Fast-Food Industry: The Bargaining Power of Suppliers

The bargaining power of suppliers in the fast-food industry varies significantly from business to business and across time and location. A fast-food business's investment in a specific supplier and the availability of other suppliers both play key roles in supplier bargaining power.

Brand-name suppliers tend to have more bargaining power. For example, McDonald's has contracts with Newman's Own and Coca-Cola and uses these brand names to attract brand-loyal customers. These suppliers have more bargaining power, because if they stop supplying restaurants, the restaurants may lose money or be forced to change their marketing strategies.

In a market saturated with suppliers of the same or similar products, an individual supplier's bargaining power diminishes. Restaurants can simply switch to another supplier offering the same product. This means that the suppliers may have to meet more of the buyers' demands, and buyers can put pressure on suppliers to reduce costs, offer better products, reduce delivery times or provide higher volume.

A supplier that offers a product at a significantly reduced price compared to other suppliers has more bargaining power, even in a saturated market. Similarly, if one supplier offers a superior product, better efficiency or rapid delivery times, this supplier's bargaining power will be higher than other suppliers in the industry. Fast-food restaurants operate on high volume, so rapid replacement of supplies at a low cost can save restaurants time, money and hassle. If a supplier provides the cheapest, most efficient or highest quality items, it has more bargaining power.

A supplier's willingness to bargain -- and risk losing a client -- is partially based upon the supplier's budget, as well as how much of its business comes from a specific fast-food restaurant. A supplier with a thriving, diversified client base has more bargaining power than a supplier who relies solely on one or two restaurants.