What’s Next for Cupcakes by Lizbeth
Group 5
Arya Asgari - 170513950
Justin Yakimishyn - 170316920
Marcus Miceli - 170299280
Soroush Kianpour - 170663920
BU481-V Business Policy I
Professor Manu Mahbubani
July 16th 2021
Recommendation: In order to address CBL’s lack of financial performance and disappointment
amongst shareholders, we are recommending a two part overhaul of their current business strategy.
The first part of our recommendation is to slow down growth of their brick and mortar locations and
even sell off underperforming stores to free up capital that can be utilized to fuel growth in part two.
Capital that becomes readily available during this first part will be used to pay down debts that were
incurred during the company’s 2011 losses, as well as offer a small dividend which is commonly used
to gain popularity amongst shareholders in a mature industry such as food/beverage. We then
recommend for CBL to use any remaining capital to fuel growth in part two of the business
transformation, the development of an online store that will be used to transition their existing mailorder service into an e-commerce platform. More specifically we believe that the most-effective use
of this new service will be to continue serving their current consumers who are looking for a “perfect
gifts for the holidays, a nice dessert for a special dinner party or a treat to send a college student”, but
to add features to create a tiered product offering. The tiered product model will give consumers the
option to customize their order in terms of picking out their desired flavours, their packaging,
timeline/urgency of the order, and overall experience with the brand. As mentioned, consumers have
been getting used to getting differentiated experiences with food, as well as increasing their overall
spending on discretionary foods, ultimately allowing CBL to cash in on the two trends by charging
greater margins on the upper scale tiers.
Support: From 2010 to 2011 CBL went from making a thin profit to occurring massive losses,
something that the owner and founder Michael Smith claimed to be unavoidable due to the company
being in a transitional phase. If we take a deeper look at the company’s financials we can see that the
loss was caused by the firm’s expenses ($11.15M increase YoY) rapidly outpacing their gross profit
growth ($4.7M increase YoY). Additionally, high supplier power, high threat of substitutes and the
high threat of new entrants due to low barriers of entry have created an extremely competitive market
in the sale of unique baked goods (see Appendix _). Despite a few potentially viable alternatives
being available to CBL (see Appendix _), we believe the decision to increase their presence as an
online retailer best aligns with the company’s current capabilities, management preferences, and
future goals. Since CBL outsources the production of their cupcakes to regional baked goods
manufacturers, the shift towards a digital operation eliminates the need to invest into brick and mortar
locations, sustaining their model of requiring little to no equipment. Each new distribution point
would continue to leverage contract manufacturing and would ship DTC. This would help CBL to
keep overhead costs, such as rent and in-store employee wages, low while they are looking to grow
their Total Distribution Points (TDP), rather than physical stores, towards their lofty goal of 200
outlets by the end of 2014. Lastly, a tiered customization model will sustain the brand’s position as a
premium alternative in the cupcake and baked goods market.
Plan: In order for CBL's recommendation to succeed, timing is going to be a huge factor. During the
first 6 months CBL is going to need to begin shutting down and selling off any of their
underperforming stores. This will cut occupancy/staff expenses from the unprofitable locations. They
will then need to begin to spread word of their new online platform to ensure customers are aware this
will require strong corporate communication. Once this has occurred they need to shift their focus to
creating an online e-commerce platform that can support the selling of products online effectively. By
the 6th month CBL will need to ensure they have set up a functioning e-commerce website with
strong distribution points. This will entail contacting new supply chains as they will need more
functioning transportation as much of their business switches to an online platform. For the next 6
months (months 6 - 12) CBL will need to slow down brick and mortar expansion by ensuring nonprofitable establishments have been sold off and begin paying their debts they owe. They should then
offer their shareholders a small dividend. Once the business begins utilization of their online platform
the plan is to create a tiered customization plan within their website that encourages purchases from
existing customers as well as attracts new customers. Finally, in months 12+ the company will turn
back to organic growth with their increased profits and begin expanding aggressively to have 200
distribution points as opposed to physical locations.
Appendix _
Factor
●
Economic
●
●
Implication
The US Bakery market was estimated to
be worth $55 million in 2008.
Cupcake segment mature and not
expected to grow
Overseas market expected to grow
●
●
●
●
Social
●
Sex in the City show making trendy for
cupcakes
Cupcakes considered fashionable
●
●
●
Technological
Online stores starting to grow and
become popular
●
Large market size to capture
market share
Market share will be more
important in the US than
growth
Potential expansion overseas
Capture the female audience
that watches the show/lives the
lifestyle
Maximize the atmosphere and
trendiness of good-looking
cupcakes
Potential to expand online;
open online store as they do
not make in shop
Appendix _
Force
Threat of New
Entrants
Buyers
Explanation
Power
Barriers to entry are low;
● Easy to make cupcakes
● Lack of control over distribution channels as many
competitors can enter the market with partnerships in the
supply chain
● Web stores easy to set up and sell only cupcakes
●
High
●
Low switching costs - many competitors such as grocery
stores offer versions of cupcakes
Low concentration of buyers
Suppliers
●
●
Supply chains that will manufacture the product and deliver
Large number of bakeries
Substitutes
●
Cupcakes carved out a niche of fashionable and trendy food
products in the bakery industry
Many substitutes like danishes and other pastries
Low switching costs
●
●
Competitive Rivalry
●
●
●
High rivalry with other cupcake chains such as retail stores
like Magnolia Bakery and Sprinkles or online stores like
sugardamecupcakes.com
Magnolia and Sprinkles have their own production facility
which may allow for cost reductions in the future
Sprinkles is quick to sue over similarities in products
Current Strategy
Goals
Low-medium
Hard Goals
● Increase EBITDA 10-fold
Soft Goals
● Fast growth of brick and mortar stores
● Strong growth through distinctive
Medium
High
Medium
Recommendation
Hard Goals
● Free up capital to fuel growth
● Return excess NI to shareholders
Soft Goals
● Slow down growth of brick and
product, contract manufacturing, brand
equity
●
●
●
What: Primary - Cupcakes 80% , related
bakery products
Where: USA
To Whom: Everyone aged 8-80 in every
socio-economic class
Core Activities
●
●
●
Operate the stores
Hiring, training of employees
Purchasing of cupcakes from supplier
●
●
●
Operate stores and new online store
Hiring, training employees
Purchasing of cupcakes from
supplier
Value Proposition
●
Offering unique, gourmet cupcakes for
choice and convenience to a variety of
customers
●
Offering unique, gourmet cupcakes
and a customized experience for
choice and convenience to a variety
of customers
Is there fit?
●
Some. CBL does not take advantage of
the ever-growing online market
Value proposition does not consider the
stage that the industry is in.
●
Yes. The bakery/cupcake industry
is slow. Need to de-risk (divest
underperforming stores), return
capital to shareholders, and through
divestitures, fund investment in
areas that protect core revenues or
that will generate new revenue
streams
Product Market Fit
●
mortar while increasing online
prescence
●
Appendix _
Appendix _
●
●
What: New tiered products and
existing lines
Where: USA
To Whom: Everyone aged 8-80 in
every socio-economic class
Appendix _