This is the detailed Porter five forces analysis of McDonald’s which is one of the famous fast food chain network around the globe. Even though the menu being offered by McDonald’s is common these days however, it has strong history and brand value.
McDonald’s is an American fast food and hamburger restaurant. It was found in 1940 by Maurice and Richard McDonald in California as a barbecue restaurant. In 1948, it moved into hamburgers and the first franchise was opened in Phoenix, Arizona in 1953. McDonald’s was incorporated in 1955. Today, it is one of the largest restaurant chains in the world with about 37,000 outlets in more than 100 countries that serve approximately 69 million customers every day. The main products of McDonald’s are hamburgers, French fries, cheese burgers, breakfast items, milk shakes, soft drinks, and desserts. McDonald outlets are either as franchises, affiliates, or self-operated by the corporation. McDonald’s earns its revenue from company operated outlets, rent, franchise fees, and royalties. The company had revenue of more than $24 billion in 2016 and has approximately 375,000 employees.
Following is a detailed Porter Five Forces Model Analysis of McDonald’s:
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.
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.
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.
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 (Gregory, 2017). 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.
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 (Sweet, 2014). Therefore, the threat of substitutes is a strong force against McDonald’s.
References
Gregory, L., 2017. McDonald’s Five Forces Analysis (Porter’s Model). [Online] Available at: http://panmore.com/mcdonalds-five-forces-analysis-porters-model [Accessed 29 Aug 2017].
Sweet, M., 2014. McDonald’s Porter’s Five Forces Model. [Online] Available at: https://prezi.com/hgudoac_fv7c/mcdonalds-porters-five-forces-model/ [Accessed 29 Aug 2017].