The five forces analysis - Restaurant Industry

Let us assume that you are interested in entering the restaurant industry in the next decade. By applying
the five forces model and analyzing the potential profitability of the industry, you might get new insights
that can influence your decision and your competitive strategy.

Porter's model refers to five vectors operating in an industry and influencing its potential profitability:

1.  Threat of entries

2.  Power of suppliers

3.  Power of buyers

4.  Threat of substitutes

5.  Level of existing rivalry 

can switch to alternative suppliers easily.

The threat of entries - LOW 

There are no specific and complex regulations. Everyone can cook even if they are not skilled and
qualified cooks/chefs. Dark-Kitchens do not require high capital investments. 

The power of suppliers - LOW-MILD (in potential)

Going dark alongside the domination of takeaway services lowers the potential power of suppliers to use
restaurant branding for price and quality as means of pressure.

The rise of new food suppliers, direct supply chains, Farm-To-Table services also lowers the power of
suppliers.

The food-tech industry and the rise of new meat/protein substitutes alongside new technological
development in food production that might be considered healthier, thus preferable by consumers,
might raise the power of food tech suppliers.

The threat of forwarding integration to the industry becomes more realistic. Suppliers might decide to
integrate to the new distribution channels consumers favor (Takeaway) rather than open a restaurant. 

The power of buyers - LOW-MILD

What will be the bargaining power of diners in the age of Takeaway dominion over the foodservice
industry?! There are many buyers, the switching cost does not seem to change for a higher level, and
price sensitivity would stay as high as nowadays.

We might witness a growing pressure of buyers on the foodservice companies and delivery companies to
a high-quality SSL, food quality, and taste.
The threat of backward integration becomes more realistic because of low entry barriers and the ability
to level up the home cooking skills, thus providing local food services and the emergence of local private
chefs. 

The threat of Substitutes - MILD (potentially)

We can consider the restaurant industry's substitutes as Home-Cooking and Private-chefs services. These
two trends are growing alongside the growth of the Takeaways. The more culture changes, prices
change, and food quality does not satisfy the customers' tastes and preferences, the more people tend
to grow and cook their foods.  

The rivalry among industry's competitors - HIGH

The restaurant industry is reshaping and reinventing itself. Existing restaurants struggle with maintaining
their prestige and competitive advantage. Contemporary trends, like Black Kitchens, compromise the
industry order and structure and make it harder to sustain established restaurants, street-restaurants.

The industry's structure acts like a monopolistic competition, whereas players compete on their unique
service features. The industry's growth is evident so is the profitability of the players.

The exit barriers are also low, thus making the industry more attractive for new, small, local, and
specialized competitors. 

Conclusions

The restaurant industry is under construction. The Covid-19 Pandemic accelerated the speed of change
in this industry.

That mirrors a change in household cultural preferences, alongside the need to adapt to new social
behavior while lockdowns in the last two years.

The restaurant industry's new characteristics change the way people spend their pleasure time and
social behavior. There is a downside to this booming growth and profitability. I tried to stress some issues
on it.

But from the business aspect, and if you consider entering this market, it seems like there is still
profitability potential for fresh players in this industry. 

Using Michael Porter's Five Forces Model Analysis, it seems that since the threat of entries, the power of
suppliers and buyers, and the threat of substitutes are low-mild, there might be a place for you too and a
fair opportunity for being profitable. Looking at the prominent level of the existing competitions today
supports this understanding.