The McIntire Investment Institute Fundamental Presented by Shilpee Raina

1
The McIntire Investment Institute
FundamentalPresented by Shilpee Raina

• PORTERS FIVE
• FORCES
• A guide to industry analysis

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What are Porters Five Forces?

• Developed by HBS professor, Michael Porter
• Competitive Advantage Creating and Sustaining
  superior Performance
• Extensive framework utilized to assess an
  industrys competitive environment
• Incredibly useful in determining a companys
  positioning and evaluating its strategy

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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

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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

5
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
  buyers cost fast food is inexpensive, lower
  buying anxiety

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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

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Bargaining Power of Suppliers

• The suppliers ability to raise prices, or reduce
  quantity and quality of inputs
• Power GAINED by
• Suppliers 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

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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

9
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

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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?