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MANAGERIAL ECONIMICS And BUSINESS STRATEGY

SUBMITTED TO:

MS. TALLAT SHAHID


SUBMITTED BY:

HIRA TAHIR SARA NAEEM

327 345

BBA-8

MANAGEMENT SCIENCES DEPARTMENT

LAHORE COLLEGE FOR WOMEN UNIVERSITY

PORTERS FIVE FORCES MODEL

Micheal Porters five forces model is a framework for the industry analysis and development of business strategy. This framework organizes many complex managerial economic issues into five categories or forces that impact the sustainability of industry profits, Porter five forces are:

Applying porters five forces model to McDonald's

McDonalds Pakistan
McDonalds is the largest and best known global food services retailer with more than 30,000 restaurants in 121 countries. Its outstanding brand recognition, experienced management, high-quality food, site development expertise, advanced operational systems and unique global infrastructure ensure a position that enables it to capitalize on global opportunities. It plans to expand its leadership position through great tasting food, superior service, everyday value and convenience. McDonalds Pakistan is part of the Lakson Group of Companies, a leading business house in Pakistan. McDonalds first

restaurant opened its door to the people of Pakistan in September 1998 in Lahore. This launch was met with unprecedented enthusiasm from the citizens of Lahore, who are known for their liveliness, vigor and penchant for quality food. Karachi opened its first restaurant a week after Lahore. Ever since McDonalds opened the doors of its restaurants both in Karachi & Lahore, it has been proud to provide their customers the same great taste, outstanding value and superior service. There are now 27 restaurants in 8 major cities of Pakistan. (11 in Karachi, 1 in Hyderabad, 10 in Lahore and 1 in Faisalabad, 1 in Kala Shah Kaku, 1 in Sialkot, 1 in Islamabad & 1 in Rawalpindi). Today millions of Pakistanis place their trust in McDonalds every day- trusting the company to provide them with food of a very high standard, quick service and value for money. Being a responsible corporate citizen, McDonalds is firmly committed to giving back to the community where it operates. It recognizes that organizations have a role to play in helping communities to work successfully. The contribution it enjoy the most is the experience of working together with others in the community to achieve worthwhile benefits for those who need it most. All restaurants contribute to their local community and every year we help set up and support numerous educational, sporting and charity programs designed to help a wide range of people. McDonald's has a proactive approach to charities and sponsorships. The company believes these help inspire and support the people of Pakistan, especially the underprivileged ones, to live a better life. McDonald is dedicated to delivering great experiences through our ongoing community support programs.

MISSION STATEMENT
"McDonald's Mission is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness and value, so that they make every customer in every restaurant smile.

Porters Five Forces and Mcdonalds


1. POWER OF BUYERS
The fast food industry has grown a lot in past years and a lot of players have established their place in the market, giving stiff competition to McDonald's. In this competitive environment every company is trying to produce products with better quality and at competitive prices. Companies also focus on producing products which can differentiate them from other competitors thus attracting more customers. Therefore customers have a lot of options available when they decide to purchase a product. Thus we can say that the power of buyers is more in the fast food industry as the switching costs are also very low. Customers will purchase a product

which they perceive as value for money and thus companies are trying to provide different options for them to fight with the competition from other players. McDonalds, KFC, Subway, among others, are highly competitive with their product pricing as it stands. Therefore, in order to lower the bargaining power of buyers fast food restaurants try to offer selections at various price points that cater to all budgets.

2. POWER OF INPUT SUPPLIERS


Buyers of raw material or supplies do not have a significant bargaining power because the companies in the fast food industry get their supplies from various outlets. The company may have different suppliers for meat, food, dairy products etc. there are a number of suppliers available for a same product, and it becomes easy for the companies to switch to different supplier if they are not satisfied with the one they are dealing with. Since the fast food industry has a lot of options available to decide which supplier to approach or not, therefore the suppliers have a very little or no bargaining power. Based on the good relationship that McDonalds has with suppliers, the bargaining power is fairly stable currently. The reliance that McDonalds has on suppliers is equal to the reliance suppliers have on McDonalds. On one hand, McDonalds 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 McDonalds. However, there are many substitute suppliers out there that can replace current suppliers without a significant drop in quality.

3. THREAT OF NEW ENTRANTS


Although its not too expensive to build a fast food restaurant and its easy for a new entrant to enter the market and introduce products at competitive prices. But if the new firms want to compete with the already established major players in the fast food industry such as McDonalds they need a large investment to build restaurants and machinery etc. 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 their existing businesses. Since the market is already saturated it becomes really difficult for the new entrants to develop a new customer base and earn profit. The threat of new entrants is relatively low. 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.

4. THREAT OF SUBSTITUTES AND COMPLEMENTS


McDonald not only faces a stiff competition from the competitors in the fast food industry but also from the players of other industries providing substitute products to the customers. The substitute products involve products available in the grocery shops or the restaurants or the food

products such as pizza. Restaurants with similar substitutes include nationwide chains KFC, Subway, Pizza hut, Domino's, salt n Pepper and Fri chicks, to name a few. As we can see, substantial substitute products exist, whether they are similar in nature or completely different, yet still classifiable as fast food. These substitute products are easily available to the customer and customers tend to perceive these products as better in quality and value for money. People now days are really conscious about their health and majority of the people perceive the fast food products as a food high on fat and calories content and therefore they try to find a food which better meet their health requirements. On the other hand though fast food industry may lag behind in meeting the health requirements of the people but enjoy the power to attract customers on the basis of its ability to provide cheap and instant food. So, the threat of substitute products and services is high.

5. INDUSTRY COMPETITIVENESS/RIVALRY
McDonald's face a lot of competition not only from the other competitors in the fast food industry but also from other industries producing substitute products. These competitive forces pose a stiff competition to McDonald's by introducing new offensive and defensive strategies in order to attract more customers and increase their market share. Competitor Pizza Hut introduced a low price menu and a discount deal and in response to that McDonald used an defensive strategy by adding items of low price in its menu to compete. Thus the companies keep on trying the defensive and offensive strategies in order to compete with the competitors. The intensity of rivalry among competitors in the fast food industry is at a high level. Over the years, fast food restaurants have done more to compete not only with similar quick service institutions, but with high end food and beverage companies as well. For example, McDonalds introduced premium customizable coffee beverages recently to compete. Along with other fast food chains, they added a breakfast menu to compete with the breakfast chains every morning. With so many fast food establishments around, as well as competition with non-fast food restaurants, it is logical that rivalry is high and intense in the industry. Thus, the threat of the entry of new competitors is high. Conclusion From the above discussion we can see that McDonald's has to face a lot of competition from the competitors and companies producing the substitute products. Thus McDonald has a need of diversification in its products in order to survive and compete in the industry. McDonald have to work strategically in order to produce differentiated products with competitive prices meeting the preferences and the health requirements of the people in order to attract more customers for the success of its business.