Burger King is a fast-food restaurant chain based in the United States that was established in 1953. Its headquarters are in Florida, the United States. Chicken, salads, cakes, breakfast, hot dogs, French fries, milkshakes, and hamburgers are among the items offered by the brand (Burger King Corporation, 2016). In terms of size, the business hires more than 34,248 people. Furthermore, it posted $1.08 billion in sales in 2016, representing a 5% growth over 2015. It also reported a net income of $86.3 in 2016 compared to $49.6 in 2015, which led to an earning of 36 cents for every share (Burger King Corporation, 2016). This paper sets out evaluate how five competitive forces shape business strategy at Burger King Company to determine whether it is viable for investment.
Section II. Body 1. Internal Rivalry
The internal rivalry is the most obvious of all these five forces that help a company is determining the degree of value can be dissolved by competition. Therefore, the threat of internal rivalry is strong in Burger King. At the moment, the level of seller concentration of this sector is very strong (McGrath, 2015). This is owed to the fact that Burger King competes with established firms in the food restaurant sector including Wendy’s and MacDonald. When it comes to degree differentiation among sellers and cost differences, there is also a strong force. This is because the restaurant industry is saturated with several organizations of different sizes, which come up with different products and costs to attract clients while remaining sustainable in the market (Dobbs, 2014). Therefore, currently, Burger King growth faces intense competition from well-known firms, low switching cost, and numerous new entrants. As such, its present growth is high, which means that it takes into consideration various factors. For instance, Burger King must take into account that this sector has many organizations of different sizes, product differentiation, and target market. Another factor, the company has to focus on is low switching cost that is attributed to clients’ changing from Burger King’s offering to other companies. By and large, the internal rivalry is a major concern for the company.2. Substitutes
The threat of substitute brands eats on the firm’s profit margin on the basis of the price-performance ration of other products that customers can use to meet their needs (Grundy, 2006). The threat of substitute is greatly determined by switching costs; that is, expenses incurred in the redesign and retraining. With regards to Burger King, the current substitute includes Wendy and MacDonald products. And because the switching cost is low customers can replace Burger King’s offers with its rivals. Moreover, there are other substitutes such as home cooking and fine dining restaurants. In comparison to Burger King the price value of substitutes is adequate based on quality, cost and taste.Nonetheless, some of the products that complement for Burger King include a Barbecue Bacon Whopper in the United States, Cheeseburger Deluxe, Mexican Whopper in Spain, and a different sandwich daily on its menu. These complements are closely related to Burger King’s brand Identity. The price-value features of these complements include offering products on its menu and two sandwiches for USD 5 in the second serving. Again, the compliments are offered at several price points to help the firm to reach a wider market share. In turn, this drives traffic to its restaurants and ultimately additional revenue (Jones, 2014). Generally, Burger King’s operations are considerably affected by the threat of substitute as it is strong.
3. Supplier Power Supplier power reflects the buyer power. Accordingly, the evaluation of Burger King supplier power relies on the concentration of suppliers, relative size and level of differentiation in the material supplied. Burger King’s major suppliers include chicken suppliers, potato suppliers, beverage suppliers, milk and vegetable suppliers. Other suppliers comprise of people who provide services including accountants, chefs, managers, cleaners among others. Suppliers considerably influence restaurant industry in various ways, such as supply as well as a price control (Dobbs, 2014). As a result, Burger King has many suppliers, meaning that it is a weak force as they compete to deliver services and goods to the company. Conversely, Burger King buys significant volumes from suppliers as compared to client. It buys a large volume of materials such as milk, chicken, vegetables, potatoes and other ingredients. These factors have an influence on the company’s suppliers. In addition, a number of suppliers in restaurant sector have the low forward integration that matches the level of control on not only distribution but also the sales of Burger King’s products. This makes it hard for the suppliers to price-discriminate among potential clients based on the willingness to pay. This is because they have low supplier power and low forward integration. By and large, supplier power is weak; hence it does not affect the company’s operations.
4. Buyer PowerBuyer power is determined by the concentration of clients and size. Other aspects are the degree at which customers are aware and differentiation or concentration of rivals (Burke, van Stel & Thurik, 2010). Buyers greatly influence the performance of Burger King. Some of these buyers include families who to the company to buy its offerings. Buyers are more concentrated due to low switching cost, which empowers them to choose other firms that in turn affect Burger King’s profitability. Based on the fact that there are many substitutes to the organization’s products, buyers have more alternatives. Consumer entities such as Better Business Bureau also enhance the buyer bargaining power. When it comes to buying, customers purchase Burger King’s products based on what they want; some buy a single item while others in large quantities. Those that buy in large quantities like include institutions, which represent a bigger part of its revenue. The company products represent a considerable part of the cost in consumer’s business because current buyers are conscious of their health and prefer health food over fast foods. Price is not negotiated between the buyers and seller, instead, there is a pricing strategy that is applicable to all transactions.
Section III. ConclusionBurger King operates in the restaurant industry that is associated with high buyer bargaining power; many substitute products, and intense rivalry. Based on the analysis of internal rivalry, investing in Burger King is a good decision since it operates in a highly competitive industry. This means that there is a strong force of many competitors; many firms and low switching cost. Moreover, the threats of substitutes is strong, as a result, it would be profitable to invest money in it. Again, it is a good venture because; there is the significant availability of substitutes; satisfactory performance of substitutes and low switching cost. According to the findings on the supplier power, it is not good to invest in this company. As the supplier power is weak. This, therefore, means that there is a high concentration of suppliers; low forward integration and considerable general supply. Regarding the buyer power of Burger King, it would be profitable to invest since it is a strong force. In addition, there is low switching cost, availability of high substitute. By and large, based on the analysis of these competitive forces, it would be profitable to invest money in this company. This is attributed to the fact that there is a strong force in the internal rivalry, buyer and substitute meaning that it is a highly competitive company (Roy, 2011). However, a company should take into account other issues, especially focusing on buyers and competition by adopting effective marketing strategies. To retain its loyal buyers it can further improve its product offerings. On the other hand, to address the issue of several small firms with a variety of products, Burger King should enhance its brand identity to continuously improve regardless of high concentration in this sector. This strategy will not only improve its revenues, but also attract investors.
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