Question

300 words

If you are considering opening a new pizza restaurant in your community, what would be the threat of new entrants? How would you evaluate Porter’s other forces for this industry? Explain.

Answer 1

The Threat of new entrants in opening Pizza restaurant

The Threat of new entrants in the food industry is very high especially for the large restaurant that manages the chain of franchises. The presence of large firms creates barriers for the new entrants. They face lot of pressure to keep their profitability while offering good quality and price that must be appealing the customers.

Setting up a new pizza restaurant needs moderate level of financial investment. They possess an ability to achieve economies of scale where the input cost of setting up a new restaurant is low and production of goods and services is higher. Also, they have an ability to form a long term contract with the suppliers. Due to these factors, the number of potential competitors is unlimited. Thus, pizza industry has moderate level of threat of new entrants.

Porter Other forces of Model for this Industry

• Competition in the industry: As new entrants will enter the market, the competition will be too stiff and companies will have to spend a lot on advertising and promotion in order to stay ahead which again increases the overall cost of finished product.
• Bargaining power of suppliers: The bargaining of suppliers will be high if new entrants will enter the market. They will charge high prices for the supplies which will ultimately lead to increase in the price of pizzas.
• Bargaining power of Buyers: Due to entry of new entrants, pizza brands are not able to charge premium prices to maintain their brand names. As customers have lots of option to try for, companies have to set low prices in order to meet the competition.
• Threat of substitute products: The threat of substitute products like sandwich, tacos, burgers etc will increase as new entrants might introduce a separate cuisines along with pizza menu.