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Five Forces Analysis of Wendy’s

Wendy’s Five Forces Analysis

Wendy’s owns and operates 6537 restaurants as of January 1, 2017. The brand has a limited presence outside North America which is its largest market. Wendy’s largest share of revenue comes from US and Canada. It is a franchise based business whose largest share of business comes from the franchisees that operate more than 95% of its restaurant stores. Wendy’s operates hamburger sandwich restaurants that serve good quality food. It is the third largest in the Hamburger Sandwich segment. For fast food businesses two things have become central to the growth of business in the 21st century that are food quality and technology. Both these things are important to attract and retain customers.

Millenial consumers want healthy food at affordable prices. However, to retain them it is important to provide them with a distinct customer experience that can be made possible only through the use of modern technologies and interactive mobile websites. AI is helping brands deliver a differentiated customer experience. Online ordering is now common and a larger number of customers order food from their mobile phones. This is a five forces analysis discussing how competitive Wendy’s is. The porter’s five forces analysis is a tool that can help analyze the competitiveness of a business. These forces are a part of every market and business and help managers and investors understand the market or business’ attractiveness and potential.

Bargaining power of suppliers:

The bargaining power of Wendy’s suppliers is low because of their large number and smaller size. Since its foundation, Wendy’s has been sourcing food and raw material from American farmers and ranchers. These suppliers are not very large businesses and hold no significant clout.  It sources its food and raw material responsibly from sustainable sources. The suppliers are required to follow the Wendy’s suppliers code of conduct.  This code includes four important areas related to quality, health and law – “Food Safety and Food Ingredients, Farm Animal Health and Well-Being, Human Rights and Labor Practices, Environmentally Sustainable Business Practices, and Business Ethics and Integrity”. 

Wendy’s also conducts regular quality assurance audits at its suppliers’ operations facilities. The audit team observes the condition of the suppliers’ operations at least a time annually. Audits also include questions related to the health, safety and welfare of workers. In this way, the suppliers have to abide to the rules set by the business and follow the guidelines. Wendy’s holds the upper hand because of its financial clout and because it buys raw material in bulk. In this way, the bargaining power of the suppliers remains low and they are required to provide the required quality at affordable prices.

Bargaining power of customers:

The bargaining power of Wendy’s customers is moderately high. In the 21st century, the power and control have shifted into the hands of the customer. There are several factors behind this change. One is the increased competition and the other is the rise of technology. Increased competition means now a higher number of firms are competing for market share. Every customer is valuable and so brands are investing more in marketing, quality and customer retention. Each brand is trying to follow the highest quality standards and trying to provide their customers with the best quality food in order to remain popular. Wendy’s is also trying to push the line of quality and customer convenience to the highest. It is why apart from focusing on quality, it is investing in technology and supply chain. Customers are at the centre of everything in this era. They are well informed and make their decisions widely based on several factors including quality and brand image. This is also why now brands are more focused at CSR and sustainability. There are some factors that moderate this pressure. These factors that moderate the bargaining power of the customers include the brand image, quality of products, marketing and customer convenience. Wendy’s scores well in all these areas and so holds some clout over the customers. The overall bargaining power of the Wendy’s consumers is moderately high.

Threat of substitute products:

The threat of substitute products for Wendy’s is moderately high. Its substitute products are the other fast food brands including those selling hamburger sandwiches and other kinds of fast food. In the western markets hamburger sandwiches are a popular fast food product. However, there are other substitutes too like chicken and Pizza. The number of local and international brands has grown and that has resulted in an increase in the number of substitute products. While the fast food brands and their products are a direct threat, the other local and international food and restaurant brand also pose some threat.  In this way, the overall threat from substitute products remains moderately high. The factors that moderate the threat from substitute products is the quality and brand image as well as the level of customer convenience offered by the brand. These things together spell brand loyalty and reduce the threat from the substitute products.

Threat of new entrants:

The threat of new entrants in the fast food industry is moderate. It is because the barriers to entry are not very high. At a local scale a brand can start with a small capital investment. However, to reach a national or international level or expand overseas and become a large brand with a good image, there is a large investment in operations, marketing and human resources. Another factor that is raising the barrier higher is the regulatory framework. The legal regulation of food brands has grown high. In the Asia pacific region and Middle Eastern markets, these barriers can be even high and can deter foreign brands from entry and expansion.  These factors deter new brands from entry and the overall threat becomes moderate.

Competitive Rivalry in the industry:

The level of competitive rivalry in the industry is high. There are a large number of fast food brands in the local and international market. The main market for Wendy’s is North America. Western markets are full of international fast food brands.  From McDonalds to Burger King, KFC, Starbucks and Domino’s pizza, there are several major fast food brands that are competing with each other for market share. Apart from the big brands there are local brands which are also adding to the intensity of competition in the international markets. The level of competitive rivalry in the fast food industry overall is high.