The McIntire Investment Institute Fundamental
Presented by Shilpee Raina
PORTERS FIVE
FORCES:
A guide to industry analysis
What are Porter’s Five Forces?
 Developed by HBS professor, Michael Porter:
Competitive Advantage: Creating and
Sustaining superior Performance
 Extensive framework utilized to assess an industry’s
competitive environment
 Incredibly useful in determining a company’s
positioning and evaluating its strategy
The Five Critical Factors
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Threat of Potential Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of Substitutes
Rivalry Among Competitors
Apply to: FAST FOOD INDUSTRY
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
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 buyer’s cost: fast
food is inexpensive, lower buying anxiety
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
Bargaining Power of Suppliers
 The suppliers ability to raise prices, or reduce
quantity and quality of inputs
 Power GAINED by:
 Supplier’s 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
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
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
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?