Introduction
McDonald’s is one of the leading companies in UK fast food industry. According to the annual report of McDonalds, company has over 1200 restraunts at popular locations like high streets, shopping malls, retail parks etc. It is mentioned in the annual report that company is currently serving approximately 10 million customers on daily basis. One of the record breaking performance of the company was seen in the annual fiscal year of 2008, where company made a growth of 8%. Biggest strengths of the company lies in the quickness of delivering restraunts services along with high amount of food products availability. Despite the fact that company has made profits in UK, all over the world overall growth rate is 7.1%. At the end of fiscal year 2011, sales growth all around the world in 5.6%. The first ever restraunts opened in UK was back in 1974. Since then company opened many restraunts all over UK. In 2011, company became more transparent due to the fact that they started printing nutritional information on the packaging. In 2014, company celebrated its successful 40 years in UK by contributing £40 Billion to the economy of UK. In year 2017, company celebrated 11 consecutive years of growth in UK (www.mcdonalds.com).
Currently global industries have become very competitive and all the businesses are now working on competitive strategies so that they can beat their competitors and become leaders in their respective industries. Porter five forces model will be explained in this paper. This five forces model will tell competitive intensity and the attractiveness of the company in its industry with respect to profitability.
Porter Five Forces Model
In response to the porter five forces model, McDonald’s position in the industry is based on the effectiveness of the firm. Model identifies those relevant eternal factors that affects business organizations (Armstrong et al., 2014). To affect firm’s success and potential, environment of the industry communicates with the company. This analysis gives out an insight about the company’s strategic direction which needs to be according to the external factors. McDonald’s five forces model yields following intensities.
- Competitive Rivalry
- Bargaining power of buyers
- Bargaining power of suppliers
- Threat of substitute
- Threat of new entrant
From the analysis of five forces model, McDonald’s have to prioritize the problems related to consumer, substitute and competition. All of this exerts a strong force on the company. Innovation would be the possible course of action for McDonald’s.
Competitive Rivalry
Because of high competition in the UK market and the fast food restraunts market is very saturated, McDonald’s facing tough competition. Current section of the model caters the competing firms in the industry environment. Large number of firms are prevailing in the market, increased aggressiveness of the firms and low switching costs are the factors that contributes in the strong forces in rivalry. Fast food industry of UK contains many global companies in the market with high sized along with local firms of small sizes. Each firm in the market is striving for a high market share which has increased the competition. Many local companies are operating in the market that are providing same products and same menus which increases the competitiveness of the industry (Dey, 2016). Each of the player in the industry is heavily spending on the advertisements and with the continuation of opening new franchises in different location so that they can get access to more consumers around the country. Firms that are of medium sizes are also prevailing in the UK market. Customers of McDonald’s experience low switching cost. This explains that the customers can go for other restraunts options available in the industry such as Wendy’s. Current section of five forces model represents that competition is one of the significant external forces that make its impacts on the performance of the company.
Bargaining Power of McDonald’s Consumers
There is an enormous need that McDonald’s has to address the significant power possessed by the customers. Current section of five forces model associated with the demands and influence of consumers on a company. High number of providers, large number of availability or products and low switching costs are the factors that represents the high bargaining power of consumers. All of these factors are strong in nature and contribute to the bargaining power of consumers (Dean et al., 2015). Low switching cost explains that consumer has a variety of options available to him that he can switch to any other restraunts that he thinks is better than McDonald’s. There are many substitutes available in the market that contributes highly on the bargaining power of consumer. Most of these substitutes includes Art bakeries and food outlets. From these substitutes one can cook the same product that he wanted to purchase at home easily. Based on these facts McDonald’s must bring out strategies by which consumers stay loyal to the company. Customer’s loyalty towards the fast food restraunts aid declining with every day that is passing because of having so many competitors. Buyers have the power that they can easily protest against any price increase by the company and it is highly likely that they will shift to another competitor. This enables buyer with a situation where they have the power to bargain and in order for McDonald’s to retain its consumers it should not make any increase in the process of the products in UK.
Bargaining Power of McDonald’s Suppliers
Suppliers also impacts highly on the profitability of the company. This section of five forces model represents the impact of suppliers on organizations. Because of low forward vertical integration, increased overall supply and high numbers of suppliers in the industry bargaining power of the suppliers is weak. These are factors that weakens the bargaining power of suppliers. Lack of regional and global alliances among suppliers is one of the biggest reasons that it has weak bargaining power. Suppliers of McDonald’s are unable to control the distribution network maintained and linked with the company. This is the reason why suppliers have weak force towards vertical integration. From this section one can say that supplier’s power is a minimal issues for the company. This is because of the fact that flour and meat is abundant in the market. Most of the raw material that McDonald’s uses is chicken and potatoes that are available in a wide range through a large number of suppliers. There are many suppliers in the market who can do anything just to become the supplier of McDonald’s they again reduces the power of suppliers (Crawford, 2015).
Threat of Substitute
Substitutes are one of the main concerns of the company. This section of five forces model represents with the potential effects of availability of substitutes on the profitability of a firm. Following are some of the factors that represents the strong force of substitutes over McDonald’s. High availability of substitutes, increased performance to cost ratio and low switching costs are some of the factors that leads towards the high forces of substitutes. High number of substitutes for McDonald’s are available in the market. For instance local bakeries and artisanal food producers, with the help of which one can cook his product at home. Due to this fact this impacts highly on the profitability of the company. If no substitute available in the market it increases the profitability of the company (Dey, 2016). However these substitute sin the market are of good quality and somewhat according to the needs of the consumers which is why currently it is one of the main issues that company is facing right now in UK. Switching to thee substitutes have no switching costs.
Threat of New Entrant
Market share of the company may be impacted by the new entrant in the industry. This section of five forces model represents the impact of new entrants on the firms that are already existing in the industry. High cost of brand developments, low switching and moderate capital costs are the factors that contributes to the fact that moderate force of new entrant is prevailing in the industry. As switching cost is very low so consumers can easily switch from McDonald’s to any other new entrant company in the industry or even in to the competitors. The moderate costs of entering into the market makes very easy for the small and medium size companies to affect McDonald’s. To make the brand development like McDonald’s is very hard for the new entrant in the industry and it’s also very expensive too. From this section one can say that every new entrant that comes in the industry poses a threat to the company and is one of the concerns of the company.
References
Armstrong, G., Adam, S., Denize, S. and Kotler, P., 2014. Principles of marketing. Pearson Australia.
Crawford, A., 2015. McDonald’s: A Case Study in Glocalization. Journal of Global Business Issues, 9(1), p.11.
Dean, J.A.S.O.N., Brat, I.L.A.N., Gasparro, A.N.N.I.E. and Easterbrook, S., 2015. McDonald’s CEO is out as sales decline. The Wall Street Journal, available at: www. Wsj. Com/articles/mcdonalds-ceo-steps-down-1422485574.
Dey, K., 2016. The fast food industry in the UK. Analysis of McDonalds with PESTEL, VRIN and Porter’s Five Forces.
Mcdonalds.com. (2018). McDonald’s Menu & Info | McDonald’s UK. [Online] Available at: https://www.mcdonalds.com/gb/en-gb.html [Accessed 17 Apr. 2018].
