19/05/2013

Report Prepared for: Clem Ramchatesingh BMGT 650

Prepared By: Chanel Browne Catherine Macfarlane Andrew Edwards Adam Neil Nigel Veeran Zach Shaver

Bread and Butter

Major Group Project
POWER Group

Table of Contents
INTRODUCTION ............................................................................................................................... 3 Company Background ................................................................................................................. 3 Executive Summary..................................................................................................................... 3 INTERNAL ANALYSIS ........................................................................................................................ 4 Company/Organization ............................................................................................................... 4 Vision/Mission ........................................................................................................................ 4 Objectives................................................................................................................................ 5 Organization Structure............................................................................................................ 5 Corporate Culture ................................................................................................................... 5 Current Strategy.......................................................................................................................... 6 Business Strategy .................................................................................................................... 6 Functional-area Strategy......................................................................................................... 6 Operating Strategy .................................................................................................................. 6 Primary Value Chain Activities .................................................................................................... 7 Marketing ................................................................................................................................ 7 Operations .............................................................................................................................. 8 Sales/Services.......................................................................................................................... 8 Inbound Logistics .................................................................................................................... 8 Outbound Logistics ................................................................................................................. 8 Supply Chain Management ..................................................................................................... 8 Secondary Value Chain Activities ................................................................................................ 9 Financial & Performance Analysis............................................................................................... 9 Internal SWOT Analysis ............................................................................................................. 10 Strengths ............................................................................................................................... 10 Weaknesses .......................................................................................................................... 11 EXTERNAL ANALYSIS ..................................................................................................................... 12 External SWOT Analysis ............................................................................................................ 12 Opportunities ........................................................................................................................ 12 Threats .................................................................................................................................. 13 Competitive Environment ......................................................................................................... 13 Intensity of rivals ................................................................................................................... 13 Suppliers................................................................................................................................ 13 1

Buyers ................................................................................................................................... 14 Threat of New Entrants ......................................................................................................... 14 Threat of Substitute products ............................................................................................... 14 Driving Forces............................................................................................................................ 15 Product Differentiation ......................................................................................................... 15 Changing societal concerns, attitudes and lifestyles ............................................................ 15 Emerging new Internet Capabilities and Applications.......................................................... 15 Technological Change ........................................................................................................... 15 Product Innovation ............................................................................................................... 15 Key Success Factors................................................................................................................... 16 Quality Products.................................................................................................................... 16 Customer Service .................................................................................................................. 16 Employees ............................................................................................................................. 16 Strong Brand Name ............................................................................................................... 16 Advertising ............................................................................................................................ 16 P.E.S.T Model ............................................................................................................................ 16 Sociocultural ......................................................................................................................... 16 Economic ............................................................................................................................... 16 Technological ........................................................................................................................ 16 PROBLEMS/ISSUES STATEMENT ................................................................................................... 17 STRATEGIC ALTERNATIVES ............................................................................................................ 17 RECOMMENDATION ..................................................................................................................... 18 IMPLEMENTATION ........................................................................................................................ 19 APPENDIX 1 ................................................................................................................................... 22 Statement of Retained Earnings ............................................................................................... 22 Balance Sheet............................................................................................................................ 23 Statement of Income ................................................................................................................ 24 APPENDIX 2 ................................................................................................................................... 26 Interview with Katie Whitall (Business Manager) .................................................................... 26 APPENDIX 3 ................................................................................................................................... 28 Letter of Confidentiality ............................................................................................................ 28 BIBLIOGRAPHY .............................................................................................................................. 29

INTRODUCTION
Company Background
In 1998 Wendy Whitall (owner and founder of Bread & Butter Bakery) came up with the idea and establishment of the Bread & Butter Bakery. With the support and encouragement from her husband and two girls she turned her love of baking into her career. With their help, along with a great staff and loyal customers, the bakery has grown more than they could ever imagine. The Bread & Butter Bakery is located in Kingston, Ontario and they are open every day of the week (hours differ on the weekend). The bakery strives to take pride in maintaining the highest standards in fine baking and cooking. Everything in the store is made fresh every day, using all natural ingredients and local produce whenever it is possible. They make all their products from scratch right there inside the store. All through the night, seven days a week, their bread bakers are busy in the kitchen preparing the bread for that day. Each of the bakerys loaves are hand rolled and made using all natural ingredients and no preservatives. They also offer a selection of carefully chosen products, such as local maple syrup, honey and coffee. Some of the bake goods that the Bread & Butter Bakery offers are hot cross buns, dinner rolls, pies, tarts, cupcakes, cookies, squares, loaves and cakes. They also offer a variety of savoury products including dinners, salads, soups, and much more. The bakery doesnt just do business out of their store; they also make goods for events such as birthdays, graduations, anniversaries and anything else that the consumer feels like celebrating. The Bakery has been around for 15 years and they try to give back to the community through charitable donations and they donate day old baked goods to the food bank.

Executive Summary
Bread & Butter bakery was established in 1998 by Wendy Whitall with a mission to offer the highest quality baked and cooked foods using fresh and locally sourced ingredients in order to achieve higher profits to increase the value of the company. It is located in Kingston Ontario and is open daily. Some of its products include; different types of bread and rolls, cakes, pies as well as soups and sandwiches.

It is a small company, comprising of 30 full time and part time employees and management, Wendy and also her husband Wayne who both oversee the operations and make all major decisions of the business. They set the standard of working long hours to ensure production is fulfilled and employees are required to adapt their hours of work to meet demands at various times of the year and are rewarded with bonuses. Bread & Butter has a strong brand name due to the superior quality of its product, specialty items and outstanding customer service. It has also demonstrated good supply chain management. However, the company has not had an advertising campaign since 2010, its financial planning is poorly designed and they face competition from substitute and alternative products. As with many industries, Bread & Butter is faced with the threat of new rivals, which can take away from its market share. Nonetheless, there are opportunities available to expand the company. The owners can move to a bigger location which can provide an area for customers to eat. This can be done through an implementation process that includes the owners meeting to discuss the feasibility, budget, location prospects, acquiring a property, obtaining the necessary permit for renovation and the renovation process. Once renovation is complete, revise operational structure and duties of employees to include the new eating area. Train employees for new tasks, inform customers of new location well ahead of its opening and when all infrastructure have been put in place the company can start operating from its new location.

INTERNAL ANALYSIS
Company/Organization
Vision/Mission
The vision of Bread & Butter is to maintain and improve upon the highest standards in fine baking and cooking. Their mission is to offer the highest quality baked and cooked foods by using fresh, high quality, locally sourced ingredients.

Objectives
There is a lack of clear financial objectives for Bread & Butter; they simply seek to achieve higher profit margins. They are much more strategically focused, although with Wendys daughter Katie coming on as business manager this could change. Strategically, they have a few goals. They seek to increase sales to fund investments in new equipment and supplies. They always need new mixers or equipment due to high volume of use, so extra cash on hand is useful. They seek to continuously improve their product line. Katie is in charge of this; she looks for products that arent selling well and takes them off the shelves in favour of better sellers. They are also seeking to beat their competitors on quality and become known as the best bakery in Kingston. For instance, they choose not to use margarine in any of their recipes, just high-quality butter. They could cut costs even further by using margarine, but they would sacrifice their main strategic goal of being high-quality.

Organization Structure
Bread & Butter has what is called a simple structure. It is very flat, with really only two levels of hierarchy: management and employees. Wendy & Wayne make all the major decisions and oversee all the operations in the business. This allows for quick training, fast responsiveness to change and low administration costs. Even though there is a split of authority between management and employees, everyone feels like they are on the same level, which will be explained in the Corporate Culture section below. Chefs, bakers and front staff are encouraged to bring new recipes or their own ideas to Wendy. In the end, all decision-making goes through Wendy, so it is still fairly centralized.

Corporate Culture
Wendy and Wayne are considered management, but they still work as hard as any of the workers. They come in early and work very hard to help the night-time bakers with pushing out the products. Often working longer hours than the employees, it sets an example for everyone to follow: Hard work pays off. Wendy also gives employees bonuses for times like Christmas when the workload is extremely stressful. This type of culture really makes you really feel like youre a part of the business, and not just a tool for earning profits.

Current Strategy
Business Strategy
The highest level of decision making is left to Wendy and Wayne. If the business is to take on any big project or makes any large changes, it does so through them. In addition to overseeing the functional-area and operation strategies, they will make company-altering decisions as well. For example, in 2010, Wendy decided to run the business 7 days a week. Before that they were open 6 days, closing on Mondays so workers could have a break. Wendy saw that operating only 6 days meant a lot of waste. Goods that didnt sell on Sunday had to be thrown out or donated to the Food Bank, because they couldnt sell them on Tuesday. Also, employees worked long hours, with only one day of break. With opening the store 7 days and hiring more employees, efficiency and productivity increased and savings were made. Now employees werent worked to their limits and the bakery didnt have to throw out day -old goods.

Functional-area Strategy
Katie, Wendys daughter who was brought on as business manager, handles most of the marketing, R&D, and production strategies. Her main task is to find ways to cut costs to improve profit margins, and she does this in many ways. She has outsourced cheaper waste management and laundry services. She has also helped Wendy to keep better track of her finances, tracking food costs and purchasing products from the cheapest suppliers. Although Wendy used to do traditional radio and television marketing through local news (CKWS), they have started moving towards social media as their main advertising platform. Katies use of Facebook and twitter for the business has generated some positive feedback. They have also been winning awards in the city, such as the Medium Business of the Year and have been featured in articles an on TV. All this publicity they got for free, just for having a good reputation.

Operating Strategy
The operating strategy is left up to Wendy, Wayne, and the Head Chef. Wendy and Wayne conduct how operations for the front-staff and bakers will be done each day. They will

leave a list of goods to be produced during the night for the bakers. When they come in in the morning they will make sure that everything has been baked and they are on track to open with all the baked goods. They will make sure the front-staff are packaging and showcasing the baked goods properly. Their guidance is crucial in opening the bakery. The Head Chef, who makes the fine foods such as pot pies and soups, will decide on their own operating strategy. This involves deciding on the menu, as well as sourcing special ingredients needed. They will delegate tasks to the two cooks under them. Wendy hires this person for their culinary skills and trusts them with executing the role responsibly.

Generic Competitive Strategy

Bread & Buttery bakery generic competitive strategy is a focused differentiation strategy. They focus on a narrow market niche where buyer needs preferences are distinctively different. Bread & Butter Bakery takes pride in maintaining the highest standards in fine baking and cooking. Their pricing also reflects their niche market because they sell at higher prices than the competition, which is a goal in the fine bakery industry. There products appeal specifically to niche members. Features and attributes tailored to the tastes and requirements of its niche members. As opposed to many bakeries to maintain the best taste and maintain high quality they only use butter and not margarine. They have small-scale production and custom made products that match the tastes and requirements of niche members. Custom made products like birthday cakes and cupcakes, as well their products can be customized to the liking of their customers.

Primary Value Chain Activities

Marketing
In 2010 Bread & butter took part in an advertising campaign with CKWS, with both TV commercials and radio commercials. Since then they have not done any advertising in which they have sourced out themselves. However in the past 2 years, Bread & Butter have been fortunate to have a lot of exposure through others. Bread & Butter have been featured in a number of newspaper articles, online articles, a couple of TV appearances and recommendations from people in Kingston.

Operations
Though out each day the bread bakers are busy always making fresh bread for that day. Each loaves of bread that is made are hand rolled and made with all natural ingredients. Bread and butter bake a wide variety of bread such as: white, whole grain, multi grain. Bread & Butter bakes cakes for almost any occasion such as birthday, graduation, baptism and anniversary. Cakes are baked using fresh ingredients and fresh butter and can be finished with a wide variety flavors (vanilla, chocolate, mocha and lemon and raspberry). Bread & Butter uses fresh local and season produce. Breakfast items are always baked fresh each morning. Other baked items include cookies, squares, tarts, cheesecake and pies.

Sales/Services
Whitalls Bakery Inc. is committed to excellence and serving all customers including people with disabilities. Wendy is open to all feedback with regards to the goods and services that they provide. Any feedback can be told either verbally or electronically (E-mail). All feedback that is received is sent straight to Wendy Whitall.

Inbound Logistics
Bread & Butter uses fresh local and season produce. They support the local economy. By also buying locally, it decreases the shipping time and shipping costs.

Outbound Logistics
Customer picks up orders from within the store but currently they do not deliver to peoples houses. Customer come into the store and takes a number and wait to be served.

Supply Chain Management

Bread & Butter uses a traditional food distribution service to obtain it`s raw product. Their main supplier is GFS, Gordon Food Services, and they keep costs low by using this supplier who has economies of scale in Kingston. When certain produce are in season, such as rhubarb, Wendy will buy from local farmers. The farmers come to her with their produce at cheaper prices than GFS, so this is another cost-cutting measure.

Secondary Value Chain Activities

The secondary activities for the Bread & Butter Bakery are relatively simple. The company currently has 30 employees. When Wendy is selecting a candidate she has them in for a 1-on-1 interview, and sees where they are with their skills. If she is convinced that they will be an asset, she will take them on for a 2-week training period. If the candidate appears to be picking up how to do things then they will be hired on as part of the team. The systems and technology that the bakery uses is very basic. They operate using Microsoft Office (Word, Excel, Access) to keep track of orders, inventory, and management contact system. The equipment they use to make the goods is your basic mixers, ovens, stoves etc. When the bakery is deciding which products to sell, they try and implement the new products but if they notice that they are not selling then they will stop producing them or phase them out in favour of the high-traffic items. The company has an adaptive culture that changes with the seasonal demand. Usually relaxed but can be very stressful around peak times (Easter, Christmas, Thanksgiving). The bakery also likes to give back to the community by making charitable donations to charities like the Heart & Stroke Foundation. They also donate day old baked goods to the Food Bank.

Financial & Performance Analysis

After reviewing the financials for Bread & Butter we can say that they are in a fairly good financial situation. From a profitability perspective their gross profit margin has increased every year from 2010-2012 which shows that they have a good enough percentage of revenues available to cover operating expenses and yield a profit. For those same 3 years they produced steady operating profit which shows that they are indeed earning profit on each dollar of sales, before paying interest. They have a steady net profit margin as well which also shows that profit is being made. In 2010 when the business switched to being open 7 days a week, it resulted in more of the inventory being used which allowed for a better financial performance (in 2011 gross profit increased by $144,109 and in 2012 it increased by $58,184). Net income may have taken a little hit in 2010 but once the new schedule was refined, net income increased by $42,137. There 9

current ratio is above 1.5 for all 3 years analyzed which shows that they are able to pay current liabilities using assets that can be converted to cash in the near term. They also have large amounts of working capital which means they have cash available for their day to day operations. This demonstrates that they have more internal funds to pay its current liabilities on a timely basis and they could finance inventory expansion, additional accounts receivable, and a larger base of operations without resorting to borrowing or raising more equity capital. This is also reflected in the cash on hand which increased every year from 2010-2012. With them now opening 7 days a week you can see that gross profit increased by 16 percent in 2011. Operating income also increased in 2010 and 2011 mainly because of the new wages being paid out for the 10 new employees along with their benefits. Net sales also increased because being open extra days meant more money to be made and Bread & Butter was able to make enough money to offset their expenses enough to bring in a good profit from 2010-2012. One factor that was noticed while reading the financials was that they currently have a high debt ratio in 2012 after it only being at 5.9% in 2010. This is attributed to them having no short term investments in 2012.

Internal SWOT Analysis

Strengths
Bread & Butter has a strong brand name and company reputation. They have been given positive reviews online and in other written material which recommends them as their favourite Kingston bakery. In addition to this, Bread & Butter has also won awards, indicating that they are a business that delivers what they promise. They also offer superior product quality with their specialty cakes and wide variety of breads, which includes specialty hard to find breads. They change their selection according to seasons and what sells best and when, which helps them determine when the best time to make these products is. Bread & Butter demonstrate good supply chain management. By extending their operating hours to 7 days a week, they were able to minimize the food waste. This ensured that produce would not go bad over the weekend, so they were able to use the maximum amount

10

of food, which cuts down on cost to replace foods that could not be used. They developed a good relationship with their main food supplier Gordon Food Services, but when certain produce was in season would buy from local independent farmers, which was an effective way of cutting down on seasonal costs. Another way they cut down on costs was sourcing out their linen to Canadian Linen. Since Bread & Butter is owned by baker Wendy Whittal, she is able to experiment with many different recipes and creations. This allows for unique baked goods to be created, which indicates that this business has product innovation capabilities. Making simple changes can give her a competitive edge against rivals since she can create new cakes, experiment with flavours and see what works best. By being creative with her culinary skills, she can continue to impress with both her dessert and dinner offerings. On top of everything else, Bread & Butter has great customer service capabilities. They know how to keep their customers happy and returning for more. With the service they provide, they are able to keep customers happy, which leads to praise and positive word of mouth. This allows them to attract new customers and keep return customers coming back.

Weaknesses
Bread & Butter lack good advertising. They are hands off when it comes to getting their name out there. In 2010 they had an advertising campaign with CKWS which involved radio and television advertisements. They mostly rely on word of mouth, as well as newspaper articles, online articles and TV appearances. In addition to this, they won the Medium Business of the Year award which provided them with exposure, but no extra efforts to draw in new customers was made. By maintaining this hands off approach, they are missing out on potential new customers to rivals. They also have a weak balance sheet. They do not have budgets set out and although this has not yet negatively impacted them. However, if they were to make any changes to their business or facility, not paying attention to where their money is and should be going, they may end up spending more than they would have liked or set aside. There are many substitutes available, as well as cheaper alternatives. Grocery stores provide cakes that are ready to go for customers when they arrive, as well as packaged cookies, 11

muffins, etc. Since Bread & Butter offers higher priced baked goods, customers may choose to go with a cheaper alternative. In 2010, Wendy hired her daughter as business manager, which was a new position in the company. The business had already been operating for 12 years, and this position was added. This indicates that there is not a lot of management depth. Wendy demonstrates a Do It-Yourself mentality. Since part of the business managers job was to find new ways to cut down on costs, there are 12 years where potentials costs could have been saved, but also where relationships with different suppliers could have been developed in the process.

EXTERNAL ANALYSIS
External SWOT Analysis
Opportunities
Bread & Butter could move to a larger location that would provide more space for storage and potential to expand on their product selection. This could be a good opportunity to increase their revenue and create more baked goods that are successful. In addition to a larger location, they could offer customers an area to eat inside the bakery, catering to customers who are on-the-go and need a quick stop for lunch. This would also serve the market segment that prefers a sit down meal, so instead of taking their meals to go, they can eat it right there. This would also give them competitive advantage and help them compete with rivals who offer a similar service. Another opportunity exists with their online capabilities. They could offer an online ordering service option as a quick and easy alternative to ordering in person or over the phone. Customers would be able to enter in all their information, as well as any specifications or special instructions. This process could include payment online, which would allow for pickups to be easier. All the customer would have to do is show their printed off receipt or order number, where the only exchange necessary would be handing over the order once its ready. This is a quick and convenient method for customers.

12

Threats
Threats to Bread & Butter include the potential entry of new competitors. They could lose out to new rivals who come in offering a similar product offering for a cheaper price or who offer additional services, for example catering. In addition to this, they could also lose out on potential profits to substitute products. Rather than buying their specialty multi-grain breads, customers could go to their local grocer and buy a loaf of Wonderbread for a much lower price. Bread & Butter could lose out on sales to more convenient, cheaper products. Changes in driving forces could also become an issue. Product innovation is one of the major factors that sets this bakery apart from others. If other bakeries make similar products that taste just as good or better and offer it at a lower price, customers might shift their buying needs over to the competitor. Offering something different and refreshing their menu periodically could help keep customers coming back and cut down the chance that rivals may come up with a duplicate product.

Competitive Environment
Intensity of rivals Moderate
Bread & Butter has a number of rivals located throughout Kingston. These include Wolfe Island Bakery, Fardellas Classic Bakery and Internet Cafe, Pan Chancho, Silly Yak and Saint & Cinnamon. Although many of these locations offer similar products, many seem to focus on breakfast, lunch and dinner meals whereas Bread and Butter specialize in high quality baked goods, with dinner meals as an added bonus. Bread & Butter has an advantage since its hours of operation are longer and later than most of their rivals, however rivals such as Wolf Island Bakery and Pan Chancho offer catering services, which is a segment that Bread & Butter is missing out on. By offering catering services, these rivals can encroach on a market segment that Bread and Butter would not be able to attract, which could also result in loss of market share since these businesses would likely retain these customers for smaller, one item at a time purchases. Wolfe Island Bakery also has three locations, two of which are in the Kingston area, which allows them to cover more ground.

Suppliers - Weak
13

For standard items such as; flour, sugar, butter and milk these items are readily available from a host of suppliers, although Bread & Butter Bakery has one main supplier, Gordon Food Service. For some baked goods like that are offered seasonally like Strawberry Rhubarb pie in the Spring, Peach Cobbler in the Summer and Pumpkin Raisin cake in the fall, there is a lot of independent farmers who they buy from. Switching costs are low as there is a host of suppliers available.

Buyers - Moderate
There are no switching costs for buyers to switch to another bakery. Most of the breads and cakes offered are standardized products, while the seasonal specials are differentiated. Buyers are well informed about the quality and prices offered by various sellers in the industry. Buyers are small and numerous relative to sellers. Buyers are not very price sensitive; they prefer quality over price as the prices offered by Bread & Butter Bakery is higher than some bakeries in the area.

Threat of New Entrants Strong

The threat of new entrants in this industry is very strong. Starting a bakery is an easy business to get into because all one would need to start up is a location, materials, culinary capabilities and a good idea. The location doesnt even have to be large because it can be set up as a small business out of someones home kitchen. The barriers to entry are low. Theres a low capital requirement. As well, suppliers would be plentiful and like Bread & Butter, potential entrants could also go to local farmers. As well, strong brand preferences and loyalty may not exist with the bakeries in Kingston which would make it easier to break into the local market.

Threat of Substitute products Moderate/Strong

There are low switching costs associated with substitutes. Baked goods are not a must have product, so customers can go to a cheaper, faster and more convenient solution, such as seeking out bread at their local grocery store rather than making an out of the way trip to a bakery. Not only this, but the products sold in grocery store are cheaper, which makes them more attractive to customers. This is especially true in the case foods that are considered staples in a household. 14

There are also alternatives to going to Bread & Butter for their dinner menu. Since going there would be for customers who do not feel like making dinner, they could also buy prepared foods in their grocery stores or deli counters, much like the ones offered at Metro and Loblaws. Fast food and sit down restaurants are also substitutes for Bread and Butters dinner menu, which would offer more convenience or a wider variety of options. There is also the option of home-baked goods. All a person has to do is buy ingredients and they can make their cakes and cookies at home. Cost effective for them to do so since they are paying a small amount for the ingredients, with the potential to get more quantity. This is a substitute for a price sensitive customer who cannot afford the high-priced goods sold at Bread & Butter.

Driving Forces
Product Differentiation-To attract and retain customers, industry members must come up
with new products that are unique and special from rivals- which can increase the demand and intensity of competiveness in the industry.

Changing societal concerns, attitudes and lifestyles- People are eating out a lot more
than before and most of the products offered are geared towards a healthy eating which many buyers have adopted over the years.

Emerging new Internet Capabilities and Applications- The internet is a great

opportunity for businesses to market their products to attract new customers by listing their products and prices online, and it also gives buyers the ability to research the different products offered by rivals especially if looking for special items.

Technological Change- Having the most advanced technology in terms of equipment helps
to increase efficiency and productivity.

Product Innovation- Introducing new items to their menus helps to differentiate

companies from their rivals. It can attract new buyers and help old customer coming back and increases the rivalry among sellers.

15

Key Success Factors

Quality Products- Companies in the industry should offer products that meet the standards
of customer in terms of the type of ingredients used, the method of preparation and freshness.

Customer Service- Ensuring that customers are satisfied with the quality of service will help
in customer retention and help promote the business through word-of-mouth which is the best form of advertising for businesses of this size.

Employees- Hire staff with experience in food service industry and train them. Provide all
that is needed in order for them to deliver quality products and great customer service.

Strong Brand Name- Having a name that is associated with superior quality and great
customer service enables the company to retain and gain market share through word of mouth advertising by loyal customers. Rewards and favorable reviews in publications can also help to promote and strengthen the image of a company.

Advertising-To increase market share or if faced with declining sales, company must find a
find to make promote their products to buyers, by offering daily specials, or by showcasing items that are not selling as well as others.

P.E.S.T Model
Sociocultural - Companies are meeting the demands of buyers who are eating out more and
do not have time to prepare certain food items at home and preparing products to suite the health lifestyle of some buyers.

Economic- Since the end of the 2008-2009 recession sales have increased due to customer
demand, even though some companies prices are higher the industrys.

Technological- It helps companies to be more efficient and product and encourages product
innovation which helps to differentiate rivals.

16

PROBLEMS/ISSUES STATEMENT
1. Physical location is too small. The increasing demands/sales is putting more pressure on the bakery. With the same amount of space but more work being done, it is making it very congested. 2. The bakery does not have a dining room area. This is a problem because they are losing out on the opportunity of capturing a certain market segment that likes to sit down and eat. This may cause them to lose out on potential revenue. Most bakeries have a sit down area where the customer can grab a coffee or something and relax. It also adds to the overall customer experience. 3. Another problem that we have noticed is with their website. They dont have an online order form. They are losing out on big potential orders by not having a way of ordering online. A lot of businesses now have it set up so you can order their products online. This will make it easier for the consumer to order goods and it will also give the bakery a little more lead time to fill these orders. By doing this they may generate more revenue by making it more convenient for consumers to order goods.

STRATEGIC ALTERNATIVES
1. Acquire a bigger location. PROS: CONS: Increase in fixed costs High cost of capital Could lose your loyal customers by moving locations More space to work efficiently/communicate Creates a safer work environment More storage

2. Create a dining area. PROS: Natural extension of food service

17

CONS: -

Capture new clients Help strengthen customer relationships

Loss of working space May not be feasible (cost outweigh the benefits) Increased labour costs (cleaning up the dining area)

3. Set up on-line order and payment system PROS: CONS: Could take away from the personal customer relationship Could have system errors Need to have technical support Convenience Could bring in more customers Increased organization

RECOMMENDATION
What we would recommend for the bakery is to buy a bigger location so that they could improve productivity and be more efficient to accommodate the rising demand. This will provide more space for storage and give more room for employees to work freely without being too congested. Adding a staff room for breaks and lunch would keep them out of the way of production when they are on break. This will also cut down on liabilities and improve hygiene (they currently all take breaks at their work station). This will give them an opportunity to add a lounge area without worrying about cutting into limited space. By adding a lounge area this will help capture new customers and add to their overall experience. The increased labour costs of the lounge area will be covered by the increase in revenue. If they were to buy a bigger facility this would be a long term asset as oppose to renting which would be a liability. The cost of renting would never go down and by buying you would own the building eventually

18

which you could sell if they wanted to. Purchasing a bigger location is easily justified by the potential increasing sales and the current spatial problems.

IMPLEMENTATION
Step 1: What: have meeting about new location and what it will need. Who: Wendy, Wayne and all staff of B&B When: immediately Step 2: What: set up budget for what is to be spent on the new location, as well as renovations, new equipment, furniture, etc. Who: Wendy, accountant When: immediately Step 3: What: Scout out potential locations, playing close attention to price, as well as location. Don`t want to stray too far from the current location to minimize potential customer loss Who: Wendy When: As soon as budget has been completed to follow as a guideline Step 4: What: once an acceptable location has been found, place bid on the property Who: Wendy, realtor, accountant When: immediately following the determination of budget and potential location of new property *Step 1 through 4 approximately last one month, depending on availability of open properties* Step 5: What: Discuss the general ideas and blueprints for the renovations necessary in the new building. Who: Wendy, Wayne When: Once building has been acquired Step 6: What: Obtain relevant building permits necessary to do renovations Who: Wendy and City of Kingston When: immediately following the purchase of property so that work can begin as soon as possible.

19

Step 7: What: Once property is acquired, seek contractors to make any changes to the building and discuss blueprints Who: Wendy and Wayne When: Once building has been bought and paid for Step 8: What: Begin renovations Who: contractors When: when all the plans are finalized, the renovations can begin Step 9: What: Establish new operational structure, including any new or altered employee responsibilities and how suppliers deliver to the building i.e. New entrance points and unloading procedures, etc. Who: Wendy, Wayne, employees When: After developer has given specifications on the new layout Step 10: What: Revise job responsibilities for employees Who: Wendy When: once it has been established what has changed in the new location and what changes should be added or taken away from current job responsibilities Step 11: What: Hire and train new employees to get ahead of the need for extra hands once the business begins operating in a larger building Who: Wendy When: Two months prior to opening of new location. Training will begin in the current location. Step 12: What: Begin sending out notices (through newspapers, online forums, general signs) that the location has been changed. Direct mailers or flyers can be used to get as much coverage in Kingston as possible. Who: Wendy, community newspapers When: One month leading up to the grand re-opening to start generating as much notice as possible Step 13: What: Once building renovations have been completed, go through a test run to make sure all the equipment is working. This will be necessary to make sure that ovens are working properly, there is running water, etc., just to make sure that everything is running smoothly in 20

order to avoid any potential problems on opening day. This will also give employees a feel for the kitchen beforehand. Who: Wendy, a few employees, contractor on hand to be present in case there are problems When: One week prior launch Step 14: What: Put current location property up for sale. Who: Wendy and Wayne When: As soon as new location is open Step 15: What: Open new location, monitor and evaluate results e.g. value added, peak periods, etc. Who: Wendy, Wayne, employees, accountant When: Once renovations and test run have been completed. Evaluation is on-going once new location has been opened.

21

APPENDIX 1
Statement of Retained Earnings
WHITALL'S BAKERY INC. STATEMENT OF RETAINED EARNINGS FOR THE YEARS 2010-2012

2010 Opening Balance Dividends Net income 238,474 -26,000 100,242

2011 312,716 -26,000 91,223

2012 377,939 -352,327 91,223

Closing Balance

312,716

377,939

116,835

22

Balance Sheet
WHITTAL'S BAKERY INC. BALANCE SHEET FOR YEARS 2010-2012 Years Current Assets Cash on Hand Short term invesments A/R Inventory Prepaid Expenses HST Receviable Corporate Taxes Recoverable Due From Share holder Total Current Assets Property Plant and equipment Other Assets Total Assets Liabilities: Current Liabilities Accounts Payable and accruals Payroll Liabilities Coporate taxes payable Total Liabilities Shareholder loans Retained Earnings Share Capital Retained Earnings Total 2010 49,729 191,146 5,190 2,000 1,771 731 1,262 251,829 79,293 1,200 332,322 2011 57,983 281,271 4,261 2,000 1,771 4,432 2,352 5,549 359,619 104,015 1,200 464,834 2012 85,293 0 5,356 2,000 1,771 4,287 0 73,351 172,058 98,253 1,200 271,511

19,605

55,649 31,146 86,795 0

19,605 0

72,135 16,399 23,905 112,439 0

1 312716 332,322

100 377939 464,834

100 158972 271,511

23

Statement of Income
WHITTAL'S BAKERY STATEMENT OF INCOME FOR THE YEARS 2010-2012

2010

2011 $ 1,551,642.00 $ 3,385.00 $ 1,555,027.00

2012 $ 1,615,912.00 $ 4,182.00 $ 1,620,094.00

Revenue:
Sales Other income $ 1,353,813.00 $ 1,508.00 $ 1,355,321.00

Total
Cost of Sales Inventory at Beginning of year Purchases Inventory at end of year

$ 2,000.00 $ 468,220.00 $ (2,000.00) $ 468,220.00 $ 887,101.00

$ 2,000.00 $ 523,817.00 $ (2,000.00) $ 523,817.00 $ 1,031,210.00

$ 2,000.00 $ 530,700.00 $ (2,000.00) $ 530,700.00 $ 1,089,394.00

Cost Of Goods Sold

Gross Profit Operating Expenses:

Accounting and Legal Advertising and promotion Amortization and depreciation Bank charges and interest Dues an fees Insurance Office Expense

$ 9,658.00 $ 23,349.00 $ 22,449.00 $ 10,711.00 $ 1,426.00 $ 3,420.00 $ 12,835.00

$ 10,397.00 $ 15,799.00 $ 24,360.00 $ 13,086.00 $ 1,685.00 $ 4,183.00 $ 14,590.00

$ 15,448.00 $ 12,540.00 $ 26,873.00 $ 12,342.00 $ 2,624.00 $ 4,324.00 $ 9,832.00

24

Supplies Rent Repairs and maintenance Telephone Travel and entertainment Utilities Vehicle Wages and Benefits Sundry

$ 4,604.00 $ 34,223.00 $ 30,460.00 $ 2,718.00 $ 2,733.00 $ 19,549.00 $ 4,205.00 $ 583,131.00 $ 2,294.00 $ 767,765.00 $

$ 2,625.00 $ 34,195.00 $ 33,779.00 $ 3,935.00 $ 327.00 $ 24,961.00 $ 4,297.00 $ 732,931.00 $ 2,095.00 $ 923,245.00 $ 107,965.00 $ 16,742.00 $ 91,223.00

$ 29,687.00 $ 34,256.00 $ 27,408.00 $ 2,362.00 $ 617.00 $ 26,795.00 $ 6,270.00 $ 717,938.00 $ 2,813.00 $ 932,129.00 $ 157,265.00 $ 23,905.00 $ 133,360.00

Total Operating Expenses

Total Operating Income Before Taxes 119,336.00

Provision for corporate taxes $ 19,094.00 $ 100,242.00

Net Income

25

APPENDIX 2
Interview with Katie Whitall (Business Manager)
1. I noticed that the cost of wages increased quite a bit in 2010, did you hire more people? How many?

In the spring of 2010 we switched to being open 7 days a week which meant hiring more staff, and
additional training costs for those staff. I think we went from having approximately 20 employees to having approximately 30.

I was also hired in July of 2010, to come on as the business manager which was a new position with a higher salary level then most jobs within the bakery.

2. What is your role as business manager?

Part of my job when I started was to spend time sourcing less expensive ways to do
business. Something Wendy never had the time or opportunity to do before as she was baking! Some ways we've cut costs, are souring less expensive waste management, linen services, keeping better track of food costs, and ensuring we are purchasing our products from the right suppliers.

3. Do you and Wayne pay yourselves from the wages or capital?

Wendy and Wayne both get paid a salary. Wendy also takes dividends each pay. In 2012, Wendy, Wayne, my sister and I all got paid out a portion of the profits.

4. Any there any major factors that you can think of that helped to increase the overall net income over the past few years?

Opening 7 days a week has allowed us for less food wastage, and better productivity having staff here 24 hrs a day. Before being open 7 days a week on Saturdays it was always a struggle to make sure we

26

didn't have produce in the back that would go bad before reopening on Tuesday. Now we are able to continually use produce without the worry of it going bad. We have also spent a lot of time the past 2 years analyzing what sells best when. This has allowed us to better tailor what products we make, helping to "sell out" at the end of the day opposed to sending everything to the Food Bank for half

price.

5. What sort of promotional efforts are you involved in?

In 2010 we took part in an advertising campaign with CKWS, with both a tv commercial and radio commercials. Since then we have not done any advertising which we have sourced out ourselves. However, the past 2 years we have been fortunate to have a lot of exposure through others. We have been featured in a number of newspaper articles, online articles, a couple of tv appearances and we've also been mentioned in a lot of written material from individuals recommending us as one of their favourite Kingston spots! All of that has been extremely beneficial for us, and hasn't cost us a penny. We also won Medium Business of the Year this past year, which has provided us with quite a bit of exposure.

6. Your cost of supplies went from $2,625 in 2011 to $29,687 in 2012. Is this because of upgrades (new equipment, displays, etc)? It was just cost of items getting putting into different accounts. The year prior we had some costs that were going into food cost, and in 2012 we switched it to supplies.

NOTE: In addition to the above recorded interview, Zach Shaver worked full-time as a baker at Bread & Butter from 2008-2010 and thus has a considerable amount of internal company knowledge. When locking down Bread & Butter as our company for this project, he visited the work place again and had an informal discussion with the owners.

27

APPENDIX 3
Letter of Confidentiality
To whom it may concern: This letter is to verify that the undersigned group members are requesting your assistance in securing your company for an academic project. The purpose is for an academic grade towards their class in Business Policy (Humber College, course code: BMGT 650). This is a final term major group project that will require of them, the ability to study both the internal and external environments of a company and formulate actionable strategies. The information that you provide will be discussed in confidence and the material will only be used for academic purposes; that is, the information provided will be used exclusively in this academic term (Winter 2013, section R6- Friday) and in this course (BMGT 650- Business Policy) at this institution. Please call me if your wish to discuss any aspects of this project. I will follow-up with an email at the end of the term. Thanking you in advance in supporting the education of the business leaders of tomorrow. Respectfully, Clem Ramchatesingh MBA Professor, Business Administration The Business School Humber College, Institute of Technology and Advanced Learning (416)675-6622 ext. 5279 clem.ramchatesingh@humber.ca ---------------------------------------------------------------------------------------------Group Members Signatures: Each group member agrees that all company information provided will only be used in the current academic term, Winter 2013 and for this course, BMGT 650 only and in section R6 only. No other use will be permitted. Each group member are required to date and sign this agreement. Print your name _______________________ _______________________ _______________________ _______________________ _______________________ _______________________ Signature _______________________ _______________________ _______________________ _______________________ _______________________ _______________________ Date _________________ _________________ _________________ _________________ _________________ _________________

28

BIBLIOGRAPHY
"Home." Bread and Butter. 2013. K2media.ca & Zute Group. 19 Mar. 2013 <http://www.breadandbutter.ca/> "Kingston Bakeries." Urbanspoon. 19 Mar. 2013 <http://www.urbanspoon.com/nf/242/40535/25601/Ontario/Kingston/Bakeries>. Thompson, Arthur A., Margaret A. Peteraf, John E. Gamble, and A. J. Strickland III. Crafting & Executing Strategy. 18th ed. New York: McGraw-Hill/Irwin, 2012 "Welcome to GFS Canada." Home. 24 Mar. 2013 <http://www.gfscanada.com/>

29