Describe a Fragmented Industry?
A fragmented industry, “an industry in which no single enterprise has large enough share of the market to be able to influence the industrys direction” (www.businessdictionary.com). As new competition enters the market, prices drop and cost cutting actions are put in place. Companies begin to acquire suppliers and distributors in an effort to boost additional profits. In contrast, a consolidated industry is “determined by few firms, each of which struggles to differentiate its products from those of competition” (Wheelen & Hunger, 2010, p. 114). As the buyers become more informed, product quality and features become more important causing a decline in profits.
The food industry for example has several components that would be considered a part of the fragmented industry while others would be considered as part of a consolidated industry. Examples of fragmented industry in the food industry would be businesses that cater to fine dining. Although a very large industry, it is not dominated by just a few fine restaurants. Instead, most restaurants are owned by individuals and locally run rather than through a franchise. This allows for more owner control and a personal relationship between the owner and the customers. The localized flavor allows for menus that cater to the ethnic backgrounds of the local various locations. Communities with high amount of Italians for example are more likely to have a larger number of fine dining Italian restaurants as opposed to Mexican or Indian restaurants.
The fast food industry on the other hand would be considered more of a consolidated industry where few large corporations like McDonalds, Burger King, Pizza Hut and others own over 50% of market share. Although, there are still many local small mom and pop burger shops or pizza shops, they are more specialized for the local community rather than a threat to any of these large franchises. Another example of consolidated industry