Porter's 5

Porter’s Five Forces Analysis – Fast Food Industry

Threat of New Entrants

The threat of new entrants is medium in the fast food industry. Capital requirements to open a new fast food restaurant are low for new investors and medium regulation level provides investors more space to develop businesses. Despite the fact that barriers to entry are low, survival in the industry is not easy for everyone. Fast food restaurants like McDonalds, Subway, KFC, and Burger King play dominant roles in the industry. They have a high brand identity among customers. New entrants will struggle in the industry since their brands are unknown to the customers and it is costly to advertise a new brand. As the industry has expanded during the last five years, varieties of products were introduced in fast food restaurants. As a result, new entrants lose competitiveness on product differentiation. Therefore, investors may consider carefully before they decide to start businesses.

Threat of Substitutions

The threat of substitutions is medium. People can get food everywhere else: from supermarkets, from street vendors, dining in the full-service restaurants, etc. However, the key competitive components for fast food restaurants are convenience and low price. People can choose to dine in full-service restaurants; however, expenses are relatively higher compare to have meals in fast food restaurants due to gratuities. People can also choose to cook at home; it is cheap but costs time. Therefore, convenience and inexpensiveness reduce level of threat of substitutions.

Intensity of Rivalry

The intensity of rivalry in the industry is high. The industry is mature regarding its life cycle, and according to IBISWorld Industry Report, market saturation has appeared in some geographic areas, which indicates that competition level among fast food chains is high. Many fast food restaurants may still suffer from low profits due to increasing costs of labours and raw materials, despite that sales...