Porters Five Forces Analysis

Five forces – Restaurant Industry – Golden Krust

1. Threat of New Competition – Medium

• If the industry is profitable, it is more attractive to new entrants and this will decrease profitability. Barriers to entry includes:
• Start up costs – in 2010, the average start up costs for annual sales of $425,000 is $125,000 with no land purchase.
• Consumer Skepticism – Brand loyalty takes time to build and consumers are very wary of new brands.
• Golden Krust is a well-known brand in the Caribbean community and beyond.
• Additionally, there is Franchising where standards are set which each store has to follow. 
• Location – Location is most important to success of this kind of business. If there are many competitors, then, this will impact sales volume. 
• Marketing – Required extensively and needs a budget, strategy and time. As a Franchisor, the marketing strategy is done at corporate and filtered down to the individual stores. 

 2. Substitute Products and Services – Medium to Low

   
     a. Other ethnic restaurants

         i.  For example: Manhattan location has within it’s vicinity Indian, Chinese, Thai, Mexican,
             American, Greek and Others.

        ii.  Prices are comparable: within $7-10 range

   
   b. Propensity to substitute: High in non-Caribbean
         concentrated areas, Manhattan; Low in Caribbean    concentrated area such as Brooklyn, Queens
         and Bronx

3. Bargaining power of Buyers – Low

• Large number of customers with relatively small purchases
• Customers have low switching costs
• Buyers do not need a lot of information about the product – except in specialized market such as New York where calorie count is required for each menu offering
• Customers are highly price sensitive and cut back quickly in times of hardship
• Product has some degree of uniqueness (ethnic) and has accepted branding

4. Bargaining Power of Suppliers – Medium to Low

• Inputs are standard – material, labor, supplies etc
• Can switch easily between suppliers and there are many potential suppliers
• Cost of purchase has significant influence on overall costs
• Labor is cheap and non-unionized

5. Intensity of Competitive Rivalry – Medium to Low

• Main Competitor: Royal Caribbean Bakery, 
•  Other: localized Caribbean eateries
•  Industry growth – moderate
•  There is intermittent overcapacity
•  Fixed costs are relatively high portion of total costs
•  There is a significant brand identities between competitors
•  Competitors are not the same size
•  Product is not complex and does not require understanding on customers part