Threat of New Entrants or New Entry (Moderate Force)
New entrants can impact McDonald’s market share. This element of the Five Forces analysis refers to the effects of new players on existing firms. In McDonald’s case, the moderate threat of new entry is based on the following external factors:
Low switching costs (strong force)
Moderate capital cost (moderate force)
High cost of brand development (weak force)
Because of the low switching costs, consumers can easily move from McDonald’s toward new fast food restaurant companies. Also, the moderate capital costs of establishing a new restaurant makes it moderately easy for small or medium-sized firms to affect McDonald’s. However, it is expensive to build a strong brand that could match the McDonald’s brand. Thus, this element of the Five Forces analysis shows that the threat of new entrants is a considerable issue for McDonald’s.