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This will enable them produce high quality products that perform well in the market. However, strict health, safety and licensing requirements will compel many firms to improve their manufacturing systems. If financing options become widely available, more firms will find it easy to operate in the industry. However, this stifles innovation in the industry because new firms which have better product concepts face a lot of difficulties. Firms that have operated in the industry for long are able to benefit from this situation because their market shares are protected. High entry and exit barriers make it difficult for new firms to enter the industry. There are several driving forces in the snacks industry which have an impact on the operations of various firms. Therefore, all firms are experiencing a reduction in revenues and they have been forced to retrench some of their employees to reduce their operating expenses.
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Many firms operating in the industry incur a lot of costs which make it difficult for them to sustain positive long term performance. The barriers of entry in the industry discourage start up firms from joining the industry. Most firms have resorted to price reduction strategies and strong advertising campaigns to attract new buyers.Īll these factors have an impact on the performance of all firms in the industry. High storage, transport, and energy costs have made it difficult for many firms in the industry to register positive performance. In the past three years, the industry has experienced low growth in revenues and this has forced some firms to downsize their operations. The intensity of rivalry between various competitors is high because the market is approaching maturity stage. As a result, consumers are easily attracted to such substitutes at various points of sale outlets. This makes it difficult for them to compete effectively. Snack manufactures are also forced to use similar retail and distribution channels used by manufacturers of other substitute products to sell their products. There are also other consumers who prefer home prepared meals due to health reasons. Snacks have to compete with cocoa, chocolates, soft drinks and candy in the same market. The threat of substitute products in the industry is high. This increases the cost of doing business because many firms have to transact with few suppliers who increase their prices due to high market demand for their products. However, during winter, the bargaining power of suppliers increases because they import their products from other countries. The bargaining power of suppliers is moderate because during summer, there are many sellers of various raw materials who have good relationships with various firms. Such firms are not likely to be affected by shifts in consumption and expenditure patterns in different markets.
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As a result, some firms have been able to benefit from strong brand loyalty from consumers. However, the industry has strong brands and many firms have differentiated their products because they target niche markets. The bargaining power of buyers is moderate because they can easily switch to other brands, if their needs are not satisfied. All these factors serve as barriers of entry that discourage many firms from entering the industry. Stringent food and safety regulations, complex distribution channels and the existence of strong brands also make it difficult for new entrants.
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Inadequate cash flow makes it difficult for new entrants to survive in the industry for more than two years. The threat of new entrants in the industry is low because new firms need large capital requirements to set up their operations. We will write a custom Snack Foods Industry Analysis: Porter’s Five Forces specifically for youįor only $14.00 $11,90/page 308 certified writers online Learn More This paper will discuss the five main competitive forces in the snack foods industry and how they impact on operations of different firms that manufacture these products. They need to identify customers’ needs in the market to develop appropriate products that conform to consumer’s lifestyles. All companies need to use appropriate market strategies to improve their performance in the industry. In the snack foods industry, there are five main forces that affect the operations of various firms.