McDonald’s Five Forces Analysis

McDonald’s operates in more than 100 countries around the globe through its physical stores and online channels. The company has more than 40000 stores operational worldwide. Its 95% stores are operated by franchisees that are independent local business owners. 

The fast food industry is experiencing higher competition. The focus is on customer experience apart from food quality. 

Mcdonald’s also relies on technological innovation to grow its customer base and market share. It has been investing in technology to strengthen its online sales.

Supply chain management has also played a key role in the success of McDonald’s. The largest market of McDonald’s is the United States which accounts for the largest part of the company’s total net sales worldwide. 

McDonald’s enjoys strong brand awareness in most corners of the world. Its focus on marketing has made it a well recognized brand in the fast food sector in the US as well as other parts of the world.

In this five forces analysis of McDonald’s, we will evaluate the competitive position of McDonald’s and how the company is positioned for growth. Porter’s five forces model is an analytical tool for analyzing the competitive position of businesses across various industry sectors. The five forces model is used to inform strategy and decision making and to improve the competitive position of firms. It was named after its creator, Harvard Professor Michael E Porter.

Bargaining power of suppliers:- Low

The bargaining power of suppliers in the fast food sector is low. These suppliers are mostly smaller businesses that are scattered across various markets. Since McDonald’s requires mainly food products as raw materials, it sources locally in the markets where it operates. However the suppliers are generally small businesses whose financial position is much weaker compared to McDonald’s. The fast food giant also faces a minimum threat of forward integration from its suppliers. 

There are several more factors that moderate the bargaining power of the suppliers in the favor of McDonald’s. The financial strength of McDonald’s is a key factor which gives it strong bargaining power of its suppliers. It buys in large volumes from the suppliers and also ensures that the suppliers meet its quality standards. Moreover, it is a well known brand with a strong image. 

Overall, the bargaining power of McDonald’s suppliers is low. 

Bargaining power of buyers:- Moderate

The bargaining power of buyers in the fast food sector is moderate. The focus has shifted towards the consumer in the 21st century which has increased their bargaining power. Moreover, the customers are well informed in the 21st century and they also have many substitutes before them.

 Winning customer loyalty in the fast food sector is not an easy task. 

Companies have to invest in food quality as well as marketing and customer service to retain the customers and maintain their market share. Increasing competition in the fast food sector from the international and local fast food businesses has also given the customers higher bargaining power. 

To moderate the bargaining power of the buyers, McDonald’s invests in product quality, marketing and innovation. These things have helped it differentiate its brand from the others and helped it achieve superior growth. It is also investing in innovation to build customer loyalty. 

Customers are looking for convenience apart from quality food and technology has helped McDonald’s provide its customers with a superior customer experience. Marketing is also a crucial factor that has helped the company grow the demand for its products and build higher customer loyalty. It also has several customer loyalty programs in place to attract more customers and retain its existing customers. 

Another crucial factor that has helped the company moderate the bargaining power of its customers is its pricing strategy. Affordable pricing of its products has helped the company attract customers in larger numbers. Pricing also helps achieve higher customer loyalty in the fast food sector. The company also offers a wide range of products for both vegetarian and non vegetarian customers.

Overall, the bargaining power of its customers is moderate.

Threat of substitutes:- Moderate

The threat of substitutes in the fast food industry comes from various sources. There are a large number of international fast food chains that offer similar menu items as McDonald’s. 

For example, Burger King, Subway and Wnedy’s offer a nice range of products that are similar to the ones sold by Mcdonald’s. However, these are not the only outlets offering substitute products. 

A large number of local businesses in various markets including fast food restaurants and other restaurants also offer products that act as substitutes for McDonald’s products. Since the threat of substitutes before the fast food giant is high, managing the threat is also difficult.

The first major factor that helps the company mitigate the threat from the substitute products is its presence over several markets. McDonald’s has more than 40,000 stores operational worldwide in more than 100 markets. In all its leading markets, the density of McDonald’s outlets is high and they are operational in key locations experiencing higher footfall. This way the company stores are within the easy reach of customers in various locations. McDonald’s also has a strong brand image and invests in marketing to build customer loyalty. The threat of substitutes is moderated to some extent through customer service and marketing. 

Overall, the threat of substitute products for McDonald’s is moderate.

Threat of new entrants:- Low

McDonald’s is a well established brand and a financially strong business. The company has experienced strong growth over the past several years and operates worldwide in more than 100 markets. The company is among the leading players in the fast food sector and enjoys strong brand awareness and customer loyalty. The threat of new entrants for well established players is mostly very low. It is because of the various barriers to entry and the strong competitive position of the incumbent players. McDonald’s has a strong competitive advantage and its competitive position cannot be challenged by new entrants. 

Moreover, new players need to invest a large capital to build a strong presence in various markets or they would remain limited to small market regions. In such a case, they would pose little or no threat to the established players like McDonald’s. A new player would also need to invest a significant sum in marketing to build brand awareness and grow their sales. Some regulatory barriers also prevent the entry of new players into the market. Another important factor that deters the new players from entry into this sector is the intense competition among the incumbent players. 

McDonald’s faces little to no threat from new players. Mostly new players enter at a small scale and cannot challenge the market position or competitive advantage enjoyed by the leading brands like McDonald’s.  

Intensity of competitive rivalry:- High

The intensity of competitive rivalry in the fast food sector has grown quite high which is because of the presence of several players in the market. There are several international players in the market that also have a significant presence in the global market. Burger King, Subway, Wendy’s and Dominos are some of the leading competitors of McDonald’s. These are also market leading brands in the fast food sector with a strong competitive edge. 

Competition is a rather strong force in the fast food sector that has a strong impact on business operations, sales and profitability as well as marketing of the brands. Since there are several strong players in the market competing for market share, the intensity of competitive rivalry in the sector is quite strong. However, there are also a few factors that moderate the intensity of competitive rivalry in the industry. McDonald’s is a well established brand that enjoys a strong competitive advantage over the other players. The higher level of competition can be challenging for McDonald’s in terms of faster growth and expansion. However, despite the intense level of competition in this sector, McDonald’s has successfully maintained its leadership position in the sector. There are several factors that have helped the company maintain its leadership successfully.

McDonald’s has a strong presence in several international markets and operates through more than 40,000 stores worldwide. Its strong international presence is an important factor that has helped it moderate the competitive pressure. Marketing and strong brand image of the company have also enabled it to beat the competitive pressure from the other brands. Innovation is also crucial to strengthening a fast food brand’s competitive edge and McDonald’s has remained an early pioneer of innovation in this industry sector. Its focus on technological innovation has helped it differentiate its brand from the others and strengthen its competitive edge.

So, overall while the intensity of competitive rivalry in this sector is high, McDonald’s is a competitive brand and enjoys a significantly strong competitive advantage, which moderate the threat from rival brands.