Five Force Analysis Memo of Food Serving Franchisor Industry
The industry and company are Food Serving Franchisor Industry and McDonald’s
Corporation. In this approach, the franchiser, McDonald’s, offers the store managers, or
franchisee, the name of the franchise and the store’s rights and pays for managing overhead
and ingredients. As the firm is a franchiser, its suppliers are firms for marketing, consulting,
and planning aids for the firms or publicly approved ingredients suppliers on its website.
McDonald’s internal industrial rivalry is a strong and highly competitive force. The
Food franchise industry has a potential industrial growth rate of 4.6% from 2021 to 2028
(Grandview). In 2023, fast food restaurants in the U.S. increased by 0.9% (IBISWorld),
meaning there are too many players in the industry, so it is fragmented. The next force to
look over was the bargaining power of buyers or franchisees. Since McDonald’s has nearly
38 thousand stores in 100 countries (McDonald’s), the concentration of franchisees is
dispersed and less concentrated, weakening buyers’ power. For the franchisee, switching
costs to another franchise can be moderate. Even if McDonald’s gives rights to mainly local
independent owners, the term never allows them to change or alter independently for 20 years
(Franchise Direct). In addition, price sensitivity to products is low, as shown by the price rise,
and sales happened concurrently by 10% (Anderer). Moving to the bargaining powers of
suppliers because there are more than 385 U.S. suppliers (Maze), so the supplier
concentration will be low. In addition, even though McDonald’s tries to make vertical
integration with its suppliers, the firms that McDonald’s could assemble for Diversity Equity
could be only 21 (Maze), showing control of every supplier will be difficult and perceived
insignificant. Moreover, since McDonald’s has strong brand awareness and economies of
scope in the industry, the threat of new entrants seems low. The presence of the Big Mac
Index (Henderson) to calculate national wealth; economies of scope allow various menus
being stored and served concurrently to reduce the cost of production work. Furthermore, the
capital requirements of new entrants to threaten McDonald’s range from $481,000 to
$2,450,000 (Bailey). Therefore, McDonald’s would not be affected even if new entrants join
the industry. Finally, the threats of substitute taking franchisees away and threatening the
firm’s profit are moderate. Substitutes for franchisers include firms giving licensing
agreements for foods and beverages and downstream substitutes that can grab potential
customers for franchisees. Even though licensing agreements are statistically rising, with
food and beverage licensing taking $ 741 million (License Global), their turnover rate
increased by 24% (QSR magazine) when we approach buyers as franchisees. Hence, the risk
is more moderate than it seems.
Work Cited:
Anderer, John. “The Biggest Fast-Food Chains Are Increasing Prices but Hope You Don’t Notice.”
Eat This Not That, November 16, 2022. https://www.eatthis.com/fast-food-chains-increasingprices/.
Bailey, R. (n.d.). How Much Does It Cost to Open a Fast Food Franchise in the United States?.
FranchiseDirect.com.
https://www.franchisedirect.com/information/howmuchdoesitcosttoopenafastfoodfranchiseintheuni
tedstates/
Campisi, V. (2023, January 4). Franchise deep dive: McDonald’s franchise costs, fees, profit and
data. 1851 Franchise Magazine, Franchise News, Information, franchise opportunities.
https://1851franchise.com/franchise-deep-dive-mcdonalds-franchise-costs-fees-profit-and-data2720737
Fast Food Market Size & Share Report, 2021-2028, 2018.
https://www.grandviewresearch.com/industry-analysis/fast-food-market.
Global, L. (2023, March 2). Food and beverage licensing goes healthy. License Global.
https://www.licenseglobal.com/food-beverage/food-and-beverage-licensing-goes-healthy
Henderson, A. (2022, April 27). The big mac index and global currencies. Nomad Capitalist.
https://nomadcapitalist.com/finance/big-mac-index/
Himes, R. (2015, December 7). McDonald’s Burger and Fries bought in 2009 show no sign of rot.
TODAY.com. https://www.today.com/food/mcdonalds-burger-fries-shows-no-sign-rot-after-6years-t60026
IBISWorld. (n.d.). Fast Food Restaurants in the US. IBISWorld. https://www.ibisworld.com/industrystatistics/number-of-businesses/fast-food-restaurants-unitedstates/#:~:text=How%20many%20businesses%20are%20there,increase%20of%200.9%25%20fro
m%202022.
Lubin, Gus. “13 Disturbing Facts about McDonald’s.” The Fiscal Times, April 30, 2012.
https://www.thefiscaltimes.com/Articles/2012/04/30/13-Disturbing-Facts-About-McDonalds.
Maze, Jonathan. “McDonald’s Plans to Boost Spending with Diverse-Owned Suppliers.” Restaurant
Business, July 22, 2021. https://www.restaurantbusinessonline.com/technology/mcdonalds-plansboost-spending-diverse-ownedsuppliers#:~:text=The%20company%20said%20it%20currently,owned%20suppliers%20in%20the
%20U.S
“McDonald’s Franchise Costs, Fees & FDD.” Franchise Direct, 2023.
https://www.franchisedirect.com/foodfranchises/mcdonalds-franchise07030/ufoc/#:~:text=Term%20of%20Agreement%20and%20Renewal,length%20is%20generally
%20three%20years.
Mcdonalds. (n.d.). Franchising overview - corporate.mcdonalds.com. corporate.mcdonalds.
https://corporate.mcdonalds.com/corpmcd/franchising-overview.html
“McDonald’s USA Names Wieden + Kennedy New York (WKNY) Lead Creative Agency.”
Corporate McDonalds, September 13, 2019. https://qa.mcdonalds.com/corpmcd/ourstories/article/new-creative-agency.html.
Meisenzahl, M. (2022, July 19). Some McDonald’s franchisees say in a leaked survey the chain’s
business changes go too far. Business Insider. https://www.businessinsider.com/mcdonaldsfranchisees-are-in-conflict-with-corporate-again-2022-7
QSR magazine. (2023, March 31). A McDonald’s franchisee decreased their turnover by 24 percent.
QSR magazine. https://www.qsrmagazine.com/sponsored/mcdonalds-franchisee-decreased-theirturnover-24percent#:~:text=QSR%20Evolution%20Conference-,A%20McDonald’s%20Franchisee%20Decrea
sed%20Their%20Turnover%20By%2024%20Percent,is%20improving%20the%20hiring%20proc
ess.&text=According%20to%20the%20National%20Restaurant,Turnover%20remains%20high%2
C%20too.