Porter’s Five Force model was introduced by Professor Michael Porter of Harvard Business school in the mid 1980s. This new model deals with factors outside an industry that influence the nature of competition inside the industry. Following are the break down of Porter’s 5 Force Model:
- Competitive Rivalry
- Threat of New Entrants
- Power of suppliers
- Power of buyers
- Availability of Substitutes
Fast Food Industry
Competitive Rivalry – MODERATE attractiveness
Fast food industry in this case means a global chain of hamburger fast food restaurants. Since, this is a mature industry there are few dominant players already existed in the market for decades already. Fast food giants like MacDonald, Burger King, and Wendy’s, are continuously competing with each other to capture more market shares and seeking more profitability. As result, these multinational corporations have to extend their competitions beyond the domestic market and moving into global environment.
Threats of entry posed by new or potential competitors – LOW attractiveness
It’s not easy for new companies to enter the industry. New competitors will need to face many major players, who have stable market shares with large assets. New competitors will also need a large capital to enter into the business and generate enough earning to maintain the high operating fix cost. Tied government regulation and complicated inspections are needed because their final products that directly related to consumer health.
Bargaining power of suppliers – LOW attractiveness
The impact of the suppliers on the sellers is low because most of the current major players have their own production subsidiaries. Most of inventories are directly produced by the same company. Other market suppliers are only needed to provide supports in case of shortage in the production.
Bargaining power of buyers – LOW attractiveness
The consumers hold substantial power and have direct impact to the industry. Main reason is because the cost of switching to another restaurant is very simple. In fact, most fast food customers are middle to low income consumers; this means they are price sensitive. If seller increases the price it’s highly possible that they will lose current customers.
Availability of Substitutes – HIGH attractiveness
This industry has much more product substitutes compare to other industry because the choice of food is endless, consumers does not have to depend on fast food to live. This also indicates that the cost of switching from one product to another product is low.
Overall, Fast Food Industry is not very attractive to new investors.
