Question

Chic-fil-A is a US restaurent fast food chain and the industry is fast food market.Porter's 5 force analysis can be applied as below: Bargaining power of buyers: Low: -The number of customer ie the customer base is huge. -Customers have their own taste and choices and they tend to stick to their preferred brands. -Cost of switching is low Bargaining power of Suppliers:Low -Cost cost of switching suppliers -Large number of suppliers available -Lot of substitutes available -Suppliers have short term contracts with the players and the quality check norms are very strict Threat of substitutes:Medium - The substitutes available are of similar or better quality -Availability of substitutes is high -The product offered is highly differentiated Threat of new entrants :Low -The size of competition is huge - players have their own establised distribution network -Players have their own base of loyal customers -Players have their established brands and reputation -Exit to barrier is high Competitive rivalry: Medium -The market growth rate is very high -There are arge number of players. Many of them have localised operation -Overall size of the pie is large and hence many players can survive without fighting for market share The various external factors affecting the industry and chik-fill -A as a whole are: -Shifts in dinning behaviour:The young busy work force has a preference for dining at fast food restaurants rather than dinning on home made meals. -The franchisee model for QSRs( Quick serve retail outlets) is becoming increasingly popular and preferred as more individuals find it lucrative and sustainable source of income -Product innovation and research on customer preferences is increasing and focus is on product differentiation -Increased focus on customer services -Switch /preference towards healthy /low calorie diets due to increased awareness about healthy lifestyle -Stringent compliance requirements for operating business and for opening new stores - Labour laws protecting the interests of labours and minimum wage policies getting a boost -Economic recession /slowdown affecting sales as people have low disposable income - Technology integration to support tech savvy customers and for operations improvement -Stringent waste management,recycling(related to packing material) and green approach(for outlets) -Stringent FDA rules,public health policies and quality check The 2 pronged strategy that worked in favour of Chik-fill-A are: -Extremely employee friendly policies,Exceptionally good training is imparted to the employees and good employee welfare programs are in place taking care of their career aspirations as well - High degree of commitment to customer service and delivering consistent customer service. Are the two items below conflicting with each other? -Availability of substitutes is high -The product offered is highly differentiated

Answer 1

The Porter’s 5 Forces analysis has been used for analyzing industries. Framework does have certain disadvantages / limitations:

• This framework lays more importance to competitive relationship between 2 companies & totally ignores fact that there may be strategic alliances or partnerships between 2 companies
• This analysis makes the assumption of a perfectly balanced market having static structure. While in reality, markets are quite dynamic..
• No modifications have been done in framework, which was developed in year 1970. So there is no evolution associated with model
• Various aspects of industry are not considered in this framework. Some of them are social responsibility, CSR, culture, legislation, etc.

To identify other external factors & have a holistic industrial analysis, Porter’s 5 Competitive Forces analysis must be conducted along with PESTLE Analysis. PESTLE Analysis helps in identifying macro-environmental & external factors, which can have a substantial effect in performance of industry under study. PESTLE Analysis is conducted focusing on following 6 external forces & understanding their impact on industry:

• Economical
• Political
• Technological
• Socio-cultural
• Environmental
• Legal

http://www.free-management-ebooks.com/faqst/porter-07.htm

http://strategyatheinz.blogspot.com/2016/03/the-limitations-of-porters-five-forces.html

https://www.investopedia.com/articles/investing/103116/pitfalls-porters-5-forces.asp

https://www.investopedia.com/ask/answers/041015/whats-difference-between-porters-5-forces-and-pestle-analysis.asp