PORTER’S FIVE FORCES MODEL
Porter’s Five Forces that helps a company identify
relevant external factors that can significantly influence business operations,
whether positively or negatively. Stronger competitive forces entail that it is
more difficult for a company to increase its prices and earn economic profit.
On the other hand, low competitive forces represent opportunities that can be
capitalized on or used to a company’s advantage.
Bargaining Power of
are a large number of suppliers available in the consumer foodservice industry,
therefore, there is abundance of raw materials that can be supplied to the
various competitors. Suppliers do not have much power to increase their prices
because other suppliers with cheaper substitutes are always available in the
market. There is low switching cost in changing suppliers. Basically, the high
supplier concentration provides for the presence of substitute inputs with
minimal to no cost in switching. Moreover, for large and established companies,
such as Shakey’s, a lot of potential suppliers would try to earn their
partnership, rather than the other way around, thus these large companies are
at greater leverage than their suppliers.
Bargaining Power of
there is a large market for the consumer foodservice industry, there are also
plenty of providers available in the market, thus providing high availability
of substitutes and greater bargaining power to consumers. Because these
products are not highly differentiated in quality and in price, there is low
switching cost, allowing room for customers to impose their demands on the
industry. And because of market saturation, consumers can choose from a wide
variety of cuisines and dining options
Threat of Substitute
is high substitute availability in the consumer foodservice industry because of
the wide availability of choices – from pizza to Asian food to North American
food to Latin American food, among others. The food industry is considered to
be a ground for innovative and novel food ideas, some of which can even come
from one’s own kitchen. Thus potential substitute products often come out left
and right, as in fact, any food selection can be considered as a substitute.
With the continued rise of all key segments in the consumer foodservice
industry all over the country, there is no doubt that there is a high threat of
substitute products. Although new products are introduced to the market
regularly, more often than not, these products are reinventions or twists to
classic products. These substitutes can offer the same quality and customer
satisfaction to the consumers at low switching costs.
Threat of New Entrants
consumer foodservice industry grew at CAGR 6.4% from 2011 to 2016 and is
expected to grow further from 2016 to 2021 at CAGR 4.1% in constant value. A
profitable industry attracts more competitors. More so, more international
brands have begun to become key players in the industry.
requirements may be low to moderate, especially for small and medium-sized
businesses, such as food cart franchises. Also, there are moderate governmental
and legal barriers to entering the consumer foodservice industry, however,
these are not strictly implemented, especially for small businesses.
the main difficulty that potential new entrants may face in the market is the
high cost of brand development. As Shakey’s is an established brand, it would
be difficult to overthrow the company as leader in terms of market shares. It
would also take a large capital to build a chain of stores that is similar in
terms of countrywide store networks, several distribution channels, development
of brand equity and massive advertising to achieve a large market share.
Building a large restaurant chain would also entail purchase of equipment and
property for inventory, which can be quite costly. Moreover, prime locations in
the country are already occupied and the market saturation makes it more
challenging to enter the industry.
competition in the consumer foodservice industry is very intense. The high
number of players in the industry competing for the same market shares has made
these players become increasingly aggressive in mass advertising and
promotions. There is also limited number of prime locations that are available
for outlets, which these players also have to compete for. There are plenty of
established and even new entrants, present in the market, selling similar food
continuous growth of the local consumer foodservice industry is driven by the
increase in middle class citizens, and increased disposable income drives more
potential entrepreneurs to enter the market because of the potential income it
promises. Consequently, this leads to diversity in competitors and wide
with high concentration of rivals, along with limited product differentiation,
it is considered that there is high competitive rivalry within the consumer