Competitive Business Advantages With Porters Five Force Analysis

Firstly, this paper provides an overview of UK fast food industry, which includes key dimensions of the industry, participants of the industry, nature and key strategic issues, growth rate and profitability, fiver forces analysis, nature of competition and trends of the industry. After this, a company analysis is provided, which comprises overview of McDonald's and its evolution with time by focusing on strengths, weakness, financial performance, culture and leadership, etc. Additionally, this section also provides information about current issue faced by McDonald's as a small industry and evaluation of its current strategies to operate in the highly competitive environment.

Overview of Industry

According to the report given by International Markets Bureau (2011), fast food industry of UK is the fourth largest sector of UK, which contributes a high shares in its economic growth. The most significant key dimension that has shaped the industry and its success is the fast and cheap availability of food. In 2009, the UK fast food industry is grown by 2% due to the recession in the country. Disposable income of consumer has reduced due to this recession and growth of fast food restaurants and take away has increased. Furthermore, the industry has become, so powerful, as it provides food very quickly with a wide menu and taste, which is preferred by children and youngsters very much (McDonald's Annual Report 2011).

There are several players in UK fast food industry such as McDonald's, Punch Taverns, Mitchells & Butlers, Whitbread, Yum Brands, Subway, Starbucks, Burger King, Papa John's, Pizza Hut, etc. (International Markets Bureau 2009). The nature of UK fast food industry is highly competitive due to many players and convenience shops and mid range of restaurant and other healthier food substitutes. Although the UK fast Food industry is one of the strongest sector, but the Key strategic issue in the industry is the availability of healthier food. Fast food is one of the main reason behind obesity and other health issues such as heart attack, high cholesterol, blood pressure, diabetes, etc. Thus the key strategic issue for company is to produce healthier food and promote and manage high competition by offering unique services within low cost (Xaxx 2011).

According to the report of IBIS World (2012), in last five year (2007-2012), revenue of UK fast food industry has declined by 2.9%. Although the industry provides employment to more than 166,444 people in 2011-2011 the industry revenue growth is only 0.1% because of high competition. This industry serves several products such as ham burgers, french-fries quarter pounder, Egg McMuffin, Chikens, etc.

Five Forces Analysis

1. Threat of Entrance: In recent years, the growing demand of fast food has been attracting many new entrants, domestic as well as foreign multinational corporations into the industry. New entrances are not a significant competitive source in fast food industry of UK as it has strong entry barriers. In order to establish in this industry with a strong brand image, product differentiation and attractive outlets, it needs huge amount of capital. Thus, threat of new entrance is neither too high nor too low in the fast food industry.
2. Threat of Substitute: Threat of substitute products is high in this industry due to availability of mid range restaurants, sit-down restaurants, home delivery food like pizza, pre-cooked and canned food, etc. (International Markets Bureau 2011).  
3. Power of Buyers: Due to the high number of substitute and several eating options, bargaining power of buyers in fast food industry is very high, which increases the pressure of competition on the players. It does not minimize the profit and revenue of the firm, but also increases the pressure on players to offer wide variety with low cost (McDonald's Annual Report 2011). Due to several number of brand availability, consumers also have little brand loyalty in this industry.
4. Power of Suppliers: Due to the high number of suppliers in worldwide market, power of suppliers is quite low. Ease of flexibility in supply chain, backwards integration, etc. minimizes the power of suppliers to operate in this industry, which reduces competitive pressure over players (International Markets Bureau 2011).
5. Competitive Rivalry: Overall, the fast food industry is in its saturated state and it is facing slow growth. Price war among players increases the competitive pressure in this industry. The competition is intensified in this industry as there are equally balanced players.

Trends of the Industry

Current environmental trends in UK fast food industry are go green and recycling of material to save energy and minimize environmental pollution. In this direction, organizations are using paper bags to save environment and avoid the use of polythene bags. Another trend in this industry is healthy and tasty food. Fast food organizations are introducing anti obesity education programs and producing food with low calories. Additionally, calories count broachers are also provided by the companies to the consumers, so that they can analyzed the positive and negative health consequences related to the food products (Clark 2010).

The economic instability and decline in the industry growth can affect the fast-food sector in future in terms of value and brand. Theses trend can also shift the successful fast food industry in sunk, if proper and effective measures would not be implemented to avoid the issue of health, and to follow a growing stage of industry.

The economic instability and decline in the industry growth can affect the fast-food sector in future in terms of value and brand. Theses trend can also shift the successful fast food industry in sunk, if proper and effective measures would not be implemented to avoid the issue of health, and to follow a growing stage of industry.

Overview of Firm

McDonald's is one of the leading companies in fast food sector of UK. In UK, company is almost 1200 restaurant at popular location such as shopping malls, high streets, retail parks, etc. (McDonald's Annual Report 2011). It is serving 10 million customers daily all over the world. At the end of fiscal year 2008, McDonald's enjoyed more than 8% growth in its sales, which was a record breaking performance of the company (Thomas 2008). The one of the biggest strengths of the company is its quick restaurant services and wide range of tasty fast food and drinks. Apart from the growth of UK, company had achieved 7.1% sales growth in all over the world. At the end of fiscal year 2011, global comparable sale growth of McDonald's is 5.6% growth. Total revenue of the firm in 2011 is $27006 million (McDonald's Annual Report 2011).

After achieving this astonishing success, McDonald's was still looking for growth and want to achieve more profits in 2010. Thus, McDonald's has established more franchises all over the world (McDonald's Still Hungry for U.K. Growth 2010). A Wide range of experienced and skilled workforce is one of the main strengths of the company. In addition, as company is enjoying huge profit, it strong financial position is also its strengths. Furthermore, McDonald's is socially responsible and community oriented firm, which also work on the go green concepts and stated the use of paper bags (McDonald's Annual Report 2011).
Apart from this, high employment turnover to minimize operating expenses is also a weakness of the firm.

Culture and Leadership

Work culture at McDonald's is also very strong and based on cultural diversity. Company operates in more than 100 countries and hires a diversified workforce to complete it operations. McDonald's has implement non-discrimination policies and provide equal employment opportunities to all the employees. Company has also designed its menu as per the ethics and value of the country. For instance, in UK, company offers beef products, whereas in India it does not offer beef products due to religion and ethical reasons (McDonald's Annual Report 2011). Leadership strategy used in McDonald's is participative and charismatic, which motivate the employees to achieve their goals and objective with zeal and enthusiasm.

In order to manage its weakness and utilize the opportunities available in the market, company uses distinctive strategies to be competitive in the market. Moreover, McDonald's has taken the issue of food safety with serious concern. At every stage of food process, the food material crosses 2000 inspection formalities. It runs around 72 safety protocols to maintain a clean and healthier environment in the outlets.

Apart from this, it is different from its competitors because all the leases take by company are on the name of McDonald's Restaurant Ltd. Up to 25 years. In addition, McDonald's has bigger covenant powers to accomplish the yield between 5% and 6% (McDonald's: Development 2011). 

Evaluation of Current Strategy

Current strategies used by McDonald's to operate in the competitive market are cost leadership and product differentiation strategies and focused strategies (McDonald's Annual Report 2011). Cost leadership strategy used by McDonald's is fruitful to maintain price wars and restricts the entry of new companies in the industry. Company has maintained this strategy by comprising high sales volume, products in bulks and fixed cost. Due to large volume and purchasing of bulk products, it becomes easy for the company to maintain low cost. Apart from this, company has also broken its production process into different groups to maintain low operating cost and save expenses.

Along with this, company also focuses of differentiation strategy, thus company has introduced a wide product rage of hamburgers. By developing the positioning statement “I' m lovin it”, it has also created a brand reputation in the market (McDonald's Annual Report 2011). With the assistance of focused strategy, company has concentrated on target consumers which are children, teenagers and the consumer who are living a fast pace of life and who have not enough time to sit properly and enjoy dining. Company also focuses on middle class segment, which prefer inexpensive and tasty food instead of spending money at five star hotels.

Although all the strategies used by McDonald's are very effective for its long term growth and success, but in order to resolve the issue of unethical treatment, company should also implement some strategies. In this direction, firm should minimize the use of beef product and introduce a vegetarian product line, which would be healthy, delicious and contain low calories and high nutrition's (Ethical Decision Making Framework, 2006).

Conclusion

Thus, on the basis of above discussion, it can be concluded that fast food industry is highly competitive but it has been reached at saturation stage. McDonald's is a strongest player of this industry but it needs some competitive and unique strategies to compete in the market and ensure long term success in the saturation stage. Thus, company should concentrate on the healthy and environmental issues and provide tasty product with healthy ingredients.

References

• Arndt, M. (2007, February 5). McDonald's 24/7; by focusing on the hours between traditional mealtimes, the fast-food giant is sizzling. Business Week, New York (4020): 64.
• Clark, S. 2010. Developments in Fast Food - What Are the Trends?  
• Ethical Decision Making Framework. 2006.
• IBIS World. 2011. Take-Away & Fast-Food Restaurants in the UK: Market Research Report.  
• International Markets Bureau. 2011. The United Kingdom A Diverse Foodservice Sector. Market Analysis Report.
• McDonald's Annual Report. 2011.

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