1. PORTERS FIVE FORCES: A guide to industry analysis
The McIntire Investment Institute Fundamental Presented by Shilpee Raina
PORTERS FIVE
FORCES:
A guide to industry analysis

2. 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

3. 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

4. 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 buyer’s cost: fast food is inexpensive, lower buying anxiety

6. 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

7. 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

8. 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

10. 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?