The restaurant industry and the 5 forces

Introduction In this assignment we are going to analyses the restaurant industry in Ireland and we are
going to apply the Porter’s Five Forces and Pest on this industry for to be able to write a report to give
some advice to a new restaurant that is trying to enter in the market.

The restaurant industry To have a restaurant in the past before recession, was easier than nowadays
.An equipped kitchen, one room and a kitchen chef and owner with a supply list were enough for to
work Monday to Friday lunch time and pay the staffs, and Monday to Saturday dinner for a profit.
When Ireland was hit by recession in 2008 the restaurant industry suffers as much of any other
industry in the world. The disposable income money wasn’t there anymore so customers started to
cook at home as they could not afford to pay 36 euros for a Steak. Restaurateurs have to adapt the
whole organization for to survive in the market. With over 2,500 restaurants in Ireland, the Restaurant
sector employs 64,000 people and contributes €2 billion to the Irish economy each year.
Restaurateurs had to start to pay attention on customer’s needs and wants, trying to meet and satisfy
then with an affordable price. Restore consumer confidence in the country is another important factor
to be considered.

2. Explanation of Porter’s five forces Porter’s five forces is a powerful tool that helps analyses the
level of power of five important factors in a specific industry. Understanding where power lies, is easy
to take advantage of a situation of strength and improve a situation of weakness, avoiding the wrong
steps. It works by looking at the level of power of five important forces that affect competition: The five
forces that affect competition are:

Supplier Power In here is important to analyse how easy is for suppliers to increase the prices, it
depends on how unique is their service or product, the number of suppliers in the market, the cost of
switching to another supplier. The fewer the suppliers choice you have, and more you need their help,
more powerful your suppliers are. Bargain of Buyer power

In this case needs to be taken in consideration how easy is for buyers to drive prices down. This can
happen if the number of powerful buyers is few, so they can often dictate terms to you. Competitive
Rivalry

The number and the capability of your competitors are the main driver in this case. If you have many
competitors, and they have equally attractive product as you have, thus you have a little power in the
situation, because consumers and suppliers can go elsewhere if they don’t get a good deal from you.
But if you are in the other position of to have a unique product, you can have a huge strength. Threat
of substitution

This is affected by the ability of your consumer to find a product similar as the one that you sell with a
better deal. If substitution is easy and viable, then this weakens your power. As example we have
Coke that can be substitute by Pepsi. Threat of New Entry

The power of the business can be also weaken by the facility of competitors to get into the market. If
is not expensive, and not many barriers are imposed new competitors can quickly enter your market.

Figure 1 - Porter's Five Forces

3. Applying Porter’s Five Forces in the Restaurant industry in Ireland Rivalry The restaurant industry
is extremely competitive as the growing of customers demand is very slow and there are no charges
for to swap restaurant to dine, and people tend to do that as there is many kinds of restaurant on the
market. Customer’s after recession are looking for good value food, with a great service. As the
restaurant revenue depends on customer traffic, marketing become part of the daily Restaurant
routine. For to have a competitive advantage to the others is important to use different strategies not
only price, but also promotions.

Threat of new entrants The threat of the new entrants is high, as low entry barriers are presented. For
to open a new restaurant the capital required is low. The product differentiation in restaurant is difficult
as everyone is providing high quality food, with good quality service.

Threat of Suppliers The supplier’s bargain of power is very low as the supplier that sells the beef is
not the same as the one that supplies the fish. The reason behind is to buy what is best of each
supplier and provide a great quality food. Doing that the industry loses the power of bargain. There is
a low cost in case of change suppliers or switching products for substitutes.

Threat of Buyers Buyer’s bargain of power is very strong as there are no extras costs choosing
another restaurant to dine. Nowadays with internet and social network, customers are very well
informed about quality, prices and offers. Buyers are looking more for casual dine than a fine dine, a
place where they can go have food and drink for a set price and maybe stretch for a bit longer having
some cocktails afterwards.

Substitutes Competitive pressure from the suppliers that offer substitute products can be strong or
not, depending on product to be substitute. If there is a substitute product that is similar and almost
there are no difference customer will not notice it, but if customer come for that specific product with
no focus in the overall experience of fine dining than will be a problem. We have as example a
restaurant that launch a lobster burger dishe, and it was promoted in the newspaper, social network
and radio. The demand was very high, but in another hand the supply of lobster is attached to the
climate weather and season. So it would not be possible in this case to substitute the lobster for
langoustine.

4. Pest analyze in the restaurant industry Political environmental factors – Stability political has to be
considered for to open a new business in the restaurant industry. Economy environmental factors- If
will be necessary to get loan of the bank for kitchen appliances or for to start up the business, is
necessary to check if the interests are high or not. The inflation also needs to be taken in
consideration as it can provoke higher wage demands. Social environmental factors- As a social
environment we can realize that people are more educated in relation to health food habits; they are
changing from diet products to healthy products. Also there are more and more people with lactose
and gluten intolerance or vegetarians. Women are working as many hours as the men’s so there is
nobody to cook at home. Government is increasing the media attention and incentives to “healthy
living”. Technology environment factors- The social network is playing an important role in the
marketing of restaurants, is important to have a website, Facebook and twitter for let people know
what you offer and to listen to what consumers want.

5. Recommendations: As a result from the Porter’s five forces and PEST applied in the Restaurant
industry here is the recommendation to the new entrant to the market: -Restaurant industry is a
market with low cost entry, but a high cost for to keep it for the first year until you get the customer
flow in the door. -After recession people become more careful with spending money and more interest
where they money would end up. Is important to understand your customer mentality and needs, so
every restaurant has in their menu written underneath “all our beef is source in Ireland”. Some places
even have a page on their website showing from where their products are source. -Before recession
restaurants would sustain their staffs wages with the lunch’s sold during the week, and their profit
would be made in the dinner time, mainly on the weekends.

Now there are no demand for lunch time in a normal restaurant , people are going only for
sandwiches and soups on the bakery around their office corner, so be prepared for to make the
difference in the dinner time attracting customers with different drinks and desserts. -The service has
change also, before the server would have to provide an excellent service, now is important to
provide a good quality service and always try to upsell without been pushy. -Menu need to be change
more often, so you will be fishing customers through your door , so make then be interest with
different dishes such as popping candy ice-cream and edible garden deserts. - Another option for the
evening is to let people know what you have through your social network posting every day prices, or
the daily special. - The early bird menu went very well in the beginning of recession people realise
they could have three courses meal and a glass of wine for 25 euros, but now restaurants used it too
much and most of them end up given smaller portion or a wine with inferior quality to the customer.

So early bird menu does not attract customer as much. -Be prepare for to work hard building your
channels of communication to reach your customers, but once is done is important to bear in mind
that restaurant industry is a hard work trying provide more attractive product than your competitors. -
Before was normal to have runners, waiting staff, and polishers, bar staff. Every staff would play a
different role, so for to serve one table or 30 tables would be always necessary to have at least 4
staffs. If you hire an experiment waiting staff that is able to run the food and polish afterwards you are
already optimizing your profit.

Example of a website from a restaurant with their product picture and its entire social media available.

6. Conclusion As part of my own experience I can tell that changes in the restaurant industry are
crucial for the life cycle of the company. For a new entrant in the industry is important to be attending
to customers’ needs and wants. As this factors had change a lot since 2008. Is important to know that
in the beginning you may have a huge audience of people but after three months people will lose their
interest and is important to bear in mind that creating news dishes and promoting it in the social
media will make the difference against your competitors. Restaurant can be very profitable but is
important to have a stock control for don’t affect your profit. In my opinion restaurant is a great
business that can be consider like a machine that needs all the parts in the right place very tight for to
work well and have an excellence performance.

Reference list

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Books Cunningham A. ,2008. Irish Management 2.0: New Managerial Priorities in a Changing World.
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