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Threat of New Entrants

The threat of new entrants is relatively low. Although it is not too expensive to start up a fast food restaurant, it is difficult to compete with established leaders in the industry such as McDonald’s, Burger King, and Wendy’s. With their standardized products and services at low prices, combined with a very strong brand, it is extremely difficult for a new entrant to compete directly with these existing businesses. The risk of new entrants is always there and there are local fast food places that are created every year. However, it will take a significant amount of capital investment and many years of operations to build up a recognizable name and be able to compete with the well-known brands.

Bargaining Power of Buyers

The bargaining power of buyers is low in the industry as well. McDonald’s, Burger King, Wendy’s, among others, are highly competitive with their product pricing as it stands. Price floors are already being experimented with through dollar menus at McDonald’s and Burger King, and 99¢ menu at Wendy’s, at which some of these companies actually operate at a loss for each sale from this value menu. Therefore, with low prices already established in the industry, the bargaining power of buyers will be low because fast food restaurants already offer selections at various price points that cater to all budgets.

Bargaining Power of Suppliers

The bargaining power of suppliers is moderate. Based on the good relationship that McDonald’s has with suppliers, the bargaining power is fairly stable currently. The reliance that McDonald’s has on suppliers is equal to the reliance suppliers have on McDonald’s. On one hand, McDonald’s has a good supply chain of quality materials at fair prices. On the other hand, suppliers are surely content with supplying to a large consuming company such as McDonald’s. However, there are many substitute suppliers out there that can replace current suppliers (i.e., Pepsi could replace Coca Cola)...