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Consideration of ‘Power of the Buyer’ and ‘Threat of Substitutes’ aspects of Porters Five Forces

Strategic decision making is considered as one of the most important factors in the modern business context as the existence of businesses in present days depends on proper strategic decision making. In case of industries like FMCG goods, retail industry and food retail chains, strategic decision making could be found as the key factor behind the industries mentioned above. In this study, the researcher shall discus the strategic decision making aspects of the fast food industry. In the initial part of the study, the researcher shall make discussion on the power of buyer and its implication on the strategic decision making of the fast food industry. The analysis shall be made on the basis of the Porter’s Five Forces model. In this part of the study, the researcher shall also make discussion on the threat of substitutes in the fast food industry. In this context, the researcher is required to mention that the fast food industry in the UK belongs to perfectly competitive market as this industry has a large number of competitors and the numbers of the customers are also considered as infinite. As the fast food industry in the UK faces demand from all around the globe, the number of customers is to be taken as infinite (Mena et al. 2014).

From the above discussions, the researcher is required to mention that as the number of customers and competitors are large enough to affect the industry of fast food in the UK, strategic decisions for this industry is required to be made by considering the factors like power of buyers. On the other hand, the researcher is required to mention that the fast food industry in the country also faces competition in the market due to the reason of existence of substitutes. On the other hand, the researcher is required to mention that the power of the buyers in an industry is closely related with the threats of substitutes. As stated by Johnsen (2015), substitute goods in an industry are to be considered as the result of the effective bargaining power of the buyers. In this context, the researcher is required to mention that the frequent change in price level or increase in the price level could result in increase in threat of substitutes in an industry. The detailed discussion of impact of “power of buyers” in the fast food industry and the effect of “threat of substitutes” in the same industry of the UK would be as follow.

Power of Buyers in the fast food industry of the UK

The researcher is required to mention that the buyers in the fast food industry are infinite in numbers as the demand of the fast food products in the UK is created internationally. In this context, Aiginger and Vogel (2015) opined that fast food chains in the UK is based on the international market and the most of the food products manufactured in the country is either sourced from abroad of sold in the countries of European Union. If the researcher is to mention the impact of foreign firms in the British market, it is to mention that the firms from the US, France, and Italy also make business in the UK to meet the domestic demand. Moreover, the domestic firms in the fast food industry in the UK is also to be considered as well developed as the fast food companies in UK makes 9% of the GDP of the country (Gross Domestic Product GDP- Office for National Statistics. 2017). In this context, if the discussion is to be made on the power of buyers in the UK fast food industry, the researcher is to mention that as fast food industry occupies a large portion of the UK economy, the firms indulging in the fast food industry could get affected by the change in demand structure of the buyers.  

Fast food companies like Five Guys, Nando’s, Burger Kitchen, Domino’s and KFC serves customers in the domestic market and in the international context. Therefore, the bargaining power of buyers could be considered as impactful for the manufactures of the fast foods in the country. As stated by Wu (2013), power of buyers could be identified as the reason of product differentiation in the market of food and retail businesses. In this context, the researcher is required to mention that the fast food industry could face high product differentiation and high price sensitivity along with segment wise differentiation (Bartusková and Kresta, 2015). Therefore, the researcher is required to mention that the bargaining power of the customers of the food chains in the UK results in volatility in the price level. In other words, it could be said that if the power of the buyers enhances in the fast food industry in the UK, customers could consider the price of the products as the base of the buying decisions. In this context, the researcher is also required to mention that the high product differentiation could also be an impactful effect of the increase in the power of the buyers. As stated by Murari and Tater (2014), management of the fast food companies are required to make proper planning in order to identify the demand of the customers to protect the company’s interest from product differentiation.

Threat of substitutes

In the fast food industry, the strategic managers of the fast food companies could face the problem of existence of threats in the market as the industry belongs to perfect competition. As opined by Blackman et al. (2013), fast food manufacturing firms offer products, which are similar to the competitive companies. In this context, the researcher is required to mention that the existence of the similar products in the market causes market risks to the large scaled firms in the UK. The researcher is to mention in this context that substitution effect in an industry depends upon the quality of the products and the price of the products offered by the competitive firms. In this context, the researcher is required to mention that the switching cost is also required to be considered as an important issue for making analysis of the effect of threat of substitutes in the fast food industry in the UK. As cited by Artiles et al. (2013), low switching cost refers to high probability of purchasing substitute goods. Therefore, the strategic managers of the fast food manufacturing companies are required to consider the switching costs of the fast food industry to make strategic decisions.

The strategic managers of the fast food companies in the UK are to stabilize the impact of substitutes by considering the effective communication process as effective communication would be helpful in making proper relation with the customers. In this same context, Liao et al. (2015) stated that proper communication with the customers could help the strategic managers to aware the customers about the products of the company. As the fast food products industry is an example of perfect competition market, the factor of availability of substitute products could not be ignored by the strategic managers Fuseini et al. (2017). Therefore, the strategic managers focus on the quality of the products that the firms offer to the customers.

In developing the quality of the products, the strategic managers are to focus on the health related issues as well as the cost of production. As stated by Mkude and Wimmer (2015), KFC, Domino’s and Five Guys use different techniques in order to develop the quality of products, which includes use of fresh ingredients and chemicals. In this context, the researcher is required to mention that the total quality management and the total quality control are required to be considered as an important factor in response of getting rid of the problem of substitutes due to the quality of the products. On the other hand, the strategic managers are also taking care of the performance of the products in the fast food companies in the country. As cited by Lang and Heasman (2015), fast food manufacturers use core competences to create new market and to exist in the existing market. In this context, the researcher is required to mention that the companies in the fast food industry often have a certain item, which could be differentiated from the products of other countries. For example, the researcher could mention that KFC is the specialist of chicken items (Mridul, 2017). On the other hand, the researcher is also required to state that the Domino’s is leader in the market of Pizza. In this context, Fuseini et al. (2017) cited that creation of products, which could not be copied or imitated, creates core competences. This kind of products could be found as helpful in getting rid of the threat of substitutes in the market Blackman et al. (2013). Therefore, it is to mention that the strategic managers are to consider the development of differentiated products in order to minimize the threat of substitutes in the market.                              

Consideration of the ‘Competitive Rivalry’ force of Porters Five Forces AND consideration of the ‘Key Drivers of Change’ developed from the PESTEL analysis

In the Porter’s Five Forces, the business strategy development has been considered as the result of five factors, which includes competitive rivalry among the firms in an industry. In this context, if the discussion is to be made on the effect of competitive rivalry in the fast food industry, the researcher is to mention that the market position of the fast food is required to be considered as perfectly competitive as the number of buyers and sellers are infinite. On the other hand, if the discussion is to be made on the key drivers derived from the PESTEL analysis, the researcher is to mention that the economic and social factors of the fast food industry is required to be considered with importance as these two factors have direct impact on the fast food market of the UK.

Competitive Rivalry

From the above discussion made by the researcher, it could be mentioned that the firms in the competitive market like the fast food market require adopting proper strategic actions regarding the market capitalization. In the fast food industry of the UK, three factors could be seen as most impactful to the industry and the factors are number of firms, aggressiveness of firms in the industry and the switching costs (Sadhwani, 2017). In this context, the researcher is required to mention that the fast food market could be subdivided in three major parts by considering the capital employment. Low capital employed firms in the market faces high degree of competition in the market as the entry barrier in this particular industry is quite low. The medium scaled firms also see same type of opportunity as the small fast food manufactures face. In this context, the researcher is required to mention that the large firms like KFC, Burger King and Domino’s belong to oligopoly market as the number of large scaled manufactures is lesser than the number of buyers in the market.

The fast food manufacturing firms of the UK considers the foreign customers as one of the large sources of the demand of the products of the companies. In this context, the researcher is required to mention that the large scaled fast food manufacturers develop strategies in order to reach the markets in the foreign countries. As opined by Caraher et al. (2016), reaching in the markets of the foreign countries results in minimization of rivalry among the firms of fast foods. Whereas Dodds et al. (2014) opposed by stating that the fast food manufacturers in the UK considers the foreign market as a way of becoming global and to enhance the demand of the goods. Therefore, it is required to mention that the fast food manufacturers face competitions in foreign market along with the domestic market.

Above discussion suggests that due to the large number of buyers in the domestic and foreign market, the number of suppliers have increased. Therefore, the competition level has also increased. In this context, the researcher is required to mention that the high number of competitors in the fast food industry creates strong force that is required to be adjusted by the strategic management teams of the fast food manufacturers. As stated by Nestle (2013), the fast food market in the UK also faces the problem of variety of firms due to the recent change in the demand structure of the customers around the globe. This force of high variety of firms in the fast food market could be considered as another strong force of the competitive rivalry. In this context, the researcher is to mention that the low switching cost is an important feature of the fast food market as the market does not posses any kind of expenses for taking substitute products. In this context, Mkude and Wimmer (2015) stated that low switching cost is also required to be considered as a strong force that affects the fast food manufactures in the UK as this factor forces the customers to move from one firm to another one.

The views of strategic managers in this regard are required to be analyzed to make discussion on the process of mitigating these factors or strong forces. The fast food industries in the developed economies is required to be considered as an important contributor of national income and therefore strategic development in terms of the competitive rivalry among the firms is required to be made by the strategic management of the industry players.

Key Drivers of Change’ developed from the PESTEL analysis

The research over the business environments of the fast food industry in the UK is required to be analyzed by considering the PESTEL as this tool of strategic analysis helps the researcher to focus on the most impactful factors in an economy. Researcher is to mention in this regard that the PESTEL analysis for the fast food industry in the UK is not possible without the consideration of the factors that faces the business managers to adopt change. In this regard, it is to mention that the economical factors of the fast food industry is required to be considered as important as this factor influences the economic structure of the country. Moreover, the researcher is required to mention that the economic activity of the fast food industry is related with the social view as the demand structure of an industry depends on the societal view of the industry product. In this context, the researcher is to mention that in the present context, the health related issues affects the fast food industry to grow at a higher rate.

Political factors

· Ban over ingredients,

· Brexit,

Economical factors

· Decline in GDP,

· High growth of fast food industry.

Social factors

· Obesity,

· Downward trend of allover demand of the fast food,

· Improved product differential skills among the customers.

Technological factors

· Use of sophisticated technologies in operation and product designing.

Environmental factors

· Ideal environment for tourism,

· Helpful for farming of the ingredients of the fast food industry.

Legal factors

· Change in tax structure due to Brexit,

· Deporting of employees.

The political factor regarding the fast food industry in the UK is required to be considered as less influential as there are no such political barriers that could affect the fast food industry in the country. In this context, the researcher is required to mention that the government of the UK has banned some of the spices as per the regulations of the WHO. Therefore, the fast food manufacturers could not prepare the core fast food items as per the requirements. In this context, the researcher is also required to mention that Brexit has also impacted upon the fast food industry in the country as the staffs belonging to the other countries are now required to be removed from the operation. Therefore, the new staffs are needed to be trained for making the operations.

The PESTEL analysis made by above table reflects that the GDP of the UK has a negative trend whereas the growth rate in the fast food industry has been seen as steady and improving (). Therefore the researcher could mention that the economy could be boosted by the fast food industry growth in the country. In this context, it is required to mention that as the economic environment of the country is dependent on the fast food industry to some extent, the strategic change could be found as important. As the fast food industry is in growing stage (), the management of the fast food manufacturers are required to make change to achieve the expected growth in the industry. Therefore, the economic factor is required to be considered as a key driver of change in the industry of fast foods.

The recent trend of obesity in the UK, forces the manufacturers of the fast foods in strong manner. Therefore, the use of banned ingredients or the ingredients, which causes obesity, is required to be obsolete in the fast food industry. The researcher therefore is required to consider the health related issue as another key factor that forces the management of the fast food manufacturing houses to change plans. In this context, the researcher could ignore the environmental factors as these factors affect the firms in positive way.

The researcher is to mention that the legal framework of the company could force the fast food companies to make strategic change in the internal organization level as the Brexit results in change in legal framework of the company. In this context, Mkude and Wimmer (2015) stated that due to the Brexit, the business firms in the UK are required to make modifications in the legal frameworks. Moreover, the tax structure of the country has also been seen as changed due to the Brexit. Nevertheless, the requirement of deportation in the companies could also be considered important key towards making change. The non British staffs are required to be removed from the companies and therefore the management is to make training to the new employees. Hence, the deportation is to be considered as an crucial factor that drives towards change in the management process.

References 

  • Aiginger, K. and Vogel, J., (2015). Competitiveness: from a misleading concept to a strategy supporting Beyond GDP goals. Competitiveness Review25(5), pp.497-523.
  • Artiles, M., Beaulieu, C., Carey, S., Danza, M., Gatian, A., Gavin, A., Greco, A.N., Jameson, A., McWilliams, A., Samuelson, K. and Wharton, R.M., (2013). The impact of e-readers and e-books on the library of congress and the us copyright office. Journal of Scholarly Publishing45(1), pp.1-34.
  • Bartusková, T. and Kresta, A., (2015). Application of AHP Method in External Strategic Analysis of the Selected Organization. Procedia Economics and Finance30, pp.146-154.
  • Blackman, C., Forge, S. and Horvitz, R., (2013). Liberating Europe's radio spectrum through shared access. info15(2), pp.91-101.
  • Caraher, M., Lloyd, S., Mansfield, M., Alp, C., Brewster, Z. and Gresham, J., (2016). Secondary school pupils’ food choices around schools in a London borough: Fast food and walls of crisps. Appetite103, pp.208-220.
  • Dodds, P., Wolfenden, L., Chapman, K., Wellard, L., Hughes, C. and Wiggers, J., (2014). The effect of energy and traffic light labelling on parent and child fast food selection: a randomised controlled trial. Appetite73, pp.23-30.

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