Five Forces About Fast Food Chains

TETA? 2607Exercise2 PartIbriefintroductionof nimble provender restaurants The industry I selected is riotous food restaurants which are overly named as quick service restaurants. As a special type of restaurant, fast food restaurant is characterized both by its fast food cuisine and by its self table service. The majority of fast food restaurants are part of a restaurant chain or franchise operation so that severally branch could be provisioned by homeardized ingredients and controlled by unified management. Within this industry, several leaders should be identified.Founded in 1940, McDonalds Corporation is the foundings largest chain of hamburger fast food restaurants, daily serving around 68 million customers in 119 countries. (mcdonalds. com & burgerbusiness. com) In the year of 2011, the net income has reached 27 billion USD with net profit of 5. 5 billion USD. In the recent tailfin years, McDonalds revenue kept increasing and the average increase respect was 3. 1 %. ( Mc Donalds annual report,2011). thermionic valve which is owned and operated by Doctors Associate is an American restaurant franchise which mainly sells sandwiches and salads.Subway, as the largest single- speck restaurant chain globally, keeps the fastest gro hold in ing franchises in the world with 37000 restaurants in more than 100 countries. (subway. com) KFC (Kentucky Fried Chicken) is the worlds largest chain of fried chicken fast food restaurants. It is also the second largest restaurant chain after McDonalds, with over 17,000 outlets in 105 countries. (KFC. com) PartIIIndustryanalysisbyFiveForces In 1979, Michael Porter published How Competitive Force Shapes system in the Harvard Business look into (HBR) which started a revolution in the strategic field.He proposed five competitive forces which could to great extent determine the profitability of an industry and dodgings formulation. In this part, Five Forces will be utilized to analyze the fast food restaurant industry. T ypetext Page1 TETA? 2607Exercise2 Threat of Suppliers The suppliers of fast food restaurant loosely are meat producer, vegetable retailers, beverage companies and bakeries food retailers. As meat and vegetable are hard to differentiated, it is difficult for such a supplier to jump out out.Also, most of these suppliers are local and small-sized while the quick service restaurants are international and giant hence, it is easy for the fast food chain to be the predominant player. As for the fast food restaurants, in general, the switching costs are not high if they want to change their supplier of meat and vegetables. However, some supplier brands are quite powerfulnessful such as beverage companyCoca cola because their product is unique in the marketplace. It is also possible for a supplier to be integrated forward such like building up crapper relationship with fast food restaurant to enlarge their impart power.To sum up, the supplier power in the fast food restaurant is low -spirited relatively especially among non-differentiated good suppliers. Threat of Buyers There are many another(prenominal) small operators in the fast food restaurant industry which means buyers have many alternatives to choose the most suitable quick service restaurant. Meanwhile, thither is almost no switching cost for customers to change their tastes. Additionally, the buying information is also abundant and available for the customers to select the most satisfactory restaurant. It seems that buyer power in the fast food restaurant is relatively high.However, the volume of each customer generally is not extremely important to overall sales of the companies and hence, each individual customer may not be valued much by the company. That diminishes the power of the buyer to some extent. Also, at that place is no brat of transposed integration which means it is almost impossible for customers to build up cooperative relationship with fast food chains. Hence, buyer power would l owered by need of possibilities of integration. The concentration of buyers is low which also reduce the power of buyer.As for the fast food chain, the brand identity also helps them to decrease the threats from customers. To sum up, the threat from buyer is at the moderate level according to the above Typetext Page2 TETA? 2607Exercise2 analysis. Threat of brisk entrants As the threat from new entrants, the first thing to consider is cost. Obviously, the entrance costs are relatively low when compared to other industries such like mobile phone manufacturing and information technology industry. However, the cost of brand building also plays an important share as brand identity is perceived as a significant factor of fast food restaurants strategy.In the fast food industry, the alert brands are already powerful like McDonalds and Burger Kings so it will take while and expenditure for a fast food store to stand out. All in all, the cost of new entrants is not as low as what we as sume previously. Secondly, the access to supply channels is quite easy because those cranky materials for the fast food restaurant are available normal goods. However, there may exist exclusive contracts with suppliers so that it may make hard for new companies to commemorate this industry. Thirdly, another barricade to enter fast food industry is the access of distribution.Fast food chain always signed exclusive contracts with the college, supermarket, fuel place and others and hence, it is much difficult for a new entrant to build its own distribution channels. The economies of scale and the access of distribution are major barriers that firms face in this industry. Additionally, it is also difficult to differentiate your product in this industry because the product is fairly similar when we divided fast food into different categories (hamburgers, sandwiches, pizzas). To sum up, the threat of new entrants is moderate as we have to consider from all aspects. Threat of substitut esAlthough the switching costs of customers are quite low, the threat from substitutes is still at low level. The main substitutes of fast food restaurant are pre-cooked food, mid-range restaurants or supermarket products. However, eating in a normal restaurant is much more expensive and time consuming. Pre-cooked food is cheap while the facilities to warm it up may not be available. Hence, fast food still held Typetext Page3 TETA? 2607Exercise2 wagess no matter from the price or comfort level. Threat of rivalry The number of competitive rivals with similar products and service for the same customer convention is high.As mentioned before, the initial expenditure to set up a fast food restaurant is not quite so high and hence, many small scale quick service restaurants may try to enter it. Also, there are no high exit barriers because it is easy to close restaurants as the relatively low fixed costs. Meanwhile, the market growth is limited because the market gets saturated with a certain amount of restaurants, fast food shop or delivery services. It seems that the threat of rivalry is relatively high in the fast food restaurant industry. All the above analysis is summarized in the following diagram. Figure 1) Figure1 PartIIIAdditionaldiscussionaboutcompetitivecondition Apart from the five forces that I have mentioned before, there are still some other Typetext Page4 TETA? 2607Exercise2 forces which also affect competitive condition. In the first place, culture plays a more important part in deciding peoples food consumption than before. According to Maddocks (2004) research, there is a correlational relationship between the number of residents per fast food restaurant and the square miles per fast food restaurants with state-level obesity prevalence.This result indicates that fast food restaurants do make a significant contribution to the peoples obesity level. The problem of obesity has already raised publics attention and people concern more about the fo dder of the food sooner than price and convenience. In addition, people also realize that fast food restaurant also to a great extent contribute to the problem of childhood obesity. Another research (Harris, Schwartz &Brownell, 2010) also reveals that Teens between the ages of 13 and 17 purchase 800 to 1,200 calories in an average fast food meal, including 30% or more of calories from dough and saturated fat.As the obesity would hazard humans health, more and more experts suggest that people especially children should eat fast food as weeny as possible. Hence, there is an overall trend that the consumer group of fast food is squeezing. As the market is declining, each company within this industry has to compete harder to win more consumers. In this way, external factors like culture, healthy reports also play an important force to decide the competition level of this industry. Another limitation of five force framework is that some companies in the same industry are cooperators unlike the original assumption that there are all competitors.For example, KFC, pizza field hut and Taco Bell are operated by the same corporationYum. If they are not pure competitors in the market, they increase the entry barrier through reallocating their imagery and supply and distribution channels. For example, these three restaurants could share the same logistic center to enhance the efficiency of company and save the cost as well. This kind of corporation within the same industry was ignored by classic Five Force Analysis which emphasis the pure competition relationship between companies. PartIVConclusion Typetext Page5 TETA? 2607Exercise2Let take McDonalds as an example to analysis the whole industry. Although there is tense competition in this industry that many small fast food businesses contend with each other to improve their customer base, McDonalds still held the absolute advantage in its customer scale. Just like the above analysis, the enter barrier of this indus try is not so high. But McDonalds own strong brand identity and established network and hence, the new small entrants could not threaten to McDonalds. The buyers still hold power to some extent as the switching cost is low and the buying information is abundant.However, McDonalds still have an advantage in location and convenience. As McDonalds has already established the strong network with suppliers, (e. g. cooperated with Coca-Cola), the threats from suppliers are not so intense. Under the current trend, the down-sizing of customer group is the major problem that McDonalds has to face. McDonalds have already implemented some strategies such like launching non-fried product and enclosed the detailed nutrition information of the food. After five forces analysis, McDonalds still should be favorable in the next several years.However, if a new small business contrive to enter this industry, it will face a large number of challenges such like establishing supply channels and distribut ion channels and building its own brand identity. All in all, fast food restaurant is still saturated and unfavorable for business which wants to entry. Reference Harris, J. L. , Schwartz, M. B. & Brownell,K. D. (2010), Evaluating Fast Food Nutrition and Marketing to Youth. Fastfoodmarketing. org Maddock, J. 2004. The blood Between Obesity and the Prevalence of Fast Food Restaurants State-Level Analysis. American Journal of Health Promotion November/December 2004, Vol. 19, No. , pp. 137-143. Typetext Page6 TETA? 2607Exercise2 Porter,M. E. 1978. How competitive forces shape strategy. Harvard Business Review Strategy http//polisci2. ucsd. edu/snunnari/HBR_on_Strategy_23_41. pdfpage=25 McDonalds official website http//www. mcdonalds. com/us/en/home. html Burgerbusiness. comhttp//www. burgerbusiness. com/? p=9168 McDonalds 2011 annual report http//www. aboutmcdonalds. com/content/dam/AboutMcDonalds/Investors/Investors %202012/2011%20Annual%20Report%20Final. pdf Subway official website http//www. subway. com/subwayroot/default. aspx KFCs official website http//www. kfc. com/ Typetext Page7