Market saturation Essay
However, Wendy’s also face threats in achieving its goals. One is the enforcement of stricter regulation in advertising and food standards of fast food because of the burgeoning issue of obesity. Although Wendy’s distinguishes itself as a healthy fast food, the bad publicity received by fast food companies could negatively affect Wendy’s performance, especially if the company does not issue a strong response to the obesity issue. Another is its susceptibility to the economic situation of the countries where it operates.
Specific Environment (Porter’s Five Forces) Five forces (rivalry, barriers to entry, buyer power, supplier power, and threat of substitutes) directly affect the decision and operations of Wendy’s. The company’s response to these forces determines its successful achievement of corporate goals. (Porter 4) The degree of rivalry in the fast food industry is fierce because of market saturation. The low prices and contest to gain the biggest possible market share has constricted growth opportunities in the domestic and some foreign markets.
Customers can easily switch to its closest competitors such as McDonalds, Burger King and Yum! if Wendy’s fails to match or offer better value than its competitors. (Hoovers) Differentiation proved and will prove to be a valuable competitive strategy for Wendy’s.
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The power of buyers is moderate because although customers have different options, the engagement in differentiation by Wendy’s to present the company as a ‘healthy fast food’ enabled the company to increase the cost of switching. Wendy’s has to strengthen its differentiation strategy to maintain and increase its customer base. The power of suppliers is moderate. There are many suppliers competing for contracts with fast food companies. Switching is possible if fast food companies can gain better offers from other suppliers.
Wendy’s tries to establish long-term supplier relations with suppliers of high quality fresh produce so that this limits switching but by finding fit suppliers, Wendy’s can fulfill its mission statement. The threat of substitution is high because of different options available to Wendy’s customers such as the food served in gourmet shops, food specialty shops, fusion or international cuisine shops, and other options. Wendy’s has to increase the cost of substitution through differentiation to secure a market base and minimize switching. 3.
General Environment (PESTLE) A number of environmental factors (political, economic, socio-cultural, technological, legal and environmental) could affect the performance of Wendy’s. Regulations comprise the political factors that could affect the operation of Wendy’s. Implementation of regulations on advertising and food standards could affect Wendy’s in terms of the additional cost for compliance (Hoovers). Nevertheless, since Wendy’s already implements high standards of food quality and preparation, the cost of adhering to new regulations should not be that high.
Economic conditions in the domestic market and various foreign markets affect the sales and opportunities for expansion of Wendy’s. Although the credit crunch in the United States meant the preference of the market for cheaper food options, which favor fast foods, this could also mean declines in the existing market base of fast food companies and sales because of lesser frequency of purchases. Wendy’s needs to further diversify by offering value meals that provide high value at low prices.