Porter’s five force theory model Example ---- McDonalds
In this Five Forces analysis of McDonald’s, the forces are mainly within the fast food
restaurant industry. As the leading restaurant chain business in the world, the company is
an example of effective strategic management, especially in dealing with competition in
different markets worldwide.
1. Competiton rivalry- strong
McDonald’s faces tough competition because the fast food restaurant market is saturated.
This element of the Porter’s Five Forces analysis model tackles the effects of competing
firms in the industry environment. In McDonald’s case, the strong force of competitive
rivalry is based on the following external factors.This factor increases the intensity of
competitive rivalry that McDonald’s Corporation experiences.
2. Threat of new entrants- moderate
On the International level, the threat of new entrant is weak force as there are a number of
entry barriers. To become successful competitor of McDonald’s, the entrant would have to
create a large number of outlets throughout the globe which require massive capital or
time, quickly establish economics of scale to become profitable, gain access to suppliers of
meat and other raw materials, and carrying out extensive marketing to create awareness
amongst consumers. This make it difficult to new entrants to step in and produce
competition.
3. 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 order of McDonald’s are
massive on a routine basis. There are number of suppliers that would be willing to
become the suppliers of McDonald’s. Thus, suppliers are in no position to bargain with
company as they can easily switch suppliers.
4. Bargaining power for Buyers – Strong
The buyer 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. This puts the buyers in a strong position of bargaining to influence
McDonald’s to retain its price if it wants return customers.
5. 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. Switching to these
substitutes do not have any associated switching costs.
