Question

1. Please using porter's five forces to critically and specifically analyze The Cheesecake Factory compare to the whole industry, thank you!

(If necessary please add some examples when analyze point by point)

Answer 1

Porter's Five Forces Framework is a tool for analysing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability.

Porters five forces on Cheese cake factory are as follows:

1. Rivalry among Existing Competitors If there is too much rivalry among the existing players than that would result in lower prices of the product and hence reduced profits. The CFI indeed has a higher degree of the rivalry. The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness.

What can we do?

• We can innovate and apply blue ocean strategy to come up with some products which is not available in the market and hence get a competitive edge in the industry.
• By achieving economies of scale – we can make it very difficult for our competitors to survive. Also we can collaborate with competitors to increase the market size rather than just competing for small market.

2. Threat of new entrant It talks about potential threats of new business that could come and impact the existing cheese cake business. For ex- New entrants in various Restaurants that are bringing new ways of serving customers using innovation through lower prices, serving value to customer in very unique ways might impact cheese cake factory sales.

What can we do ?

• By innovating new products and services. New products not only brings new customers to the fold but also give old customer a reason to buy The Cheesecake Factory Incorporated ‘s products.
• By achieving Economies of scale hence reducing fixed cost per unit.
• Spending on RnD – keep redefining the industry standards by changing the products. New entrants are less likely to enter a dynamic industry where the established players such as The Cheesecake Factory Incorporated keep defining the standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry.

3. Bargaining power of Supplier: It talks about the how much the suppliers have influence in the market. It is driven by factors such as number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another.

Most of the restaurant business are dependent on the suppliers for regular supply of various kinds of raw materials. Suppliers could decrease the potential margins The Cheesecake Factory Incorporated can earn in the market. Powerful suppliers in Services sector use their negotiating power to extract higher prices from the firms in Restaurants field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Restaurants.

What can we do ?

• By building efficient supply chain with multiple suppliers.
• By experimenting with product designs using different materials so that if the prices go up of one raw material then company can shift to another.

4. Bargaining power of Customer- Like supplier, customers can also influence the business in many ways- for ex – by bringing the prices of the product/service very low. This is the function of : number of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms.

Customer are often demanding. They want the best product at as much low as possible. This could put pressure on The Cheesecake Factory Incorporated profitability in the long run. The smaller and more powerful the customer base is of Cheesecake Factory Incorporated the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.  

What can we do ?

• By building a large base of customers will obviously ensure that bargaining power is minimised .
• Innovation- By constantly innovating new products. Customers often seek discounts and offerings on established products so if The Cheesecake Factory Incorporated keep on coming up with new products then it can limit the bargaining power of buyers.
• New products will also reduce the defection of existing customers of The Cheesecake Factory Incorporated to its competitors.

5. Threat of substitutes. When relatable products/services are available in the market, it increases the chances of customers switching to alternatives in response to price increases. This negatively impacts both the power of suppliers and the attractiveness of the market.

What can we do ?

• We can build more reasons for the customer to visit the CFI. For example not just for the product but also for the amazing service.
• We can continuously work on understanding the needs and wants of the customer and delivering them the same that is becoming customer oriented rather than product or service oriented.