Analysis of Fast Food Industry: McDonald’s
A porter’s model is a powerful tool for understanding where power lies in any particular industry or business. It helps the businesses to understand their position in the market, the steps they need to take to improve their sales by beating the competition and become the market leaders. There are five basic components in the porter’s model, they are: 1. Threat of New entrants 2. Threat of substitutes 3. Competitive Rivalry 4. Power of buyers and 5. Power of Suppliers. If we look at today’s fast food industry then we can easily apply porter’s model and infer the following:
THREAT OF NEW ENTRANTS
McDonald’s, KFC, Burger King, Domino’s and Pizza Hut are some of the well established players in the Fast food industry. Companies like McDonald’s try to maintain lower selling costs by offering its affordable ‘one dollar’ menu. It tries to adapt to the local culture and alter its marketing strategies by targeting customer of different segments. The brand is positioned differently in different locations. For a new player, competing with a behemoth that enjoys a huge customer loyalty can be a challenge. Moreover, established chains can easily beat smaller competitions by increasing the value of their offering and by increased promotions. Thus, the threat from new entrants is not very high and we can rate it at 2.5 on a scale of 1 to 5.
THREAT OF SUBSTITUTES
It is very easy to find a substitute for fast food as food can be purchased and packed from a restaurant, cafe, hotel, mall or a convenient store. However, the unique selling point of Fast food chain is its availability to have it in a short span of time. It only takes a couple of minutes to purchase a hot cheeseburger from McDonald’s. However some of the substitutes like ‘ready to have meals’ pose a significant challenge to fast food chains. The threat from the substitutes can be rated at 3 on a scale of 1 to 5.
COMPETITIVE RIVALRY
The competition in the fast food industry is pretty intense with McDonald’s, Yum brands (parent company of KFC and Taco Bell) and Burger King holding the top three positions in the market share respectively. Apart from these, the market is fragmented with many other fast food chains. Price-wars, advertising across several mediums and quick service are some of the factors that affect the competition in fast food industry. In 1997, McDonald’s launched ‘Campaign 55’ which reduced the cost of its Big Mac to $.55. It was a response to discounting by Burger King and Taco Bell. The threat from the competition can be rated at 4.5 on a scale of 1 to 5.
POWER OF BUYERS
With an increase in competition, the power of buyers has increased, and customers often make their buying choices based on the pricing of the product. One of the best examples of this is McDonald’s ‘Dollar Menu’ which generates almost 15 % of its total sales. In spite of rising costs, McDonald’s has maintained a $1 price for its double cheeseburger. Apart from these companies are also promoting ‘variety’ in their menus based on the preferences and tastes of the buyers. However , due to increase in the brand value of fast-food chains like McDonald’s and Burger King , the power of Buyers has slightly reduced as the number of loyal customers who would only dine at a ‘McDonald’s’ or a ‘Burger King’ has increased. Thus, the threat from the ‘power of buyers’ can be rated as 3.5 in the scale of 1 to 5.
POWER OF SUPPLIERS
OPPORTUNITIES IN THE ENVIRONMENT THAT MIGHT AFFECT McDONALD’S FUTURE:
The introduction of ‘Mc Cafe’ section to all of its 14000 US outlets can be seen as a great opportunity for the fast-food giant as it can tap the huge consumer base of ‘coffee lovers’. In this way, customers who just want to have coffee based drinks like lattes and cappuccinos can be targeted. It can introduce more ‘healthier options’ in its menu as people are becoming more health conscious these days. Also, the brand has to be positioned differently in different locations at different times of the day and target different customer segment. This will further increase the brand loyalty of McDonald’s and will ensure better profitability in the coming years. The biggest opportunity, however, is to keep its established customer base from bolting to other competitors by adapting to the rapidly changing consumer behaviour.
THREATS IN THE ENVIRONMENT THAT MIGHT AFFECT McDONALD’S FUTURE:
The biggest threat to McDonald’s is the ‘unhealthy’ image given the rise of obesity in United States due to which the firm even faced lawsuits from some of its loyal customers. The company needs to improve on its ‘unhealthy’ image if it wants to compete with brands like ‘Subway’ which surpassed McDonald’s as the fast food chain with the most U.S. outlets in 2001. Another threat that the company faces is losing its true identity. Also, how it keeps all of its outlets under the traditional symbol of its golden arches. The company has to accept that it is primarily a Burger Chain that also offers other options to its customers and not the other way. After all, that’s America’s food and people love hamburgers!
CONCLUSION
McDonald’s long term success will depend on it’s ability to compete with rival burger chains and by making sure that keeps and expands its loyal customer base by providing value for their money and variety.
Works cited
Kotler, Phillip. Keller Kevin L. Marketing Management 4th ed. Washington. Pearson, 2011. Print.
Team Trefis . Forbes.com. Forbes, n.d. Web.28 Jan.2014.
