Business, Management

Wendy’s Five Forces Analysis & Recommendations (Porter Model)

Updated on Updated on by Lawrence Gregory
Wendy’s Five Forces Analysis, Porter, competition, buyers, suppliers, substitutes, new entrants, foodservice business factors case study
A Wendy’s fast-food restaurant in Japan. This Five Forces analysis of Wendy’s (Porter’s model) shows that competition, customers, and substitutes are the top concerns based on external factors in the industry environment. (Photo: Public Domain)

Wendy’s position as one of the biggest hamburger fast-food restaurant chains in the world indicates effectiveness in addressing the issues identified in this Five Forces analysis. Michael E. Porter’s Five Forces analysis model examines the influences of external factors in the competitive environment. This Five Forces analysis of Wendy’s points to strategic issues and reflects business conditions affecting firms in the foodservice industry. The competitive advantages and strengths in the SWOT analysis of Wendy’s shape the company’s capabilities for withstanding the competition demonstrated in this Five Forces analysis. The restaurant chain needs to align its strategies and organizational development with the factors mentioned in this Five Forces analysis.

This Five Forces analysis of Wendy’s presents external factors relevant to the company and its industry. Long-term success and the fulfillment of Wendy’s mission statement and vision statement partly depend on the company’s effectiveness in addressing the competitive issues shown in this Five Forces analysis.

Summary & Recommendations: Porter’s Five Forces Analysis of Wendy’s

The intensities of the Five Forces affecting Wendy’s business depend on the dynamics of the hamburger fast-food restaurant market. The following are the intensities of these five forces based on Wendy’s current performance and the conditions of the global market:

  1. Competitive rivalry or competition: Strong force
  2. Bargaining power of buyers or customers: Strong force
  3. Bargaining power of suppliers: Weak force
  4. Threat of substitutes or substitution: Strong force
  5. Threat of new entrants or new entry: Moderate force

Recommendations. This Five Forces analysis highlights competition, the bargaining power of buyers, and the threat of substitutes as the most important issues facing Wendy’s. The company must prioritize these forces to ensure competence in the foodservice business. However, Wendy’s must also consider other issues connected to the threat of new entrants and the bargaining power of suppliers. The following are recommendations based on the results of this Five Forces analysis of Wendy’s:

  1. Wendy’s must innovate its products to counteract the negative effects of competitors and substitutes. Such a product-focused approach can also attract and retain more customers. This recommended approach relates to Wendy’s generic competitive strategies and intensive growth strategies and deals with the competitive rivalry, customers, and substitutes presented in this Five Forces analysis of the foodservice business.
  2. Wendy’s marketing mix (4Ps) can be adjusted for more innovative and/or aggressive marketing campaigns to encourage sales growth and market penetration in some regions. This recommendation can help retain customers, address competitive rivalry, and limit the impact of substitute food and beverage products considered in this Five Forces analysis.

Competitive Rivalry with Wendy’s (Strong Force)

This part of the Five Forces analysis focuses on the impact of competitors on the hamburger restaurant company. The following are external factors that create the strong force of competitive rivalry against Wendy’s:

  • High market saturation (strong force)
  • High aggressiveness of foodservice firms (strong force)
  • Consumers’ low switching costs (strong force)

The foodservice market is saturated with many firms with diverse strategies. This external factor imposes a strong competitive force against Wendy’s. Also, the company faces aggressive competitors, such as McDonald’s, Subway, Burger King, and other fast-food restaurants, as well as coffeehouses, like Starbucks. Moreover, with low switching costs, Wendy’s consumers can readily move to other companies or restaurants that have comparable prices and quality. In this part of the Five Forces analysis, Wendy’s must prioritize competition as one of the most significant forces in its industry environment. The industry trends examined in the PESTEL/PESTLE analysis of Wendy’s affect the factors determining the degree of competitive rivalry in this Five Forces analysis.

Bargaining Power of Wendy’s Customers/Buyers (Strong Force)

Customers are a major influence in the hamburger fast-food restaurant industry environment where Wendy’s operates. This Five Forces analysis determines how customers (buyers and consumers) influence foodservice business performance. The following are external factors that maintain the strong bargaining power of customers over Wendy’s:

  • Customers’ low switching costs (strong force)
  • High substitute availability (strong force)
  • High quality of information on foodservice and food and beverage products (strong force)

Low switching costs enable customers to easily move from Wendy’s to other fast-food restaurants. There are also many substitutes in the market, such as food and drinks available from retail stores. This external factor empowers Wendy’s customers to consume substitutes instead. Furthermore, consumers have access to information to help them decide when buying from the foodservice company. Based on this Five Forces analysis of Wendy’s, the bargaining power of customers is a strategic priority.

Bargaining Power of Wendy’s Suppliers (Weak Force)

Suppliers determine the availability of materials Wendy’s needs in its business. In this Five Forces analysis, the effects of suppliers are considered in terms of how they impact the company’s supply chain. The following external factors reflect the weak bargaining power of Wendy’s suppliers:

  • Low forward integration of suppliers (weak force)
  • High overall supply (weak force)
  • Moderate size of suppliers (moderate force)

Suppliers have a weak influence on Wendy’s, partly because they have limited forward integration. This external factor affects the degree of control that suppliers have over the distribution and sale of their products to Wendy’s. Also, suppliers are weak because of the abundance of supply in the market. Despite the moderate size of some suppliers, they are not big enough to impose their demands on the foodservice company. As shown in this part of the Five Forces analysis, suppliers are a minor concern in Wendy’s strategic decision-making process. A related consideration is that the strategies for supply chain management included in Wendy’s operations management can limit the supplier power in this Five Forces analysis.

Threat of Substitutes (Strong Force)

Wendy’s faces the threat of substitutes for its service, food, and beverages. The impacts of substitutes on the company and its industry environment are evaluated in this part of the Five Forces analysis. In Wendy’s case, the following are the external factors that create the strong threat of substitution:

  • Consumers’ low switching costs (strong force)
  • High differentiation of substitutes (strong force)
  • High affordability of substitutes (strong force)

Consumers can easily move away from Wendy’s toward substitutes (low switching costs). For example, fine-dining restaurants and retailers are easily accessible. With high differentiation, the high variety of substitutes attracts many consumers. Moreover, Wendy’s target customers can choose substitutes based on low prices. This Five Forces analysis shows that the threat of substitution is one of the top issues in Wendy’s industry environment.

Threat of New Entrants (Moderate Force)

New entrants can change Wendy’s business performance and the conditions of its industry environment. The impact of new foodservice companies is considered in this part of the Five Forces analysis. External factors that create the moderate threat of new entry against Wendy’s are as follows:

  • Moderate cost of doing foodservice business (moderate force)
  • Moderate ease of brand differentiation (moderate force)
  • High cost of brand development (weak force)

The moderate cost of doing business is an external factor that limits the entry of some companies. Also, the moderate ease of brand differentiation enables some firms to readily compete against Wendy’s. However, the high cost of brand development prevents many new entrants from succeeding in competing against Wendy’s. In this Five Forces analysis, the threat of new entrants is a considerable issue facing the foodservice business.

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