Five Forces About Fast Food Chains

TETA? 2607Exercise2 PartIbriefintroductionof unshakable feed eating houses The industriousness I selected is speedy-flying sustenance restaurants which be also named as quick assist restaurants. As a especial(a) type of restaurant, profuse intellectual nourishment restaurant is characterized both by its desist viands cuisine and by its self table service. The majority of exuberant regimen restaurants atomic number 18 part of a restaurant chain or franchise operation so that each branch could be provisioned by standardized ingredients and controlled by unified management. Within this patience, several leaders should be identified.Founded in 1940, McDonalds Corporation is the worlds largest chain of ground beef truehearted regimen restaurants, daily serving around 68 one thousand thousand customers in 119 countries. (mcdonalds. com & burger line. com) In the year of 2011, the electronic network income has reached 27 billion USD with net profit of 5. 5 billion USD. In the recent quin years, McDonalds revenue kept increasing and the average increase rate was 3. 1 %. ( McDonalds annual report,2011). Subway which is owned and operated by Doctors Associate is an American restaurant franchise which mainly sells sandwiches and salads.Subway, as the largest single- scrape restaurant chain globally, keeps the sportingest growing franchises in the world with 37000 restaurants in much than 100 countries. (subway. com) KFC (Kentucky Fried Chicken) is the worlds largest chain of fried lily-livered fast food restaurants. It is also the second largest restaurant chain later on McDonalds, with over 17,000 outlets in 105 countries. (KFC. com) PartIIIndustryanalysisbyFiveForces In 1979, Michael Porter published How warring Force Shapes Strategy in the Harvard Business check (HBR) which started a conversion in the strategic field.He proposed five competitive forces which could to great design delineate the profitability of an industry and strategys formu lation. In this part, Five Forces get out be utilized to analyze the fast food restaurant industry. Typetext Page1 TETA? 2607Exercise2 panic of Suppliers The providers of fast food restaurant much or lessly be meat producer, vegetable retailers, beverage companies and bakeries food retailers. As meat and vegetable be leaden to differentiated, it is difficult for such(prenominal) a supplier to stand out.Also, most of these suppliers atomic number 18 local and small-sized while the quick service restaurants are international and lusus naturae hence, it is easy for the fast food chain to be the dominant player. As for the fast food restaurants, in general, the shift key addresss are not high if they want to change their supplier of meat and vegetables. However, some supplier prints are quite powerful such as beverage play alongCoca cola because their harvest-time is unique in the trade. It is also practical for a supplier to be integrated forward such alike(p) building up corp relationship with fast food restaurant to enlarge their supply power.To sum up, the supplier power in the fast food restaurant is low relatively peculiarly among non-differentiated good suppliers. menace of Buyers There are many small operators in the fast food restaurant industry which means buyers draw many alternatives to choose the most suitable quick service restaurant. Meanwhile, in that respect is almost no electrical switch cost for customers to change their tastes. Additionally, the buying information is also abundant and operable 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 in general is not extremely central to overall sales of the companies and hence, each soulfulness customer may not be valued much by the company. That diminishes the power of the buyer to some extent. Also, thither is no panic of half-witted integration whic h means it is almost impossible for customers to build up co-op relationship with fast food chains. Hence, buyer power would lowered by lack 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 operator 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. scourge of new catechumens As the threat from new entrants, the source thing to treat is cost. Obviously, the entrance costs are relatively low when compared to opposite industries such like mobile phone manufacturing and information technology industry. However, the cost of brand building also plays an important role as brand identity is perceived as a significant factor of fast food restaurants strategy.In the fast food industry, the existing brands are already powerful like McDonalds and Burger Ki ngs so it will take epoch and expenditure for a fast food store to stand out. tout ensemble in all, the cost of new entrants is not as low as what we assume previously. Secondly, the access to supply impart is quite easy because those rude(a) materials for the fast food restaurant are available normal goods. However, thither may exist sole(a) contracts with suppliers so that it may make voiceless for new companies to enter 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, supermart, fuel stations 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 organisation in this industry. Additionally, it is also difficult to differentiate your harvest in this industry because the product is fairly similar when we divided fast food into di fferent categories (hamburgers, sandwiches, pizzas). To sum up, the threat of new entrants is moderate as we drop to consider from all aspects. Threat of substitutesAlthough the switching costs of customers are quite low, the threat from substitutes is be quiet 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 advantages no matter from the price or comfort level. Threat of aspiration The number of competitive rivals with similar products and service for the uniform customer group 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 hi gh exceed 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 sum of money of restaurants, fast food shop or delivery services. It seems that the threat of rivalry is relatively high in the fast food restaurant industry. only 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 decision making battalions food consumption than before. According to Maddocks (2004) research, there is a correlational relationship amid the number of residents per fast food restaurant and the square miles per fast food restaurants with state-level obesity prevalence.This result indi cates that fast food restaurants do make a significant contribution to the peoples obesity level. The problem of obesity has already raised existences attention and people concern more about the sustainment of the food rather than price and convenience. In addition, people also exonerate 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 sugar and saturated fat.As the obesity would scupper humans health, more and more experts suggest that people especially children should eat fast food as little 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 c ulture, 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 vitrine, KFC, pizza hut and Taco Bell are operated by the same corporationYum. If they are not unadulterated competitors in the market, they increase the entry barrier through reallocating their resource 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 handle 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 sm all fast food businesses fight 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 industry is not so high. But McDonalds own strong brand identity and open 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 true 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 plan to enter this industry, it will face a large number of challenges such like establishing supply channels and distribution 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 Relationship mingled with 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/ block/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