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Texas Roadhouse Inc.’s Porter’s Five Forces Analysis

The Porter’s Five Forces model can be used to evaluate the present competition in which Texas Roadhouse, Inc. operates to enable it to build a sustainable competitive advantage.

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The threat of New Entrants

  • High capital requirements in the restaurant industry, thus, make it challenging for new entrants to establish businesses.
  • It is fairly difficult to attain the economies of scale in the industry, therefore, making it simple for firms dealing with substantial quantities to have a cost advantage. The industry is characterized by strong product differentiation, advertising, and customer emphasis.
  • Governmental policies dictate stringent licensing and legal requirements.

The overall threat of new entrants in the industry is a weaker force. However, Texas Roadhouse establishes effective barriers to confront the threat of new entrants in the following ways:

  • Emphasizing the economies of scale to minimize the fixed cost per unit.
  • Focus on research and development to differentiate its products, create strong brand identification, and retain its customers.

Bargaining power of suppliers

  • The proportion of suppliers in the restaurant industry is higher than that of buyers, hence they have limited control over prices.
  • The products provided by the suppliers are comparatively standardized. Less differentiated and is associated with lower switching costs.
  • Suppliers do not compete with other products within the sector, hence, there are no substitutes.
  • The industry’s profit margins are closely integrated with that of suppliers, which means that they have to offer reasonable prices.

Texas Roadhouse, Inc. can confront the bargaining power of suppliers by:

  • Establishing an effective supply chain with several suppliers.
  • Developing close relationships with suppliers as both stakeholders are substantially affected by the pricing strategy used.
  • Purchase raw materials at low costs, and if the prices are not suitable, it can shift to another supplier since there are low switching costs.

Bargaining power of buyers

  • The number of restaurants is more than that of buyers. This implies that buyers have few restaurants to choose from, thus, they have limited control over prices.
  • The high product differentiation within the industry limits switching of buyers between alternative restaurants difficult.
  • The income of the consumers in the industry is fairly low and this makes them price sensitive.

Overall, the buying power of buyers in the industry is low, and Texas Roadhouse can tackle it by:

  • Innovating and differentiating their products to attract more customers.
  • Focusing on marketing efforts aimed at building customer loyalty.
  • Taking advantage of the economies of scale to sell its products at low prices to the income buyers.

Threats of Substitute Products or Services

  • There are limited product substitutes offered in the restaurant industry.
  • The few substitutes available offer high-quality but expensive products. Comparatively, the company’s production in the restaurant industry sells products with adequate quality at a lower price. This suggests that consumers are less probable to switch to substitutes.

Generally, the threat of substitute products is a weaker force. Nevertheless, Texas Roadhouse can deal with the threat of substitute products by:

  • Focusing on differentiating its products
  • By providing high-quality products at lower costs than the substitute products
  • Being service-oriented instead of product-oriented.

Rivalry among Existing Competitors

  • The proportion of competitors operating in the restaurant industry are few. However, they have a larger market share and this means their moves will have a substantial impact. Hence making rivalry among existing firms to be a weaker force.
  • The few competitors own large market shares. This suggests that firms have to engage in strong competitive activities to emerge as market leaders. Consequently, it makes rivalry among existing competitors to be a stronger force.
  • The overall restaurant industry has been growing in the past and is predicted to grow in the future. Therefore, competitors are less probable to engage in competitive activities, resulting in the weakening of the force.
  • The products are highly differentiated; hence, this makes it difficult for competitors to win the customers of others as they deal with unique products.

Texas Roadhouse can tackle the rivalry among existing competitors by:

  • Differentiating its products from that of the competitors
  • Since the industry is growing, Texas Roadhouse can engage in activities that attract new customers instead of focusing on winning customers over competitors.

External Factor Evaluation (EFE) Matrix

External Factors Weight Rating Weighted Score
Opportunities
Global expansion has made the firm to be existent in both domestic and international markets 0.112 4 0.448
It has a unique segmentation, positioning, and target strategy that has the capability of attracting more customers. 0.095 3 0.285
It has 586 different outlets that can attract customers in various countries, thus, increasing its market share 0.108 4 0.432
Increased restaurant business growth 0.115 4 0.46
The consumer culture is shifting towards fresh and hand-made food 0.106 2 0.212
Consumers are spending consciously which aligns with Texas Roadhouse’s marketing strategy, that is, to offer quality goods at low prices 0.095 3 0.285
Texas Roadhouse can attract experienced and highly motivated management team 0.075 2 0.15
Franchising 0.083 2 0.166
TOTAL 2.438
Threats
Presence of other competitors with large market shares 0.081 4 0.324
Changing consumer trends at different times of the year 0.075 3 0.225
Volatile political climates, currency exchange rates, and inflation in international markets. 0.067 3 0.201
Infections and diseases affecting cows, such as foot and mouth disease 0.032 2 0.064
The quality of beef and other Texas Roadhouse foodstuffs in regions that do not deal in beef-related products. 0.051 1 0.051
TOTAL 0.865
TOTAL EFE 3.303

The EFE score of 3.303 suggests that Texas Roadhouse has a strong position in the market.

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Quantitative Strategic Planning Matrix (QSPM)

Weight Acquire a Competitor Expand Internally
Attractive score Total Attractive Score Attractive score Total Attractive Score
Opportunities
Global expansion 0.112 4 0.448 3 0.336
Unique segmentation, positioning, and target strategy 0.095 2 0.190 4 0.380
It has 586 different outlets that can attract customers in various countries 0.108 2 0.216 3 0.324
Growth of the restaurant industry 0.115 0 0 3 0.345
Shifting of consumer culture towards fresh and hand-made food 0.106 1 0.106 3 0.318
Consumers are spending consciously 0.095 1 0.095 3 0.285
Texas Roadhouse can attract experienced and highly motivated management team 0.075 2 0.150 3 0.225
Franchising 0.083 1 0.083 2 0.166
Threats
Presence of other competitors with large market shares 0.081 4 0.324 3 0.243
Changing consumer trends at different times of the year 0.075 4 0.300 4 0.300
Volatile political climates, currency exchange rates, and inflation in international markets. 0.067 3 0.201 3 0.201
Infections and diseases affecting cattle 0.032 2 0.064 3 0.096
The quality of beef and other Texas Roadhouse foodstuffs in regions that do not deal in beef-related products. 0.051 2 0.102 3 0.153
Strengths
Strong brand portfolio 0.180 4 0.720 4 0.720
Availability of skilled employees 0.167 3 0.501 3 0.501
High-quality products at low prices 0.153 4 0.612 2 0.306
Weaknesses
Reliant on beef 0.192 4 0.768 4 0.768
Most of its operations are in Texas 0.090 2 0.180 0 0
Only deals in fresh products 0.153 2 0.306 3 0.459
Heavily dependent on the diner 0.065 2 0.130 3 0.195
TOTAL 4.505 6.321

Based on the above data, internal expansion is more desirable than acquiring a competitor.

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