The Fast Food Industry
A Porter 5-forces model of the fast food industry-----Wu Rongrong
The threat of new entrants in the fast food industry is high. Because there are no legal barriers which would keep them from entering the industry. The major barriers in which a firm faces in the industry are the economies of scale and the access of the distribution. In order for a firm to enjoy success in the industry, they must spend a large amount of capital on advertising and marketing. The industry is very competitive because firms are always attempting to steal customers from each other. Access for distribution is crucial in the restaurant industry because if the customer can’t ...view middle of the document...
Dishes and drinks based on the completeness of market competition and the low purchase rate in the fast food enterprises, the two types of supplier’s negotiation ability is weak, so the fast food enterprise has the high control on it. In general, the raw materials market of agricultural products is basically free competition market, so the bargaining power of suppliers is low. (3)The availability of raw materials for the fast-food industry is readily available not only locally, but available from neighboring countries as well. For example, due to the high rice prices in the Philippines, Jollibee can reduce its costs and source for rice in Thailand, Vietnam or Cambodia. (4)
The bargaining power of buyers is high. Customer’s demand for fast food is various. Biologically, people do not want to eat certain kinds of food for a long time and they must change their taste, which lead to the low consumer loyalty to the same restaurant. From the perspective of economics, repeated consumption of food make the marginal utility of the food decrease, and it will eventually be replaced by a substitute. (5)The bargaining power of buyers is mainly distinguished from individual customers and group customers. As an individual customer, he is usually the receiver of the price. Once the individual consumers choose a fast food, they usually have accepted the enterprise’s set price. But the group consumers generally have strong bargaining power. For group customers bargaining, the fast food enterprise must determine the specific price according to the different target market, price elasticity of demand and perceived value. To stabilize the scattered individual customers, and to obtain the group clients, it requires the innovations in diversified products and the keeping of quality.
The threat of substitute is low. The threat of substitute is derived from the following three factors: the performance and cost performance of substitute, the switching cost of substitute, and the buyer's desire. The threat of substitute is different in different customer groups. The consumer demand for fast food is mainly to meet the dominant demand in a relatively short time, namely physiological needs such as filling a hungry stomach, and implicit requirements such as good repast environment and unique diet culture experience, and so on. (6The customers who mainly want to fill the stomach are easy to consume the substitute. The customers with the pursuit of diet culture and fine dining experience generally don't choose the substitute, and it is mainly because the current consumption levels of the substitute can’t meet the needs of the customers. Because the target consumer groups are different, so the threat of substitute is low.
Industry Competitors Intensity of Rivalry is high. Currently in the fast food industry, there is intense competition for growth in the market. The market growth is rising because of the convenience factor and busy consumers not having enough...