McDonalds Five Forces Analysis

 McDonalds Five Forces Analysis

McDonald’s is a globally well known chain of fast food restaurants that is comprised of both company owned and franchised restaurants.  The company sells quality food and beverages at various points throughout the world in more than 100 countries. Primarily, however, the brand is a franchisor 85% of whose restaurants are run by franchisees.  Over the long term, the brand has set a goal of having 95% franchised restaurants.   At the end of 2016, the number of employees at McDonalds was around 375,000.

The competition in the QSR industry has grown intense and the focus apart from being on food quality is also on customer convenience.  However, McDonalds is a leading brand in the industry and the reason is that it is adept at anticipating consumer preferences and accordingly innovates its menu. This is a Porter’s Five Forces analysis analyzing the competitiveness of McDonalds. These forces are a part of every market and industry and impact the competitiveness and attractiveness of the industry.

Bargaining power of suppliers:

There is a long line of suppliers catering to McDonalds and apart from some big names there are several farmers that make the supplier community of McDonalds.  From vegetarian to non-vegetarian, the QSR brand carefully selects its suppliers and resources. It cares for the food quality and therefore sources responsibly grown raw material. These suppliers are mostly small in size and do not hold any significant clout against the fast food brand.  From Beef, to meat and fish as well as potato, lettuce, Apple and Coffee all are sourced from various farmers and suppliers that grow and provide healthy food.

If some of the brands like Coca Cola and Pepsi hold some clout then it is because of their size. McDonalds still gets the upper hand because it is a major buyer and sources raw material in large quantities. The overall bargaining power of suppliers therefore remains low. The factors that moderate the bargaining power of the suppliers are the brand image of the QSR brand, its financial clout and its global presence. These factors limit the bargaining power of the suppliers who follow the quality guidelines issued by McDonalds.

Bargaining power of the customers:

In the 21^st century, the bargaining power of the customers has grown very high. The world has seen an economic recession and even after economic activity has returned brands are doing everything to retain their customers. While the switching costs are very low for the customers, brands cannot afford to lose their customers because each one of them is precious. It is why they are heavily focused at maintaining a responsible image and to engage their customers. They invest in CRM as well as food quality.  The customers are well informed in the 21^st century and have every piece of information at their fingertips.  It is why the reputation of a brand matters. McDonalds focuses on every aspect from marketing and product quality to customer service and customer convenience to manage its reputation. Overall, the bargaining power of customers is high. However, there are also factors that moderate this bargaining power of the customers. McDonald’s is present globally and also has a great reputation among its customers. Its brand image is an important factor that moderates the bargaining power of its customers.

Threat of substitute products:

The threat of substitute products mainly comes from the competitors. Apart from the international brands, local brands also offer substitute products. There are other restaurant and hospitality brands apart from the fast food brands that also compete with McDonalds and offer substitute products. The threat from substitute products gets moderated by the fact that McDonald’s has a strong brand image and international presence. The overall threat of substitute products remains moderate for the international QSR brand.

Threat of new entrants:

The threat of new entrants is moderate. It is because the barriers to entry are not too high. However, in case of McDonald’s the threat gets moderated by the fact that it is a well known brand and to erect such a big brand is not easy. There is a large investment in supply chain, operations and marketing as well as human resources. This limits the threat from the entrants. However, a brand can still make an entry at a smaller level locally. So, the threat remains but gets moderated by the brand’s size and image.

Competitive Rivalry among the existing players:

The level of competitive rivalry among the existing players in the QSR industry is very high. It is because of the high number of players in the industry. From Starbucks to KFC and Dominos there are several notable international players operating in the QSR industry. These are big players with a string brand image and financial position. Apart from that there are smaller players too operating in the QSR industry. They also add to the intensity of competition in the industry. Moreover, due to the switching costs being low and bargaining power of customers high, the intensity of competition increases. All the brands are competing for market share and the fight gets intense because of the focus and expenditure on marketing. The overall competitive rivalry between the existing players is high.

Sources:

https://www.mcdonalds.com/us/en-us/about-our-food/meet-our-suppliers.html