes it further easy to start the business. The lack of capital and skills intensive nature of this industry is the reason that this industry invites small and large investors for the purpose of investing in it (Stuckler & Nestle, 2012). Keeping in view these factors and the absence of hurdles, the threat of new entrants is high.
Threat of Substitutes
Food is a necessity and it is required by all humans to begin to stay alive but there are chances that a particular food can be replaced by another food. The fast-food creates a negative impact on the health of consumers and the awareness is getting high. For this reason, people are shifting to healthier food. Along with it, globalization is also making an impact and different cuisines from all over the world are getting accepted in different regions which are substituting fast food to some extent. Therefore, the threat of substitutes is high.
References
Oraman, Y., Azabagaoglu, M. O., & Inan, I. H. (2011). The firms’ survival and competition through global expansion: A case study from food industry in FMCG sector. Procedia-Social and Behavioral Sciences, 24, 188-197.
Royle, T. (2010). ‘Low-road Americanization’and the global ‘McJob’: a longitudinal analysis of work, pay and unionization in the international fast-food industry. Labor History, 51(2), 249-270.
Statista. (2019). Brand value of the 10 most valuable fast food brands worldwide in 2019(in million U.S. dollars). Available at: https://www.statista.com/statistics/273057/value-of-the-most-valuable-fast-food-brands-worldwide/
Statista. (2019). Revenue of McDonald’s Corporation worldwide from 2005 to 2018 (in billion U.S. dollars)*. Available at: https://www.statista.com/statistics/208917/revenue-of-the-mcdonalds-corporation-since-2005/
Stuckler, D., & Nestle, M. (2012). Big food, food systems, and global health. PLoS medicine, 9(6), e1001242.