The Mc Intire Investment Institute Fundamental Presented by

The Mc. Intire Investment Institute Fundamental Presented by Shilpee Raina PORTERS FIVE FORCES: A guide to industry analysis

What are Porter’s Five Forces? § Developed by HBS professor, Michael Porter: Competitive Advantage: Creating and Sustaining superior Performance § Extensive framework utilized to assess an industry’s competitive environment § Incredibly useful in determining a company’s positioning and evaluating its strategy

The Five Critical Factors § § § Threat of Potential Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Threat of Substitutes Rivalry Among Competitors Apply to: FAST FOOD INDUSTRY

Threat of Potential Entrants • Ability of new firms to successfully enter the market due to level of BARRIERS TO ENTRY – Economies of scale, capital requirements, cost & distribution advantages: International Food Chains – Product or service differentiation: Happy Meals – Psychological factors: Burger King brand name • Fast Food Industry: HIGH barriers to entry, LOW threat of entrants

Bargaining Power of Buyers § The buyers ability to drive down prices, demand higher quality goods, and play competitors against each other § Power GAINED by: § High concentration of Buyers relative to companies: several fast eating options for mainstream consumer § Products/services are undifferentiated: burgers are burgers § Purchases represent significant fraction of buyer’s cost: fast food is inexpensive, lower buying anxiety

Bargaining Power of Buyers § Power REDUCED by: § Differentiate Product or Services by raising SWITCHING COSTS: chalupas, happy meals, whoppers § Avoid dependence on one buyer: kids, teens, and adults § Fast food industry: HIGH Bargaining Power of Buyers

Bargaining Power of Suppliers § The suppliers ability to raise prices, or reduce quantity and quality of inputs § Power GAINED by: § Supplier’s industry is concentrated: input foods are common goods § Buyer is not important to supplier: several food chains § No substitutes: numerous food wholesalers § Power REDUCED by: § Supply flexibility: relationships with many wholesalers § Backward integration: develop own farms § Fast Food Industry: LOW

Threat of Substitutes § These are products/services that perform the same function, but are in different industries: grocery stores, fast casual § Availability of substitutes limits industry profitability § To REDUCE threat: § Product/service differentiation: dollar menus, brands § Collective industry response: healthier foods, low prices § Fast Food Industry: HIGH

Rivalry Among Competitors § Competition is intensified when: § Competitors are numerous and equally balanced § Slow industry growth: fast food is saturated § High fixed costs: need to sell high volumes to recup § Standardized products/services: intense price competition, $1 menus § Fast Food Industry: HIGH level of rivalry

In Summation Fast Food Industry is highly competitive due to: high barriers to entry, high bargaining power of suppliers, significant substitutes, and intense rivalry. QUESTIONS?