Porter’s Five Forces analytical framework developed by Michael Porter (1979) represents five individual forces that shape the overall extent of competition in the industry. McDonald’s Porter’s Five Forces are represented in figure below:
Threat of new entrants into fast food chain industry is moderate. Potential entrants into fast food chain industry have to deal with the following factors.
1. Massive capital investment requirements. Establishing a fast food chain requires huge financial investments to create an infrastructure, secure leases for locations, purchasing equipments and recruiting staff, among others. Securing funding for a new fast food venture can prove to be challenging taking into account high level of market saturation internationally.
2. Economies of scale. Major market players such as McDonald’s, Starbucks Coffee, Burger King, KFC and Subway substantially benefit from the economies of scale with positive implications on their cost structure. New market entrants, on the other hand, cannot benefit from the economies of scale to similar extend and this may prove to be a significant industry entry barrier.
3. Creativity and innovation. Despite fast food industry entry barriers such as huge capital requirements and economies of scale mentioned above, there is still a chance for new companies to successfully enter the industry. They can do so by innovating in terms of foods to offer, as well, as achieving greater technological integration into various business processes.
Bargaining power of McDonald’s buyers is immense. The following set of factors, among others determines customer bargaining power in fast food industry:
1. No switching costs to competition. Customers can switch from McDonald’s to any other fast food chain such as KFC, Pizza Hut, Starbucks and Burger King with no additional expenses. In other words, unlike technological companies such as Apple and Alphabet the ecosystem of McDonald’s currently is not able to retain customers making it hard for customers to leave the ecosystem. The absence of switching costs increases the bargaining power of McDonald’s customers.
2. Propensity to switch. Customers’ propensity to switch to the competition may be great taking into account clustered pattern of geographical location of major competing fast-food brands. Moreover, it can be argued that customer propensity to switch to ‘slow food’ may increase due to increasing media coverage of fast food’s negative health implications.
3. Customer price sensitivity. Customer price sensitivity is positively correlated with their bargaining power. Fast food chain customers are usually highly price sensitive. If McDonald’s is unable to maintain its prices competitive, significant portion of customers are likely to stop eating at its restaurants.
McDonald’s Corporation Report contains a full analysis of McDonald’s Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on McDonald’s. Moreover, the report contains analyses of McDonald’s leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of McDonald’s marketing strategy, ecosystem and addresses issues of corporate social responsibility.
 Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review