Crave Cupcakes
and Cookies
Business Plan 2011
Prepared by:
NikiaFleischhacker
Denille Heron
Stephanie Nagle
Tricia Paquette
Table of Contents
1.0 Executive Summary / ...... 32.0 Introduction / ...... 5
2.1 Mission Statement / ...... 5
2.2 Goals and objectives / ...... 5
3.0 The Operations Plan / ...... 6
3.1 Legal Structure / ...... 6
3.2 Board of Advisors / ...... 6
3.3 Organizational Structure / ...... 7
3.4 Site Plan / ...... 8
3.5 Floor and Work Plan / ...... 8
3.6 The Average Business Day / ...... 11
3.7 The Average Business Week / ...... 12
3.8 The Average Business Month / ...... 13
3.9 The Average Business Year / ...... 13
3.10 Supply Analysis / ...... 13
3.11 Capacity Limits and Capital Budget / ...... 14
3.12 Cost of Sales / ...... 14
3.13 Operational Expenses / ...... 15
3.14 Working Capital Planning / ...... 17
4.0 The Human Resources Plan / ...... 18
5.0 The Marketing Plan / ...... 19
5.1 Past Performance / ...... 19
5.2 The Market / ...... 19
5.3 Competition / ...... 20
5.4 Customers / ...... 21
5.5 Target Markets / ...... 22
5.6 Product and Service Features / ...... 22
5.7 The Opportunity / ...... 22
5.8 Sales and Profit Objectives / ...... 23
5.9 Channels of Distribution / ...... 23
5.10 Pricing Policy / ...... 24
5.11 Select Markets and Market Mix / ...... 25
5.12 Selling and Advertising / ...... 26
6.0 The Financial Plan / ...... 28
6.1 Financing Description / ...... 28
6.2 Required Rate of Return / ...... 29
6.3 Critical Success Variables / ...... 29
6.4 Best and Worst Case Scenarios with Sensitivity Analysis / ...... 30
6.5 Break Even Analysis / ...... 30
6.6 Ratios / ...... 30
6.7 NPV and IRR / ...... 31
6.8 Overall Feasibility / ...... 31
7.0 References / ...... 32
List of Figures
1.1 Organizational Structure / ...... 71.2 Floor and Work Plan / ...... 10
1.3 Competition Analysis / ...... 21
1.4 Price Comparison / ...... 24
List of Tables
1.1 Analysis of Daily Baking Needs / ...... 121.0 Executive Summary
Crave sells cupcakes, mini cupcakes, and cookies which are baked fresh daily. The products are priced at a premium because of their high quality, creative design, and the fact that there is no frozen inventory. Also offered arecakes for special occasions such as weddings, which can consist of three, four, orfive tiers. These cakes are differentiated from competitors due to the fact that cupcakes can make up part of the product.
Operations Plan
The ingredientswill be purchased locally andfresh on average every two weeks. The business will be capital intensive with one of the largest fixed expenses being salaries and wages. In addition, the margins on each product are relatively low, which means that a high sales volume will be extremely important. Therefore, obtaining customers will be the key to success for this business.
In addition, since the products will be baked fresh daily, inventory management will be important to monitor in order to decrease the amount of spoilage costs to the company. It is also essential to ensure Crave can meet demand on a daily basis, so as to maximize the profit potential. This will be done by constant evaluation of daily sales and baking levels.
Crave will be located on Broadway Avenue, a hip, trendy, and unique area of Saskatoon, which is considered to be a complement to the brand and products that Crave creates.
Human Resources
The Crave team will consist of a store manager, bakery manager, two front end staff, and two bakers in the first year. This will be increased in the fourth year to include another part time baker in order to keep up with the increased production and expected sales. The bakers will report to the bakery manager who will report to the store manager and the store manager will report to the founders, Carolyne and Jodi on a continual basis.
Carolyne and Jodi, will both hold seats on the Board of Advisors. The sisters each have approximately seven years of experience in the industry and have had success in expanding the original Crave store into five different stores within Calgary and one in Edmonton.
The key individual on the Crave team for the Saskatoon store will be the store/operations manager. This individual hasbeen a member of the Crave team in Calgary for the past five years and knows the Crave culture, production plans, business plans, and success tricks inside and out. This individual is ready to make the move to Saskatoon and take charge of another Crave success story. With the managers’ strong work ethic, creative and innovative product ideas, and excellent leadership and communication skills, Crave believes that the Saskatoon store will be able to achieve break even sales by year two and a net income before tax of nearly $44,000 in the fifth year.
Marketing Plan
Crave is targeting energetic, fun loving, care free women who love to indulge in sweet heaven. These women will be individualistic with above average incomes and represent approximately 15,130 people within Saskatoon and the surrounding area. Crave will also be marketing special occasions such as weddings.
The offering to these target markets will be ‘creating delectable treats to satisfy the craving of the human spirit’. Crave caters to individuals who are craving something sweet and want to make themselves feel special or need a pick-me-up.
Crave has two direct competitors, The Cupcake Conspiracy and The Cupcake Corner, each offering similar products. The Cupcake Conspiracy has an advantage with product features, given that it is a peanut and tree nut free facility and provides gluten free cupcakes. This is an advantage given the increased occurrences of peanut and gluten allergies. The Cupcake Conspiracy provides 100% satisfaction guaranteed and offers online ordering, which provides a greater customer benefit. However, Crave has advantages over the two competitors through its premium location, being on a corner lot of Broadway Avenue, Saskatoon, as well as havinga trendy, fun, and friendly store environment.
The marketing strategy is to focus on a successful grand opening, a partnership with the Business and Professional Women in Saskatoon, as well as the Bridal Spectacular event at Teacher’s Credit Union Place (TCU). The grand opening will focus on building awareness of Crave and its location. The partnership with the Business and Professional Women in Saskatoon will build a network with women who are in the target market. Finally, the Bridal Spectacular event at TCU will be to target the wedding occasion market by showing brides and grooms the unique offerings of Crave. These three main campaigns will be complemented by more generic forms of advertising, such as radio advertisements, newspaper advertisements, and a billboard.
Financial plan
The financial statements are based upon the above information of the operations (cost of sales and fixed costs), the human resources (wages and salaries), and the marketing plan thatdrives the sales. In the first year of operations there will be a loss but, in the following years, Crave will realize profits. Also, beginning in the first year, there will be positive net operating cash flows. However, there will be a net cash outflow due to the additional loan payments. In the following years there will be net cash inflows. Best and worst case scenarios are also calculated based on changing the sales volumessince the price is fixed.
Using a return on equity of 25% and a 6% interest rate on the debt financing, the resulting net present value (NPV) for Crave is $87,581. This dollar figure is over and above the initial investment, which shows that the store is worth more than what it costs. It also interprets into a 36% internal rate of return which is higher than the required return of 25%.
Crave believes that it will be a perfect addition to the growing city of Saskatoon.
2.0 Introduction
Crave Cupcakes & Cookies was established in Calgary in 2004 by two sisters, Carolyne and Jodi, who each own the company equally. Learning the art of baking from their family, Crave continues to use these family recipes in all products.
Crave sells cupcakes, mini cupcakes, and cookies which are baked fresh daily. The products are priced at a premium because of their high quality, creative design, and the fact that there is no frozen inventory. Crave also offers cakes for special occasions such as weddings, which can consist of three, four, or five tiers. These cakes are differentiated from competitors due to the fact that cupcakes can make up part of the product.
2.1 Mission Statement
Crave uses local and environmentally friendly ingredients to bakefresh specialty treatsdaily to satisfy the craving of the human spirit.
Crave fulfills this mission statement by the continuous creation of uniquely designed treats such as cupcakes, mini cupcakes, cookies, and cakes.
2.2 Goals/Objectives
The short term goal for Crave is to establish a firm position in its new market of Saskatoon, by developing a brand image of a high quality product, as well as a trendy, fun and friendly store environment.
The goal for Crave in the medium term is to have net positive cash flows by the third year of operations, in order to have the ability to sustain operations, while maintaining its brand image. Crave will do this by controlling costs and implementing the marketing plan to achieve the sales targets.
The long term goal is to achieve a 6% profit by selling a product mix of 35% cupcakes, 39% mini cupcakes, 26% cookies, and 0.02% cakes by the fifth year of operations, as well as to maintain the brand image. This will be achieved through obtaining the necessary sales product volume and by controlling costs.
These goals are to be reviewed continuously and updated as circumstances in the business and industry change.
The business plan will achieve these goals and objectives by focusing on having the appropriate team in place, continuously assessing the competition, providing a reference for Crave’s sustainable competitive advantages as well as focusing on the target markets and how to provide value to these customers. In addition, it provides a plan to manage inventory levels to keep costs down, as well as achieve the production and sales targets necessary to provide the required returns.
3.0 The Operations Plan
3.1Legal Structure
Crave Cupcakes and Cookies has already been incorporated and is a Canadian Controlled Private Corporation with locations in Calgary and Edmonton. There are two equal shareholders of the organization, Carolyne and Jodi who are also the co-founders. Incorporation was done for three main reasons. First, Crave is able to enjoy the small business tax rate of fifteen percent, which provides an advantage as less cash is needed as an outflow each year for taxes. In addition, the shareholders are only taxed on their salary, if employed, or on dividends received from Crave, which provides flexibility in the timing of payments. Shareholder tax rates will depend on the personal level of income. Second, by incorporating the shareholders are not personally liable; therefore, only the company’s assets would be at stake if Crave were to be sued. Third, by incorporating, Crave will have more access to financing.
3.2 Board of Advisors
Although Crave is a small business, it still has a Board of Advisors to oversee the company. Crave presently has an accountant, a lawyer, and an individual who has experience within the food industry sitting on the Board. The accountant is necessary as Crave needs an individual who is financially literate and who can interpret the financial statement results. This individual helps guide the company in the right direction. The lawyer provides Crave with legal advice. The third individual with industry experience is essential as knowledge is provided regarding the ins and outs of the industry and how to operate in the food industry. The owners and founders of Crave also hold seats on the Board of Advisors.
3.3 Organizational Structure
The organizational structure will be relatively flat (Figure 3.1). The two shareholders will remain in Calgary, and will not be involved in the day to day operations of the business. Crave will hire an operations/storemanager who will oversee the entire operations of the business. Crave will also require a separate bakery manager, who will oversee two to three bakers. Crave will also require two front end staff, working three quarters time.
Figure 1.1 Organizational Structure
The operations manager will oversee the running of the store and report back to the owners on a monthly basis, or as needed. Cravewill transfer one of theCalgary managers to the Saskatoon location to run the business. This person will already be experienced with Crave’s operations, processes, systems, and culture, which will ensure that the new store has a capable manager to run a new and fresh Crave team. The bakery manager will beresponsible for the production of the goods. This includes ensuring that enough products are on hand at any given point in time and to deal with purchase ordering. Inventory management will also be crucial as waste is an avoidable cost of sales. The bakery manager participates in baking, alongside the two general bakers. The front end staff members will bein charge of selling goods, taking orders, answering the phone, ensuring the front of the store is tidy along with overall customer satisfaction. An additional part time baker will be added in year four due to the increased demand for Crave goods and therefore for the increased production.
Before opening day, the operations manager and the owners will ensure the bakers and front end staff are thoroughly trained.
Crave will outsource all bookkeeping functions to Forbes Solutions, a local accounting, advising and training firm. Forbes Solutions specializes in small to medium sized businesses and guarantees accounting records that will be useful and important in making business decision making throughout the year.
3.4 Site Plan
The site chosen for the future home of Crave Cupcakes is on Broadway Avenue. This location was chosen as the Broadway Avenue culture parallels the image that Crave wishes to portray to potential customers. Parking will be available along the street and deliveries will occur through the back alley. Crave’s store will open directly onto Broadway Avenue. The other stores and services offered on Broadway Avenue are unique, one-of-a-kind shops, which further embodies the products that Crave has to offer.
3.5 Floor and Work Plan
The store front has been set up quite simple. A customer will walk in and will directly face the customer display counter. The custom display counter will show the current days selection of regular cupcakes, mini cupcakes and cookies. The front end staff then takes the order and the customer pays for the order at the time of purchase. No credit will be given. There is a table and set of chairs to make it appear more welcoming which can be used as a waiting area if needed (i.e. for cake orders) or if the customer so chooses they can sit and enjoy their treat in the store.
In the back there is an employee washroom and coffee room. The coffee room has a mini fridge, microwave, coffee maker, sink, and a table with chairs. Also, there is a bulletin board for any announcements, work schedules, or any other pertinent employee related information.
The layout of the back is set up to facilitate the work flow. The employees, more specifically the bakers, would enter through the back receiving door and, during the winter, can hang their coats up. From here they will wash their hands at the sinks and proceed to gather the ingredients, which is located directly beside the sinks. They will then bring these to the preparation tables under which there are drawers where the pans, utensils, bowls, etc. are located. The industrial size mixers are located against the wall and, if needed, there is also a single range stove and microwave.
After the items are prepared they will go into the oven to bake and then be transferred onto the cooling racks located right next to the oven. Once cooled, the items will proceed to the tables again where they will be decorated. Finally, they will be transferred to the finished goods storage which is just on the other side of the store front. This is convenient for the front end staff to replenish any item as needed.
During clean up there is a dishwasher for the large items but the double sink can also be used. When using the double sinks, one will be used to wash the supplies and then the next one will contain bleach water and then the supplies will dry in the drying racks.
Figure 1.2Floor and Work Plan
3.6The Average Business Day
Crave Cupcakes will be open Tuesday through Sunday, every week, with the exception of national and provincial holidays. Crave has chosen to be open throughout the entire weekend as Broadway Avenue has increased traffic during the weekend due to many individuals working Monday to Friday. This provides our target market with an opportunity to indulge while out shopping, running errands, or enjoying an afternoon off and also allows the opportunity to grab dessert for an evening of entertaining friends and family. The operating hours are also in line with the Crave stores in Calgary as well as with the main competitors in Saskatoon. Being open on weekends is also important as many of the speciality orders will berequired for events that occur on the weekend. The business hours will beTuesday to Saturday from 10:00 am to 6:00 pm and on Sunday from 12:00 pm to 6:00 pm. Crave has chosen to open at 10:00 am as Crave does not provide breakfast foods, however, the time coincides well with morning coffee breaks. Crave has chosen to close at 6:00 pm as it allows members of our target market to stop by the store on the way home from work. As there are a finite number of goods produced each day, if the product is depleted before 6:00 pm, Crave will close at that point.