4.1.PORTER’S FIVE FORCES MODEL Porter’s Five Forces that helps a company identifyrelevant external factors that can significantly influence business operations,whether positively or negatively.
Stronger competitive forces entail that it ismore difficult for a company to increase its prices and earn economic profit.On the other hand, low competitive forces represent opportunities that can becapitalized on or used to a company’s advantage. Bargaining Power of Suppliers (LOW)Thereare a large number of suppliers available in the consumer foodservice industry,therefore, there is abundance of raw materials that can be supplied to thevarious competitors. Suppliers do not have much power to increase their pricesbecause other suppliers with cheaper substitutes are always available in themarket. There is low switching cost in changing suppliers. Basically, the highsupplier concentration provides for the presence of substitute inputs withminimal to no cost in switching. Moreover, for large and established companies,such as Shakey’s, a lot of potential suppliers would try to earn theirpartnership, rather than the other way around, thus these large companies areat greater leverage than their suppliers.
Bargaining Power of Customers (HIGH)Althoughthere is a large market for the consumer foodservice industry, there are alsoplenty of providers available in the market, thus providing high availabilityof substitutes and greater bargaining power to consumers. Because theseproducts are not highly differentiated in quality and in price, there is lowswitching cost, allowing room for customers to impose their demands on theindustry. And because of market saturation, consumers can choose from a widevariety of cuisines and dining options Threat of Substitute Products (HIGH)Thereis high substitute availability in the consumer foodservice industry because ofthe wide availability of choices – from pizza to Asian food to North Americanfood to Latin American food, among others. The food industry is considered tobe a ground for innovative and novel food ideas, some of which can even comefrom one’s own kitchen. Thus potential substitute products often come out leftand right, as in fact, any food selection can be considered as a substitute.With the continued rise of all key segments in the consumer foodserviceindustry all over the country, there is no doubt that there is a high threat ofsubstitute products. Although new products are introduced to the marketregularly, more often than not, these products are reinventions or twists toclassic products. These substitutes can offer the same quality and customersatisfaction to the consumers at low switching costs.
Threat of New Entrants (MODERATE)Theconsumer foodservice industry grew at CAGR 6.4% from 2011 to 2016 and isexpected to grow further from 2016 to 2021 at CAGR 4.1% in constant value. Aprofitable industry attracts more competitors. More so, more internationalbrands have begun to become key players in the industry.Capitalrequirements may be low to moderate, especially for small and medium-sizedbusinesses, such as food cart franchises. Also, there are moderate governmentaland legal barriers to entering the consumer foodservice industry, however,these are not strictly implemented, especially for small businesses. However,the main difficulty that potential new entrants may face in the market is thehigh cost of brand development.
As Shakey’s is an established brand, it wouldbe difficult to overthrow the company as leader in terms of market shares. Itwould also take a large capital to build a chain of stores that is similar interms of countrywide store networks, several distribution channels, developmentof brand equity and massive advertising to achieve a large market share.Building a large restaurant chain would also entail purchase of equipment andproperty for inventory, which can be quite costly.
Moreover, prime locations inthe country are already occupied and the market saturation makes it morechallenging to enter the industry. Competitive Rivalry (HIGH)Thecompetition in the consumer foodservice industry is very intense. The highnumber of players in the industry competing for the same market shares has madethese players become increasingly aggressive in mass advertising andpromotions. There is also limited number of prime locations that are availablefor outlets, which these players also have to compete for.
There are plenty ofestablished and even new entrants, present in the market, selling similar foodproducts. Thecontinuous growth of the local consumer foodservice industry is driven by theincrease in middle class citizens, and increased disposable income drives morepotential entrepreneurs to enter the market because of the potential income itpromises. Consequently, this leads to diversity in competitors and widesubstitute availability.Hence,with high concentration of rivals, along with limited product differentiation,it is considered that there is high competitive rivalry within the consumerfoodservice industry.
