Power Of Suppliers And Power Of Buyers


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A Porter analysis examines five different forces that affect the success of a particular industry. This analysis is then used to establish if a certain industry is attractive to potential shareholders and investors. The following will elaborate on the power of suppliers and the power of buyers in the "family restaurant" industry; including restaurants such as: Boston Pizza, East Side Mario's, and etcetera. The different strengths and weaknesses of these forces depend on many different factors that will also be summarized. Finally the overall influence of each force on this industry will be specified to give a greater understanding of the strength of this industry in relation to its suppliers and buyers.
Firstly, the power of suppliers in the "family restaurant" industry will be discussed. In order to be successful a restaurant business must have the proper equipment, the desired furniture, decorations and dinnerware, and of course the proper food. Other companies supply all of these products to this industry. Nonetheless in North America and around the world there are many different companies that are in the business of selling supplies to restaurants. With this many different companies having the same intention, the restaurant industry has a large degree of choice in whom to buy from. For example, if a restaurant is not happy with one company's price for bar stools, the owner can easily find a different company with a better price for bar stools. The excess of companies to supply restaurants reveals that these suppliers do not have a large influence on the success of the restaurant industry.
In addition the majority of supplies that are needed for the restaurant industry are not unique from restaurant to restaurant. Different companies do not need different types of plates in order to be successful. The lack of rareness that is apparent in all types of restaurant supplies, from food to furniture, proves that once again the power of suppliers is weak in this aspect.
Moreover, if a restaurant is unhappy with a certain product, many other suppliers are available to choose from, as stated previously. Say a company like Boston Pizza decides to buy pizza crust from a different supplier because of a rise in prices of their current supplier. This change requires the company to find a supplier with a similar type of pizza crust at a better price. This change in suppliers is relatively easy for Boston Pizza because of the large amount of other companies that supply pizza crusts to restaurants at competitive prices.

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This shows that for the restaurant industry it is easy and cost efficient to switch from one supplier to another, depending on the product, because of the vast rate of competition between the supplying companies.
Another factor affecting the power of suppliers is the threat of forward integration. The restaurant industry does not have to fear this at all. A restaurant prepares and sells meals and provides an amiable atmosphere for the public to dine in. Suppliers of restaurants do not intend to sell these products, but intend to sell the products that are used to cook these meals and used to create an environment that is enjoyable to dine in. Thus the threat of forward integration is not evident in the restaurant industry.
In most cases companies that supply the restaurant industry do not require these restaurants in order to be successful. If a supplier cannot sell its furniture, decorations and dinnerware to a restaurant, that supplier will simply supply these products to other industries such as department stores. Also, the supply of restaurant food or equipment can be easily sold to other types of restaurants such as "fast food" or "fine dining" establishments. The ability for these suppliers to find other markets shows that "family restaurants" are insignificant to them, giving them a slight degree of strength.
In summary the restaurant industry has a large number of companies to choose from to find restaurant supplies. Also, the supplies used in most "family restaurants" are not unique from restaurant to restaurant and the companies that supply these products have competitive prices for the restaurant industry to choose from if a switch is necessary. In addition the threat of forward integration is irrelevant because of the different customer needs that the restaurant industry has in comparison to its suppliers. However it is obvious that the "family restaurant" industry is insignificant to its suppliers. With all of these factors being discussed above it is shown that, with only one exception, the power of suppliers is very low in the "family restaurant" industry.
Secondly, it is important to describe the power of buyers in the "family restaurant" industry. The goal of the restaurant industry is to cook and serve meals to the public and provide them with an atmosphere that they can enjoy while eating their specific meals. Thus the buyer group of this industry is consumers who have the need to eat, the desire not to cook and the need to relax in an enjoyable atmosphere. With this being said it is clear that the products are not bought in large volumes because, in most cases, one meal is bought for each person. This creates a weak characteristic of the power of buyers in the restaurant industry.
The restaurant industry's major products are the meals that it sells. These meals are similar in all types of "family restaurants" but different in comparison to "fast food" or "fine dining" meals. Also the atmosphere that is established in a "family restaurant" cannot be found in other industries. The uniqueness of this industry's meals and surroundings shows that the buyers have another weak feature in this industry.
Additionally, the income of the buyers must be examined. Consumers in North America have many expenses that take up a large proportion of their income; a meal at a "family restaurant" is not one of them. This means that, for the most part, consumers in North America do not worry about the cost of a meal at a restaurant because of the many other, much more expensive, costs of living such as car insurance or a mortgage. In simpler terms the consumers of the restaurant industry are not price sensitive, thus, once more, the buyers are weak in the "family restaurant" industry.
In comparison the consumer will not try and find the best prices for a meal. When this is the case the restaurant industry does not need to strive to get as many customers as it can. The consumers show incredible weakness at this point because they are not forcing the industry to attempt to acquire customers with such things as promotional offers or price cuts. If the consumer showed more effort in choosing which restaurants to eat at than they would be a much stronger force than they are shown to be in the above explanation.
The price of consumers cooking their own meals must also be stated. It is well known that buying the ingredients of meals in "family restaurants" from grocery stores and cooking the meal yourself is less expensive than buying the meal at a restaurant. This being said shows that; if the buyers did not want to spend extra money to have their meals cooked for them than they would save more money. This factor gives the buyers power in this industry.
Also the restaurant industry provides a product that is not essential for the lives of its consumers. The most attractive factor of the "family restaurant" industry is that consumers do not have to cook for themselves. However people can get food from a different type of restaurant with a different atmosphere or they can cook their own food that they bought from grocery stores. This shows that a consumer can do without this product thus making the buyers strong.
Finally, the threat of backwards integration is not a factor in the restaurant industry. In order for a consumer to backward integrate into this industry they would need to start a new restaurant or buy a franchise such as Boston Pizza. In order to do this the consumer would require a large amount of money and a lot of experience in the field, which most individuals do not have. For this reason the power of buyers is shown to be weak.
In general the consumers of the "family restaurant" industry include the individuals, and groups of individuals, who dine at these different restaurants. The fact that the consumers do not buy in large volume, they are not price sensitive, they do not try to find the best prices and the products sold are unique shows that the power of buyers is low in this industry. Also the threat of backwards integration is not evident which shows that the power of buyers is, yet again, low. Nevertheless the fact that consumers would save more money and would survive if they did not buy meals from these restaurants makes the power of buyers stronger. This evidence shows that the power of buyers is low in the "family restaurant" industry
In conclusion, the above data provides a more in-depth look at the affect that the power of suppliers and power of buyers has on the "family restaurant" industry. The factors that determine the strength of these forces have also been noted along with a brief summary of the overall strength or weakness of both forces. With this data it is shown that in the "family restaurant" industry the power of suppliers is very low and the power of buyers is low. With this information and the examination of three other forces, a full Porter analysis will be completed and the actual strength of the "family restaurant" industry will be realized.

Citations

Backward integration. (1999). Retrieved October 6, 2006, from Investopedia Inc.
Web site: http://www.investopedia.com/terms/b/backwardintegration.asp

Montreal restaurant suppliers. (1999). Retrieved October 2, 2006, from HighwayHome.
Web site: http://www.highwayhome.com/travel/tourismbycity/montreal/restaurant_equipment/restaurant_suppliers.html

Porter 5 forces analysis. (n.d.) Retrieved 0ctober 5, 2006, from Wikipedia The Free
Encyclopedia. Web site: http://en.wikipedia.org/wiki/Porter_5_forces_analysis

The essential resource for the catering trade. (n.d.) Retrieved October 2, 2006, from Web
site: http://www.sugarvinetrade.com/


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