Porter’s Five Competitive Forces

McDonald’s Case Analysis

1. Threat of existing competitors (strong force)

a. Number of competitors (strong force)
i. The fast food restaurant industry has many firms of different sizes
locally and internationally.
b. Aggressiveness of competitors (strong force)
i. Competitors tend to strongly challenge McDonald’s instead of trying to
avoid them.
c. Low switching costs (strong force)
i. Because of low switching costs, customers can easily change from
McDonald’s to another restaurant.

2. Power of customer (strong force)

a. Low switching costs (strong force)
i. Because of low switching costs, customers can easily change to another
restaurant. Thus, customers can easily impose their needs and requests
on McDonald’s.
b. Large number of providers (strong force)
i. The fast food industry is saturated. Thus, customers have various
choices of fast food restaurants other than McDonald’s.
c. High availability of substitutes (strong force)
i. The availability of various substitutes increases the power of customers.
Customers can eat from artisanal bakeries, have microwave meals or
cooking foods at home.

3. Power of supplier (weak force)

a. Large number of suppliers (weak force)
i. The large number of suppliers weakens the power of suppliers on
McDonald’s. That is, McDonald’s has power over the suppliers.
b. High overall supply (weak force)
i. The richness of materials and ingredients such as flour and meat
decrease suppliers’ effect on McDonald’s.

4. Threat of new entrants (moderate force)

a. Low switching costs (strong force)
 i. Because of low switching costs, customers can easily change from
McDonald’s to another restaurant.
b. Low capital cost (low start-up cost) (moderate force)
i. Changing capital costs of starting a new restaurant make it easy for new
businesses to enter the international fast food restaurant industry.
c. High cost of brand development (weak force)
i. Building a strong brand in the industry is highly expensive. Small and
medium businesses mostly don’t have the required resources to create a
strong brand that is equal to the McDonald’s brand.

5. Substitute of product and services (strong force)

a. High substitute availability (strong force)
i. The availability of various substitutes increases the power of customers.
Customers can eat from artisanal bakeries, have microwave meals or
cooking foods at home.
b. Low switching costs (strong force)
i. Because of low switching costs, customers can easily change from
McDonald’s to another restaurant.
c. High performance-to-cost ratio of substitutes (strong force)
i. The available substitutes can compete with McDonald’s in terms of
quality of products and gaining customer satisfaction.

Recommendation:
From Porter’s Five Forces analysis, we can conclude that McDonald’s facing the influence of
some external factors at different levels. McDonald’s need to implement strategies to address
these external factors and reduce their negative effect.
The results of this Five Forces analysis show that McDonald’s needs to focus mainly on the
strategic issues related to existing competition, customers, and substitutes. These three powers
have a strong force on McDonald’s.
The other two forces (suppliers and the threat of new entrants) are important to the business,
however, it have a weak force on the company.
Thus, McDonald’s must focus on reducing the influence of its competitors and substitutes on
revenues and market share. Also, it needs to be more innovative, so its product innovation
process can be more aggressive. McDonald’s needs to come up with new products that can
attract and bring new customers and retain more customers. In fact, McDonald’s is able to
implement higher quality standards to deal with the forces relate to current and future
competition and substitution.
Additional Sources:
Adamkasi, 2017. Porter Five Forces Analysis of McDonald’s. [online] available at:
https://www.porteranalysis.com/porter-five-forces-analysis-of-mcdonalds/ [Accessed January 11,
2019]