The McIntire Investment Institute Fundamental Presented by
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Transcript The McIntire Investment Institute Fundamental Presented by
The McIntire 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?