Porter's Five Force Analysis for Mcdonalds - Case Study Example

PORTER’S FIVE FORCES ANALYSIS FOR McDONALDS al Affiliation PORTER’S FIVE FORCES ANALYSIS FOR McDONALDS Introduction The UK restaurant industry is one of the largest and most dynamic in the world. The demand for fast foods has provided a potential for this industry with an increase in the number of investors targeting this market. However, there is evidence that the market is dynamic and changes are taking over in the market in a rapid manner. The increase in the number of investors has heightened competition in the market affecting the prices and profit margins in the industry. Besides, the customer tastes are varying and there is change towards healthy eating habits which is reducing the demand for fast foods, which the public are now terming as unnatural. McDonalds is one of the largest companies that have invested in the fast food industry owning over 31, 000 stores all over the world (McDonalds.com, 2015). The company sells fast foods such as burgers, drinks and fries in over 119 countries. In the recent past, the fast food restaurants are experiencing challenges due to change in market characteristics while high end restaurants such as Michelin Star restaurants are experiencing a market boom. An analysis of the fast food industry will reveal the challenges of the market and possible strategies that would sustain productivity within the market. Porters Five Forces Analysis The fast food restaurant market is dynamic, with rapid changes in consumer and supplier characteristics. With the rapid development of the fast food industry, it is worthwhile to analyze various strategies that McDonalds has embraced to succeed in the harsh market conditions. McDonald has over 30 thousand stores in the world, which makes it a major player in this market (Atkinson & Brander, 2001). For this purpose, we shall use Porter’s five forces model to evaluate the effectiveness of McDonalds competitive strategies. According to Roy (2009) the competitive ability of a company is dependent on the competitive rivalry within the market, the supplier bargaining power, the buyer bargaining power, threat of new market entrants as well as the threat of substitute products. Competition rivalry is one of the most important factors of the porter’s five forces model. For McDonald’s, competitors comprise of all other business rivals that have ventured in the find industry and that operate within the same market segments. McDonald’s has shown concern for other larger fast food chains as well independent fast food shops that offer similar services. The McDonald’s rivals include Burger King, Wendy’s, KFC, Dominos, Pizza Hat, and Starbucks (Atkinson & Brander, 2001). From a close look, the fast food industry is subject to evolution, which poses a challenge for the companies to adopt flexible business approaches. The company enjoys the largest market share with over 58 million customers across the world. However, large companies such as Burger King are posing price-competition within the market, leading to reduction of profit margins within the market. Consequently, competitive rivalry is high and this has become a constraining factor for McDonalds. One strategy McDonald’s focuses on is differentiation strategy, which the management has embraced to acquire top position in the market. The organization has launched new brand products such as chicken McNuggets, Big Mac, McFlurry McDonald’s to make its products different from those of its rivals (Kelliher & Perrett, 2001). Another important role in staying competitive is McDonald’s online presence. The web platform is a efficient platform for interacting with the customers and establishing possible needs within the customer population. Internet marketing also provides an avenue for global market penetration and attraction of a broad range of customers. The next important factor is the threat of new market entrants within the restaurant industry. Fortunately for McDonald’s and other main players in the market such as Starbucks and KFC have taken dominant positions within the market. Besides, the company is consistently lauching new branches as one way of increasing its dominance within the market (Atkinson & Brander, 2001). While the start capital for new investors is low, it will take a long time for a company to gain grounds and to compete with the well-established companies. From this perspective, the threat of new market entrants is very low and McDonalds does not anticipate any challenge from new investors. Therefore, the company has an upperhand to The third crucial factor in the model is the threat of substitute products which comprises of different food products within the restaurant industry. The biggest threat substitute for the company is healthy foodstuffs. Restaurants such as the Michelin Star restaurants which are offering health natural foods. The increase in diet related products has led to increase in healthy food campaigns as one way of supporting healthy life styles. As a result, high end restaurants such as Michelin have gained popularity as they substitute fast foods that are criticized as unhealthy foods. From this perspective, the threat of substitutes is very high and McDonald is at risk of losing their customers to high end restaurants (Auty, 2011). To acquire a competitive position, the company should consider offering healthy foodstuffs to compete with Michelin Star restaurants that are the greatest threat to McDonalds survival. The fourth crucial factor that may affect McDonald’s competitive strategy is the bargaining power of buyers within the fast food industry. Within the restaurant industry, the purchasing power of customers has increased due to increase in the number of fast food restaurants. Since the customers have many options including purchasing from high end restaurants such as Michelin Star, they can easily bargain for better prices and quality. The result is that there is increased price competition within the market. As a result, the companies have to cut down prices to conform to the market conditions. To maintain their customers the organizations needs to focus on the changing customer tastes. With an increase in the campaigns against junk foods, the consumers are preferring natural food products that do not pose threat to their health. Companies such as Michelin are targeting customers who prefer healthy foods, which are reducing the McDonald’s customer base (Atkinson & Brander, 2001). McDonald’s leaders have ventured in offering salads with organic Newman’s own dressing and substituting their cooking oil as health reform. His change is essential for the company if it has to adjust to the new health standards within the food industry. Apart from that, the company will be able to comply to regulation on foodstuffs that are bound to arise as the government invests in campaigns to protect the public from lifestyle related illnesses. Notably, adjusting to customer taste variations will give the organization a good platform to compete with high end restaurants that are concerned with health reforms. Finally, the bargaining power of suppliers within the restaurant industry has increasingly become more important while developing a competitive strategy. One of the suppliers in the market is the drinks suppliers such as Coca Cola and Pepsi. There are a few drinks suppliers within the market which puts their bargaining power at a high level. Therefore, the suppliers control the prices of the products which often increase the investment expenses. This makes it a challenge for McDonalds to launch price competition against its rivals. Therefore, the company must monitor its supply chain to ensure efficient flow of deliverable and to maintain good relaships with their main suppliers (Atkinson & Brander, 2001). However, this is also crucial for substitute companies such as Michelin if they have to compete with the fast food industries. McDonalds should consider bulk purchasing to ensure that they can win price discounts from the suppliers, which is crucial while developing an effective price competition. The future of McDonalds depends on the ability to remain flexible and to adjust to changes that are consistently developing in the restaurant industry. Conclusion A close analysis of the restaurant industry shows that McDonalds is experiencing market pressure due to increase in the bargaining power of both suppliers and customers. Increase in competition rivalry from other fast foods such KFC and substitute products have threatened the survival of the company within the market. However, the company experiences little threat from new market entrant due to presence of market entry barriers. High end companies such as Michelin Star restaurants are becoming a big threat due to the increase in the awareness for healthier eating habits. While the two companies are completely opposite, there is evidence that their target markets are converging. From this perspective, McDonalds needs to focus on healthier foodstuffs and stronger marketing techniques to capture new customers. Secondly, the company must use flexible strategies to sustain development and maintain strong supplier relationships to maintain a high profile On the other hand, Michelin Star needs to reduce their prices if they have to win customers from the fast food market who prefer low priced products. Bibliography Atkinson, H., & Brander Brown, J. (2001). Rethinking performance measures: assessing progress in UK hotels. International Journal of Contemporary Hospitality Management, 13(3), 128-136. Auty, S. 2011. Consumer choice and segmentation in the restaurant industry. Service Industries Journal, 12(3), 324-339. Kelliher, C., & Perrett, G. 2001, Business strategy and approaches to HRM-A case study of new developments in the United Kingdom restaurant industry. Personnel Review, 30(4), 421-437. McDonalds.com, 2015, Better Not Just Bigger. Available from:< http://www.mcdonalds.com/us/en/our_story.html> Roy, D. 2009, Strategic foresight and Porters five forces: Towards a synthesis. 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