Wendy’s is the third biggest hamburger fast food restaurant chain in the world. This position indicates the company’s effectiveness in addressing the issues identified in this Five Forces analysis. Michael Porter developed the Five Forces analysis model to understand the influences of external factors in the industry environment. Thus, Wendy’s Five Forces analysis points to the main strategic issues for the company. The Five Forces analysis also reflects the industry environment conditions that affect other firms competing against Wendy’s. This Five Forces analysis is useful for managers and investors to evaluate Wendy’s performance and potential, as well as the situation of the global fast food restaurant market.
Wendy’s Five Forces Analysis (Michael Porter’s model) presents the external factors most relevant to the company and its industry. Wendy’s long-term success partly depends on its effectiveness in addressing issues shown in this Five Forces analysis.
Overview: Wendy’s Five Forces Analysis
The intensities of the five forces affecting Wendy’s business depend on the dynamics of the hamburger fast food restaurant market. Nonetheless, the following are the intensities of these five forces based on Wendy’s current performance and the current conditions of the global market:
- Competitive rivalry or competition (strong force)
- Bargaining power of buyers or customers (strong force)
- Bargaining power of suppliers (weak force)
- Threat of substitutes or substitution (strong force)
- Threat of new entrants or new entry (moderate force)
Recommendations. The 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 business. Nonetheless, Wendy’s must also consider other issues, which include the threat of new entrants and bargaining power of suppliers. To optimize strategic success, Wendy’s must develop its products to counteract the negative effects of competitors and substitutes. Such product-focused approach can also attract and retain more customers.
Competitive Rivalry or Competition with Wendy’s (Strong Force)
Competitors strongly affect Wendy’s industry environment. This part of the Five Forces Analysis focuses on the impact of companies on each other. In Wendy’s case, the following are the external factors that create the strong force of competitive rivalry:
- High market saturation (strong force)
- High aggressiveness of firms (strong force)
- Low switching costs (strong force)
The fast food restaurant 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 firms, such as McDonald’s and Burger King. Moreover, Wendy’s consumers can readily move to other companies or restaurants because many prices and quality levels are comparable (low switching costs). In this part of the Five Forces analysis, Wendy’s must prioritize competition as one of the most significant forces in its industry environment.
Bargaining Power of Wendy’s Customers/Buyers (Strong Force)
Consumers are major influences in the hamburger fast food restaurant industry environment where Wendy’s operates. This part of the Five Forces Analysis determines how customers influence business performance. The following are the external factors that maintain the strong bargaining power of customers on Wendy’s:
- Low switching costs (strong force)
- High substitute availability (strong force)
- Moderate quality of information (moderate force)
The low switching costs enable customers to easily move from Wendy’s to other companies. There are also many substitutes in the market. This external factor empowers Wendy’s customers to consume substitutes instead. Furthermore, consumers have access to information to help them decide when buying from Wendy’s. Based on this part of the Five Forces Analysis, the effects of the bargaining power of customers on the industry environment is also one of Wendy’s priority concerns.
Bargaining Power of Wendy’s Suppliers (Weak Force)
Suppliers determine the availability of materials Wendy’s needs in its business. In this part of the Five Forces Analysis, the effects of suppliers are considered in terms of how they impact Wendy’s and the industry environment. The following external factors reflect the weak bargaining power of Wendy’s suppliers:
- Low forward integration (weak force)
- High overall supply (weak force)
- Moderate size of suppliers (moderate force)
Suppliers have weak influence on Wendy’s, partly because they have minimal forward integration. The external factor of forward integration is the degree of control that suppliers have in the distribution and sale of their products to firms like Wendy’s. Also, suppliers are weak in the industry environment because of the abundance of supply in the market. Despite the moderate size of some suppliers, they are not big enough in imposing their demands on Wendy’s. As shown in this part of the Five Forces analysis, suppliers are a minor concern in Wendy’s strategic decision-making process.
Threat of Substitutes or Substitution (Strong Force)
Wendy’s faces the threat of substitutes in the market. The impacts of substitutes on firms and the industry environment are analyzed 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:
- 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 because it is easy to do so, based on the low switching costs. For example, fine dining restaurants and groceries are easily accessible. High differentiation is an external factor that makes substitutes attractive for many consumers. Moreover, Wendy’s customers could choose substitutes based on low prices. This part of the Five Forces Analysis shows that the threat of substitution is one of the top issues in Wendy’s industry environment.
Threat of New Entrants or New Entry (Moderate Force)
New entrants can change Wendy’s business performance and the conditions of the industry environment. The impact of new companies is considered in this part of the Five Forces Analysis. The external factors that create the moderate threat of new entry against Wendy’s are as follows:
- Moderate cost of doing 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 companies from succeeding in competing against firms like Wendy’s. In this part of the Five Forces Analysis, the threat of new entrants is a considerable issue facing Wendy’s.
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