Porter's Five Forces model- McDonald's

The fast food industry is huge and growing. McDonald’s, KFC, Burger King, Subway, Domino’s Pizza are certain names that pop out in everyone’s mind when they talk about fast-food. But McDonald’s is the one that has maximum market share sales. McDonald’s is the world’s largest chain of hamburger fast food restaurants, serving around 68 million customers daily in 119 countries across 35,000 outlets. A McDonald’s restaurant is operated by either a franchisee, an affiliate, or the corporation itself. McDonald’s Corporation revenues come from the rent, royalties, and fees paid by the franchisees, as well as the salad in company-operated restaurants. McDonald’s primarily sells hamburgers, cheeseburgers, chicken, french fries, breakfast items, soft drinks, milkshakes, and deserts. In response to changing consumer tastes, the company has expanded its menu to include salads, fish, wraps, smoothies, fruit, and seasoned fries. The company focuses on marketing strategies that effectively attract a wide variety of people. They especially appeal to children in hopes that they will become lifelong customers.

A good way to analyze the strategies is by using the Porter five forces competitive model. The model helps to analyse the industry condition and helps to decide if one should enter an industry. Furthermore, it helps an existing firm to take measures to find their shortcomings and work on them. 

Rivalry among the existing companies in the industry

The fast food industry is very competitive and dynamic. McDonald’s has many competitors here. The top are Burger King, KFC, Wendy’s, Yum, Subway, etc. Though McDonald’s has achieved to have the maximum sales and market share, but to exist in such a competitive industry, they are always making new moves and trying to differentiate their product. McDonald’s has differentiated their product by keeping the price lower than their competitors. They are always trying to bring out new items or promotions as the high level of competition results in copying the ideas.

So we can conclude the rivalry among the existing companies in the industry is very high.

Threat of new entrants

McDonald’s and other existing big companies have set certain entry barriers for the new entrant in the fast-food industry. As for McDonald’s, it has the economies of scale, brand image, 35000 restaurants worldwide- which made the entry of new companies really hard. Other than this, McDonald’s low price and operations in Wal-Mart’s and sports stadiums have also created entry barriers.

So, we can say the threat of new entrant for McDonald’s is quite low.

Threat of substitutes

For McDonald's, any other food industry is a substitute. From class restaurants, to hot- dog stands, to grocery stores, McDonald's faces a very large amount of substitutes. However, convenience and availability are the main drivers for choosing fast food. McDonald's deliver a great service and make it easier for customers to buy their items as their stores are available at many places and open all the time. Furthermore, the value they provide at cheap price work as a driver to not shift to any substitute. 
So, the threat of substitute for McDonald's is moderate. 

Bargaining power of customers

The fast food industry has a huge number of customers. McDonald’s relies on a strong customer base. It is very important to know about the customer’s demands and expectation. So far, McDonald’s has differentiated their product by low price. But if their price increases or other companies lower their price, McDonald’s might lose their customer base. There are similar products in the market, the buyer’s cost is low and also the customer’s are becoming health conscious, which are threats for McDonald’s. They have started offering salads and changed their oil to healthier substitute as a result of consumer’s health consciousness.

So, bargaining power of customers of McDonald's are pretty high. 

Bargaining power of suppliers

Based on the good relationship that McDonald's has with the suppliers, the bargaining power is fairly stable currently. Being in the industry for such a long time and being such a big corporation, both McDonald's and their suppliers rely on each other. McDonald's has a good supply chain of quality materials at fair prices and suppliers are surely content with supplying to a large consuming company such as McDonald's.

So, bargaining power of suppliers is moderately low for McDonald's. 

References:

http://en.wikipedia.org/wiki/McDonald's 

http://misznina17.blogspot.com/2008/12/porters-competetive-forces-model-on.html