Understanding the industry’s attractiveness in terms of competitive forces led to the development of five forces model. The five forces model was developed by porter (1980) as a holistic way of looking at industry and understanding the structural underlying driver’s of profitability in competition. It helps strategic managers to understand an industry’s attractiveness and the effect they have on the firm’s ability to compete. Each force exerts influence on the firm’s potential profit and growth.The fast-food industry is highly competitive. There is intense rivalry in the industry as each restaurants jockeying for position using tactics like price competition, product introduction and advertising slugfests.
McDonald’s has been able to acquire a larger market share, larger access to distribution, strong brand loyalty and wider geographical reached. All these set it apart from its rivalry. There is also high threat of entry in to fast-food industry.The reason being that the capital requirement is low and there are no legal barriers which could keep potential entrants from entering the industry.
The impact of this, on McDonald’s is relatively low because of its large economies of scale, strong brand loyalty, large market share and good marketing strategies. The bargaining power of suppliers was relatively low as there is low switching cost and McDonald’s was able to established food towns that consist of a distribution centre, a bakery, a meat plant, a sauce plant and a chicken plant.The power of buyers (consumers) however posed a significant concerned to McDonald’s.
Consumers are now more concerned about the nutrition content posed by eating McDonald’s food. Menu ingredients with high fat, sodium and cholesterol are not consistent with the changing needs of consumers . As said by Stephen J. (2005) “a cheeseburger and fries will kill me for the day”. This man has stopped visiting McDonald’s restaurant. McDonald’s was taken to court by individuals who claim that eating McDonald’s food caused their poor health and oversized weight.There are other series of cases (such as youth slavery, environmental pollution etc) that affected McDonald’s profitability in (2003).
The threat of substitute is relatively high in fast-food industry. Fast casual chain that is fresher than fast-food are spreading all over countries. For example cafi?? de coral (Hong Kong Chain), Sunway (American Chain) etc are increasingly popular to the extent of taken the larger market share from McDonald’s (independent 2003).It can be deduced that there is relatively high level of coherence of the firm’s strategic aims of being better not just bigger and the strategic choices, resources, and capabilities from the period of 2001 to 2007.
The strategic choice of differentiation and cost leadership enabled the firm to concentrate on the development of capabilities that contributed to the performance of those activities that added value to customer.From the analysis, McDonald’s will continue to be the leader in the fast food industry because of its large market share, product innovation, geographical reached, employee development, improvement in technology as well as its marketing strategy. The company was able to link its supporting activities such as staff training, technology (software) to the primary activities such as inbound logistics, operation, and marketing to create product customer value.Although, the firm’s franchise operation increases its business expansion but it also created rivalry among the franchisee, non HALAl food, health concerns, not targeting older customer are some of the weaknesses.
The five forces analysis shows that the industry is still attractive to McDonald’s as it has been able to create larger geographical reach, good marketing strategy, staff training, brand loyalty and product innovation in sustaining competitive advantage.