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Porters Five Forces in Fast Food Industry

Essay by kusha08  •  May 7, 2017  •  Case Study  •  1,737 Words (7 Pages)  •  933 Views

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Porters five forces in fast food industry

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Threat to new entrants

Fast food industry is dominated by numbers of Quick Service Restaurants (QSR) chains including McDonald’s, Pizza Hut, Burger King, KFC, Domino's etc. These well established and leading chains made their strong market position. The franchise fast food industry are somehow have succeed in creating best customer values, expectations, customer loyalty (brand loyalty) and recognition with their long effort developed over time.
In this condition a new fast food company seems difficult to set up a new restaurant which can provide best customer value and also difficult to create a strong brand loyalty.
Because of the high brand value and high brand awareness of the existing brands (product or service) act as a strong barrier to enter and set up a new fast food chain. So, the market penetration is very difficult. But it is easy in the sense that the initial capital and fixed cost is low, high profit margin, which encourage new entrants.

Threat of substitutes

The substitutes for fast food industry are the other foods like easily available ready-made meals in the retails and supermarket. The cheap and easily accessible ready made food, frozen foods are the substantial threat to the fast food industry. Other reason for substitute are the consumer awareness, technology, advancement, smart purchasing behaviour, easy brand switching etc.
So, the alternative food products are the substantial threat of substitute. However, the trust, convenience are the value adding component which is only gained by the established fast food chains and it reduces the threat of substitute.

Competitive Rivalry


Established fast food industry has scattered and fragmented market with many global chains and independent operators. In some respect the competition is high which may reduces the price. The local takeaway shops are the main competitors. However, it is very difficult for a new company to compete on price, quality, service against the highly branded fast food company because to gain recognition and branding is not an easy way. They have to spend a lot in researching customer value.



Power of Buyers


The power of buyer is high because of high product differentiation, greater choices, high price sensitivity, consumer awareness, change in social norms, consumer awareness with media and technology etc. however, high brand value and customer loyalty has reduced the bargaining power of the buyer in fast food industry . For example if a customer is habituated with the chicken of KFC, he prefer to KFC even he get the best value from other fast food.


Power of supplier


The different fast food has different suppliers. Every fast food has different butchers, farmers, packaging company and other different value chains. So, the suppliers have ability to raise prise or reduce quality, quantity. The suppliers gain power because food is the most essential commodities. The shortage of it, the low qualities lose the customer value gained so far. Secondly, the buyers are not important for suppliers because of high demands of their products they can easily switch different buyers. However, the company can reduce the power of suppliers by creating agreement with multiple suppliers so that just in case of terrible situation they can easily change the suppliers. They can also develop their own farm and packaging.

PESTEL ANALYSIS 

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Political

The political surrounding can be strongly affected marketers decisions. There has been increased regulation of business in recent times. The fast food industry is bounded by health and safety guidelines, which includes the hygiene and quality of the food. Since 2004 the labelling of GM (Genetically Modified) food has become important and UK’s government getting strict on this regulations as they want customers have right to know fully about the product and  then decide they want or not. Fast food industry also affected by the introduction of Goods and Service tax (GST) which give more emphasis on service that customer will not able to get in their home rather than product [pic 3]

which also resulted in the change of prices in fast food outlets while the prices of other items remained unchanged. Fast food Industry meet the political requirements such as national minimum wage regulations which had affect of cost.

Economic

Economic factors have an effect on all business, nationally and globally as these factors affect the purchasing power of the customers and the firm’s cost of the capital. It was reported last year that the fast food industry is worth £96.1bn to the UK economy. Organisations like McDonald’s, which have global presence, are affected by the change in inflation and the exchange rates. Despite the recession in 2008 Fast food industry do better rather than restaurants as they cut down the prices and consumers tend to reduce the expenses on luxuries meals because of their low disposable income so they prefer for low cost and convenience of fast food industry. [pic 4]

Social

Social factors affect our lifestyle since we live in society as it also include demographic changes also. In UK people have busy lifestyle and fast food restaurants are known for their best quick and convenience service, which resulted in important part of fast paced UK lifestyle. As people are becoming more health conscious and adopting healthy eating because of obesity which is major problem in UK   which pressurized the fast food industry to offer healthier stuff in their menus which includes salad, low calorie food with nutritional content. For example Burger king targeting children also by making special kid zones for them. They are also offering halal meats considering Muslims cultures and avoiding use of pork meat. McDonald's also give happy meals for kids, which include toys, which helps to attract them. Recently in UK the authorities has tightened the regulation regarding targeting the children as they banned the broadcasting of junk food advertisement because they were getting about serious of child obesity.[pic 5]

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