Five Forces Model
Rivalry Among Firms:
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 time to cook a meal. The restaurant industry is also growing rapidly due to
opportunities in other global markets. In McDonalds case, they actually have a competitive
advantage because they have already entered many different countries and are succeeding
in these countries. Each firm within the food-service industry is susceptible to losing
customers because there are relatively no switching costs for consumers, therefore the
industry has to rely heavily on their brand image and quality of products. McDonalds has a
number of competitors; however they are currently the leader of the industry in market
capitalization with a cap of $39.31 billion.
Threat of New Entrants:
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 cant see you or access you easily its possible
that they wont go out of there way
to eat there. Franchise options also make is easier to enter the market, for example Subway
has built their strategic plan around franchise options. Therefore, initially the only cost to
enter the market is the starting capital required to open a restaurant. However, it can cost
upwards of millions of dollars for all the equipment, licensing, and the property. This
costly barrier is the most probable reason that people do not enter this business. The
food-service industry doesnt have any exit barriers, which allow firms to easily leave the
industry if theyre not successful, at virtually only the cost incurred.
Threat of Substitute Products:
McDonalds is known for their famous French Fries, Big Macs, and Happy Meals.
Competitors of the industry also try to compete with similar products; therefore, leading to
price wars. McDonalds created a Dollar Value Menu, in response to competitors such as
Wendys 99 cent menu. Overall, the industry has tried various product differentiations in
