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

This Five Forces analysis of McDonald’s examines the external factors in the industry environment influencing the company’s strategies for international business expansion and growth.

Michael E. Porter’s Five Forces analysis model provides valuable information for strategic management, especially in addressing competitive issues in the external environment of the foodservice business.

External factors relevant to McDonald’s influence the degree of competitive rivalry in the industry, the bargaining power of customers or buyers, the bargaining power of suppliers, the threat of substitutes, and the threat of new entrants.

In this Five Forces analysis of McDonald’s, the five forces are mainly in the fast-food restaurant industry, although the company also sells home-use McCafé coffee products and other consumer goods.

The restaurant chain is an example of effective strategic management dealing with competition in various markets. This condition shows that McDonald’s operations management and strategies are appropriate to the external factors identified in this Five Forces analysis.

In addressing the external factors determined in this Five Forces analysis, the strengths described in the SWOT analysis of McDonald’s combat external forces linked to various competitors, including large multinational businesses and small local restaurants.

In this Five Forces analysis context, McDonald’s generic competitive strategy and intensive growth strategies satisfy business goals in competing with Burger King, Wendy’s, Subway, and Dunkin’, as well as McCafé competitors, such as Starbucks and Tim Hortons.

Competitive Rivalry or Competition with McDonald’s (Strong Force)

This element of Porter’s Five Forces analysis model considers the effects of competing firms in the foodservice industry environment. In McDonald’s case, the force of competitive rivalry is linked to the following external factors:

1. High saturation of the fast-food industry – Strong Force
2. High aggressiveness of firms – Strong Force
3. Consumers’ low switching costs between restaurants – Strong Force

The industry has many firms of various sizes, such as global chains, like McDonald’s, and local mom-and-pop fast-food restaurants. This external factor of market saturation strengthens the force of competitive rivalry in the fast-food restaurant industry.

Also, this Five Forces analysis includes company aggressiveness as a factor that influences competition with McDonald’s. In this business case, many firms aggressively market their food and beverage products.

Such an external factor increases the intensity of competitive rivalry with McDonald’s Corporation, corresponding to a strengthening of the competitive force considered in this Five Forces analysis.

In addition, low switching costs are an external factor that makes it easy for consumers to shift from McDonald’s to other fast-food restaurants, such as Wendy’s and Burger King, thereby adding to the force of competition.

Thus, this element of the Five Forces analysis of McDonald’s shows that competition is among the most significant of the five forces for consideration in the strategic management of the foodservice business.

Strategies addressing this competitive rivalry determine the achievement of long-term business goals and the realization of McDonald’s mission statement and vision statement for global growth.

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

This element of the Five Forces analysis deals with the leverage of buyers/consumers and how their decisions impact foodservice businesses. In McDonald’s case, the following are external factors that contribute to the bargaining power of buyers:

1. Buyers’ low switching costs – Strong Force
2. High market saturation involving food and beverage providers – Strong Force
3. High availability of substitutes – Strong Force

The ease of switching from one restaurant to another (low switching costs) enables consumers to easily influence McDonald’s business performance. In the Five Forces analysis case, such an external factor strengthens the bargaining power of customers over the foodservice firm.

A contributing factor to the low switching costs is the ease of finding online information for comparing foodservice providers and their products and alternatives. This factor empowers customers to make decisions in shifting from McDonald’s to competitors.

Moreover, because of high market saturation, diners have many fast-food options other than McDonald’s. Such a condition makes the bargaining power of buyers in this Five Forces analysis context a strong force affecting competition and the fast-food company’s external environment.

Furthermore, the high availability of substitutes relevant in this external analysis adds to customers’ bargaining power over McDonald’s. Examples of substitutes are local food kiosks, artisanal bakeries, microwave meals, and home-cooked food.

In this element of Porter’s Five Forces analysis, the identified external factors relate to customer loyalty and healthy lifestyles and the other social trends outlined in the PESTEL/PESTLE analysis of McDonald’s.

Bargaining Power of McDonald’s Suppliers (Weak Force)

This element of the Five Forces analysis model shows the impact of suppliers on the fast-food restaurant industry environment. In McDonald’s case, the bargaining power of suppliers is based on the following external factors:

1. Large number of suppliers – Weak Force
2. Low forward vertical integration of suppliers – Weak Force
3. High overall supply for foodservice businesses – Weak Force

The large population of suppliers weakens the effect of individual suppliers on McDonald’s. In the context of this Five Forces analysis, such a weakness relates to the weak or limited regional and international alliances among food and beverage suppliers.

Also, many McDonald’s suppliers are not vertically integrated and have weak control on the distribution network that transports their products to fast-food restaurants. In this Five Forces analysis case, such a factor weakens the bargaining power of suppliers over McDonald’s.

Moreover, the relative abundance of ingredients, like flour and meat, reduces individual suppliers’ influence on McDonald’s. This factor enables the fast-food restaurant chain to switch suppliers to access ingredients.

Thus, this element of the Five Forces analysis shows that external factors make supplier power weak and a minor issue in the restaurant company’s strategic management. Suppliers only weakly influence McDonald’s production capacity based on material availability.

Despite the weakness of their bargaining power, suppliers are significant to the foodservice business. McDonald’s stakeholder management and strategy for CSR, ESG, sustainability, and corporate citizenship help in addressing this force coming from suppliers.

Threat of Substitutes or Substitution (Strong Force)

This element of Porter’s Five Forces analysis model deals with the effects of substitutes on the growth of the restaurant chain business. The following external factors make the threat of substitution a strong force against McDonald’s:

1. High substitute availability – Strong Force
2. Customers’ low switching costs – Strong Force
3. Low-to-moderate cost-to-performance ratio of many substitutes – Moderate-to-Strong Force

There are many available substitutes for McDonald’s food and drinks, such as products from artisanal food producers and local bakeries, as well as ready-to-eat meals. Also, consumers can cook meals at home instead of buying fast food from McDonald’s.

In this Five Forces analysis case, such an external factor strengthens the threat of substitution against McDonald’s. Their high availability makes substitutes easy to access for consumers in various situations.

In addition, low switching costs make it easy for consumers to shift from McDonald’s to substitutes. Switching costs, such as transportation duration and price differences, depend on consumers’ needs, individual situations, and market conditions.

For example, switching from McDonald’s fast-food hamburger meals to substitutes commonly involves some disadvantages, such as additional effort for food preparation, or higher costs per meal in some cases.

Moreover, substitutes’ quality and cost affect their competitiveness in this Five Forces analysis of McDonald’s. Good quality and reasonable prices (low-to-moderate cost-to-performance ratio) of many substitutes satisfy consumers and strengthen the threat of substitution.

In this element of the Five Forces analysis of McDonald’s, external factors lead to the strong threat of substitutes. Mitigating measures include product quality management and aggressive marketing.

Threat of New Entrants or New Entry (Moderate Force)

This element of the Five Forces analysis refers to the effects of new players in the fast-food restaurant industry. In McDonald’s case, the moderate threat of new entry is linked to the following external factors:

1. Customers’ low switching costs – Strong Force
2. High variability of capital costs – Moderate Force
3. Foodservice companies’ high cost of brand development – Weak Force

The low switching costs allow consumers to easily shift from McDonald’s toward new players in the industry. Consumers can easily buy food and beverage products from new fast-food restaurant companies.

In Porter’s Five Forces analysis model, customers’ low switching costs are an external factor that strengthens the competitive threat of new entrants against McDonald’s and its share of the foodservice market.

Capital costs can be small for some foodservice businesses. However, many new entrants that directly compete with McDonald’s face high capital costs as a barrier to entry. This external factor can limit new entry and leads to a moderate threat of new entry against McDonald’s.

However, a major consideration in this Five Forces analysis is that it is costly to develop a strong brand in the fast-food industry. Many small and medium-sized businesses lack the resources for a strong brand that rivals McDonald’s brand.

Thus, the external factors in this element of the Five Forces analysis of McDonald’s show that the competitive threat of new entrants is a moderate strategic issue in the multinational restaurant chain business.

Summary: Porter’s Five Forces Analysis of McDonald’s

This Five Forces analysis identifies external factors of varying intensities and effects on McDonald’s. The competitive situation reflects variations among fast-food markets around the world.

McDonald’s strategies mitigate the negative impacts of these external factors. Considering external factors and market conditions, this Five Forces analysis of McDonald’s establishes the following intensities of the Five Forces:

1. Strong competitive rivalry or competition
2. Strong bargaining power of buyers or customers
3. Weak bargaining power of suppliers
4. Strong threat of substitutes or substitution
5. Moderate threat of new entrants/new entry

Recommendations for McDonald’s

This Five Forces analysis shows that McDonald’s needs to prioritize competition, consumers, and substitutes, all of which exert a strong force on the company and its competitive environment.

The bargaining power of suppliers and the threat of new entrants are also significant in influencing McDonald’s fast-food restaurant chain, although to an extent less than the other forces.

Taking into account foodservice business conditions and the external factors discussed in this Five Forces analysis of McDonald’s, the following are recommendations pertinent to the company:

Recommendation 1. Make McDonald’s product development and innovation more aggressive. New menu items can attract more customers to the company. This recommended action targets the forces of substitution, new entry, and competitive rivalry.

Recommendation 2. Implement higher quality targets to address the forces of competition and substitution defined in this Five Forces analysis of McDonald’s. This recommendation aims to enhance consumer perception and reduce consumers’ likelihood of switching to competitors and substitutes.

Recommendation 3. Implement additional or enhanced campaigns involving McDonald’s marketing mix (4Ps) with specificity to products or product lines threatened by competition or substitution. This recommendation aims to improve customer retention and increase the company’s market share.

References

• Kumolu-Johnson, B. (2024). Improving service quality in the fast-food service industry. Journal of Service Science and Management, 17(1), 55-74.
• McDonald’s Corporation – Food Quality & Sourcing.
• McDonald’s Corporation – Form 10-K.
• McDonald’s Corporation – Our Growth Pillars.
• McDonald’s Restaurants.
• Sobolev, D. (2025). Reimagining fast food: Consumers’ judgments and acceptance of fast food alternatives. Food Quality and Preference, 126, 105420.
• U.S. Department of Agriculture – Economic Research Service – Food Service Industry Market Segments.
• Watson, A., Perrigot, R., & Dada, O. (2024). The effects of green brand image on brand loyalty: The case of mainstream fast-food brands. Business Strategy and the Environment, 33(2), 806-819.