Sugar & Spice Case Study

Cooper Velasquez Olson

2/2/2017

SCO 4065W Section 002

Sugar & Spice Case Memo

        Sugar & Spice Dessert’s specialty mini-dessert bakery offers the competitive skills and expertise to succeed in the saturated market in Los Angeles but lacks a clear operational strategy to grow the company to new heights. The cupcake industry in Los Angeles is in an incredible growth period with strong competition from chains like Sparkles but there is also a race to the top among many local companies similar in size to Sugar and Spice. The best strategy to progress Sugar & Spice to the next stage of growth is to use a cupcake truck while simultaneously expanding your existing business though low-cost marketing efforts to drive demand. These options will allow you to naturally grow revenue through steady growth in sales without drastically increasing your overhead. Creating an operational focus on standard cupcakes which hold higher profit margin and require less time will allow you to spend resources strategically to drive profits.

Expand Marketing Efforts

Expanding your existing business through marketing is the next step to developing a strong customer base. Currently, you rely only on publicity and connections to drive sales which has been a good starting point, however you must expand your efforts so you receive order requests from people outside of your immediate network of connections. Focusing your operations on standard cupcakes will help focus your marketing strategy.

Your current operations show that standard cupcakes have a higher gross margin and create much more profit on a per minute basis. The extensive time it takes to create a custom cupcake order is the biggest deciding factor. Standard cupcakes yield a 76.2% gross margin while custom cupcakes yield 67.1% gross margin. A 4 dozen order of standard cupcakes earns $109.79 gross profit in 55 minutes which is $2.00/minute. The same size order of custom cupcakes earns $129.05 in 164 minutes which is $0.79/minute (see Exhibit 1). This was based off the assumption that there is only one employee helping during the baking process. If there are more than one this disparity would be more extensive. This drastic difference in profitability shows which avenue of the business should have a stronger focus. Custom cupcakes yield a lower gross profit while also having a higher throughput time. This makes custom cupcake orders not worth the resources or time at the current price point.

Custom cupcakes should not be a focus of the company although they should still be an offering as many custom orders are larger in volume and can have a mix of standard and custom orders. Sugar and Spice should increase their custom cupcake price to average $60/dozen which would lead to a margin of 73.7%. Special events should still be a good portion of your sales but the increase in price will push standard cupcakes at the center of sales with customized cupcakes as supporting product offerings. This increase in price will also make custom cupcakes more worth the time commitment and resources.

Leveraging social media marketing efforts across various platforms including Facebook, Snapchat, Twitter, Instagram and Pinterest is both low-cost and easily done yourself. Currently baking videos and creative food is widely shared among social media. This creates brand recognition, good word of mouth and communicates your unique product offerings. Sugar & Spice already has many good brand qualities that are not being leveraged due to lack of marketing efforts. The publicity you have received through magazines, Cupcake Wars and famous high-caliber celebrity clients such as Snoop Dogg must be communicated to the public before the hype of such public events dies down.

An aggressive multi-channel marketing campaign should start in the first month totaling $2,050.  During the first month you should spend $750 on paid social media on Facebook, Twitter, and Instagram. Offer a single low cost baking class (cover your own costs) on 3 occasions for 75 random contestants who win a twitter contest. Paid google ads for searching with keywords such as “cupcakes” or “party treats” should incorporate another $500. $300 should be allocated to paint the Cupcake Truck with social media handles, website, phone number and aesthetic appeal with company name and logo. Another $250 should be allocated to flyers and stickers which can be dispersed with the Cupcake Truck as they travel. This increase in marketing efforts coupled with the addition of the Cupcake Truck will bring monthly demand of cupcakes over the expected 400 dozen/month.

The Cupcake Truck

One of the biggest limiting factors holding Sugar and Spice back from growing is your lack of ability to sell without advanced notice. Customers are hesitant to make large 2 or 4 dozen cupcake orders if they haven’t tried your product and with only a leased kitchen you have no avenue to sell cupcakes directly to consumers. You have already purchased a refrigerated truck and utilizing this truck to sell cupcakes daily will create more consistent demand and establish yourself as a consumer brand. The truck should hold almost entirely standard cupcakes to maintain the operational and marketing strategy. The truck should also have examples of customized cupcakes to market towards special events which can have a mixture of custom cupcakes and standard cupcakes.

The Cupcake Truck increases your marketing message and credibility. Establishing a channel to sell your cupcakes creates validity in your process as customers can try your product and are more willing to make the larger orders. You will also gain the ability to sell cupcakes individually to create consistent daily demand instead of blocks of busy periods. You should sell the cupcakes for $4.00 for an individual cupcake which creates a $1.00 surcharge per cupcake over the standard $36.00 for a dozen. Location of the truck can be strongly marketed over their newly developed social media platforms and should park outside high traffic areas and outdoor special events. It will run five days a week from noon-5PM and with a capacity of 900 cupcakes it can handle any current daily demand from Sugar and Spice.