Cupcake Shop

International University Vietnam Bachelor of Commerce Program ASSIGNMENT COVER PAGE Your assessment will not be accepted unless all fields below are completed Subject Code:| BUSM4092| Subject Name: | Applied Entrepreneurship| Location where you study:| RMIT Vietnam – SGS| Title of Assignment:| Feasibility Analysis| Student name:| Kim Koan DongPham Anh HoaNguyen Phu HaiPham Phuong Nghi| Student Number:| s3324450s3298342s3255278S3269894| Learning Facilitator in charge:| Ms. Agatha Heng| Assignment due date:| 07/09/2012|Date of Submission: | 07/09/2012| Late Submission Approval| | Number of pages including this one: (Please number your pages like this: page 1 of 7, page 2 of 7, etc)| 27| Word Count:(Main Content)| 5,558| EXECUTIVE SUMMARY Having noticed the business opportunity in food, especially in dessert in the Vietnam market, Ucake’s business idea is developed. The purpose of presenting this idea is to help customers embodying their precious message into cake, the req uisite item in every celebration.This can be regarded our business idea as the current market has not provide it. Investigation revealed that choosing young people 15 to 30 living in Ho Chi Minh City as potential targets in terms of increase in population, GDP and positive behavioral change towards cake. Moreover, market research found that there are competitors with strong brand name and reputation. However Ucake can survive among the opponents with service differentiation focus strategy in which Ucake’s core differentiated service is ‘customer’s self decorated cake’.Ucake provides plain base cake, hygiene environment with fresh and diverse topping, and then customers simply come to shop and decorate their cakes easily and fast with meaningful memory supported by professional advice by Ucake’s chefs. Otherwise, customers can choose cake design from hundreds of models that suit their event. Among the analysis, first five years’ financial stat ements, showing estimated establishment cost, revenue and expense, are included to verify that Ucake is able to break-even within 3 years. TABLE OF CONTENTS EXECUTIVE SUMMARY2 I. The Business Idea4 1. Opportunity description:4 . Product / service description:4 3. Description of the entrepreneur team:5 II. The Industry and Market6 1. Current Industry Analysis6 2. Market potential Analysis7 3. Competitors Analysis (referred to Appendix 3)8 4. Target market/customers9 5. Market penetration (referred to Appendix 5)10 6. Stakeholder Analysis11 III. Business Model Analysis (referred to Appendix 6)13 1. Revenue sources13 2. Cost drivers13 3. Resource requirements / mapping13 4. Investment size14 5. Critical success factors15 6. Risk analysis and management16 IV. Future Action Plan17 1. Sources of start – up capital17 . Further information needed17 3. Support needed18 REFERENCES19 APPENDICES21 I. The Business Idea 1. Opportunity description: Currently, Vietnamese people are accustome d to Western culture, so they consider cakes not only as desserts or presents for birthday, but also indispensable items in special events such as Christmas or anniversary party. This trend leads to the rapid growth in demands of cakes, especially in holiday period like Christmas (Bao Moi Newspaper, 2009). Not stopping there, people also want to make their cake becomes more momentous to suit the purpose of parties or events.However, there are still no bakeries allowing customers to decorate cakes by themselves. As entrepreneurs, this is a good occasion for Ucake to develop a business idea to create more values and options for customers through its differentiated services. 2. Product / service description: Ucake bakery that has differentiated services will be opened to make customer feel convenient and comfortable, bring more benefit, and satisfy their needs. Two main services will be developed. Firstly, dissimilar cake designs will be updated for customer to choose, and then Ucakeâ €™s bakers will make cakes exactly based on design’s offer.Moreover, customers also can prefer their own design for Ucake to implement. Although the design of cakes is sometimes not favored some customers, they still have to buy it as they have fewer choices. This problem can be solved when customers come to Ucake’s store where they have various choices and they can even ask Ucake to make the cake based on their own suggestion. Here at Ucake bakery, it sells not only cakes designed by its’ store, but also cakes customers want to have. Another service is self – decoration, which there are spaces provided for customers, and all necessary equipments are to support them decorating cakes on their own.When using this service type, customers will pay for a plain base cake, toppings, and cream to design the cake; and what is more, they are allowed to try the taste of the cream, toppings before purchasing. To help client’s better understanding of the se rvices, Ucake’s bakers are there and willing to give advice for cake decorates. The cakes can become so consequential for the receiver if people decorate it by themselves. For example, parents will be very surprised and happy if their children decorate a cake as a gift for their wedding anniversary.However, most of Vietnamese people do not have enough necessary equipments or places to decorate a cake. This issue has been recognized, and Ucake wants to generate services that give its buyers chances not only to garnish this kind of desserts but to enjoy the fun and relaxation as well when they come to Ucake. 3. Description of the entrepreneur team: A group four undergraduate students who are taking bachelor degrees in RMIT University are recently having their family businesses run profitably in the Vietnam industry.Having followed different majors with background s of serving business, marketing, design, and especially in the hospitality streams, the team has ambition of launch ing a bakery locally which is called Ucake. On that account, the team seeks for potential opportunities with creative production to help solving customers’ problem, giving them more benefits, and also generating profits remarkably for their business. In addition, each member has developed a wide spread of professional relationship that would sustain their project in positive aspect and scale through their family’s network and friends.By employing some of members’ real working experiences from their family business and other service firms, the team is expecting use their conditions and supports to start up Ucake bakery successfully. II. The Industry and Market 1. Current Industry Analysis To improve Ucake’s strategies and support the awareness towards different features affecting its business, Porter’s five forces model is applied for analyzing risks that helps Ucake to control in higher progress in the Vietnam industry. According to Rice (2010), th is model contains five typical aspects. 1. 1.Bargaining power of suppliers – Low Within the bakery industry, raw materials are vital factors that contribute to the success of a business leading to high value of products and prestige. Usually, prices of materials like flour, sugar, milk†¦ are depended on the level of quality customers want to aim at. In Vietnam, sources of suppliers for those ingredients are relatively diverse that can be derived from local grocery stores or larger suppliers. Hence, Ucake will have more options choosing dealer that are appropriate for its budget and demand. 1. 2. Bargaining power of buyers – HighNowadays, the Vietnamese people are influenced by Western cultures and tend to go to cake shops as their hobbies, especially on holidays and other events. With many bakeries throughout the country, customers are advantageous to experience excellence and different prices of various bakery shops. Besides, many youths are also interested in ma king cakes by themselves; as a result, clients have more knowledge of selecting the right cakes which are suitable for their commandment. 1. 3. Threat of new entrants – High Since the regulations and procedures of starting up a bakery in Vietnam are not so complex (Vatgia. om, 2011), which even people with small capitals can also invest on this kind of business, barriers to enter the industry here are not high. Therefore, as a new comer, Ucake faces the threat of self – decoration service imitation from other components, including existing and approaching cake shops. 1. 4. Threat of substitutes – High The level of threat of substitutes that Ucake faces is pretty high as there are many different types of food and dessert services developing in Vietnam (VietnamBriefing, 2008), such as ice – cream, yogurt, fast food, Vietnamese sweet soup, etc.Thus, clients have various options of switching to other food once their demand of consuming cakes decreases. 1. 5. Rivalry among existing firms – High At the moment, only in Ho Chi Minh City, there are over 100 bakery stores located widely, and the competition of bakeries are getting more and more intense as many large and small local bakery stores exist in the market (Phan Le, 2012). Furthermore, the local bakeries also have to compete under pressures of investments from some famous foreign bakeries, which might affect customers’ perceptions and operations of local bakeries as well as Ucake. . Market potential Analysis Regarding this area, PEST model is used to examine the environmental part for executive strategies. 2. 6. Political Due to To Loan (2008), food hygiene and safety are some of the biggest issues in Vietnam, and this issue is much cared by the government. Research Center of Business Administration claims that HACCP is the highest international license required by the Vietnamese for a firm which wants to operate in food industry. So, Ucake must have HACCP  (Hazard An alysis and Critical Control Points) to meet the Food Safety Law. 2. 7. EconomicUcake will have to take moderate rental costs, so the store’s location does not have to be positioned in the center of Ho Chi Minh City. Due to Diaoconline. com (2012), the cost for a two – floored shop in district 5 is approximately 1,000USD. Cost of facility and equipment for a new venture are paid highly in the first year in terms of the good quality facilities and equipment in order to make customer feel comfortable. However, since they are fixed costs, the venture does not need to pay anymore in next few years, and maintenance costs will be paid less instead.According to VietnamBranding (2008), Vietnamese people refer Western fast food than Vietnamese. 2. 8. Social Dan Tri Newspaper (2012) states that Vietnamese people care and obverse more Western tradition and events (Christmas, mother’s day, Halloween†¦) and considers that cakes are commonly used in many parties and speci al events. This leads to high demand of cake, and especially during Christmas. Besides, in this century, people do not only want a delicious cake but increasingly care more about nutrition and health issue (Viet Bao Newspaper, 2005).So, if Ucake has HACCP for ensuring the safety of the cakes and researching some of new healthy ingredients, more and more customers will be more attracted. 2. 9. Technology As a small business, high technology is not really fundamental for Ucake. However, Ucake need to have fresh, safe and high quality ingredients. Hence, safe and clean process of making and decorating cakes are highly presented, also the bakery can cooperate with its supplier to do research and development to adjust the amount of sugar and please customers, especially that are fastidious. . Competitors Analysis (referred to Appendix 3) 3. 10. Direct competitors Regarding the direct competitive environment, generally, most of Ucake’s components are other bakeries in Vietnam, whic h are large local bakeries, small ‘cakes and cafe’ shops, and foreign bakeries. Some of Ucake’s particular competitors consist of Vietnamese ones like Brodard, Givral and Jous Les Jours bakery from overseas. Firstly, Brodard and Givral bakeries are two of most long time businesses in the Vietnam bakery industry that selling cakes and other breads.Overall, both of them supply cake orders from clients like Ucake; conversely, as their service regards to only takeaway cakes, they do not have self – decorated cake services for buyers. For Tous Les Jours which is a popular chained bakery from Korea that mainly offers clients fresh breads, cakes and other desserts, the chain presently has more than 8 stores allocated in Ho Chi Minh City. Similar to Ucake, Tous Les Jours accommodates consumers with cafe spaces, and also makes cakes through customers’ idea suggestion.Nonetheless, the Korean chain does not have self – decoration cakes and hardly to cha nge to this kind of service while their concept is consistent, and because of their large number of branches. 3. 11. Indirect competitors In this field, as Vietnam’s integration has been widely opened, different investors of foodservice gradually find opportunities in the Vietnam market. As a consequence, Ucake’s indirect competitors are both domestic and foreign foodservice businesses surrounded by the nation.Among those components, Baskin Robbins (ice –cream chains), Yogen Fruz (Yogurt chains) and Lotteria (fast – food chains) are selected to weight against Ucake’s potential. In general, all of those 3 businesses are serving consumption services apart from Ucake, and their statuses are reasonably strong compared to Ucake as a new comer. In addition, none of them contains mutually two kinds of services that Ucake has. For this reason, even though Ucake is totally new and less popular, its operation is not affected much by indirect challengers in t erms of this new differentiated variety of service. . Target market/customers (referred to Appendix 4) 4. 12. Geographic According to World Bank (2012), the GDP per capita has been increased significantly since the year of 2000. Among the provinces, Ho Chi Minh City’s population claimed the highest with almost 6,000 people in 2010. Moreover, people’s average income in the northern area is also high, which especially in Ho Chi Minh City’s was estimated the greatest with approximately 3,000 USD per year (Hoa Le, 2012) determining higher consumption compared to other regions.Hence, Ho Chi Minh is an ideal location for Ucake to plan for starting up the investment and seek to achieve good profits. 4. 13. Demographic Ucake’s targeted customers are aimed at the ages from 15 to 29 who are mainly teenagers and youths going to work as there are numerous young ages of under 30 that reach more than 50% of the Vietnam population (Nielsen, 2010). 4. 14. Behavioral Thos e groups of audience above are targeted not only because of their excess in the country population. Typically, a majority of them tends to adapt new updates of trend due to the international integration prospect and influence from other countries’ cultures.Thus, that is one of the reasons why many young Vietnamese people have interests in Western fast food and desserts by the appearance of investments regarding these kinds of food in the Vietnam market. Viet Bao Newspaper (2005) states the progressive encouragement of the Vietnamese of considering hygienic products as their vital priority for consumption in recent decades. For those points, Ucake finds it quite potential with great opportunities to set goals for achieving success through this targeted market. 4. Market penetration (referred to Appendix 5)Since the cake market is already at the maturity stage of the product life cycle, in order to enter the industry; Differentiation Focus Strategy is applied to Ucake. QuickMBA (n. d) says that Differentiation Focus Strategy can help the firm to narrow down to a specific group of customers, and give consumers the best and different services compared to its competitors resulting in retaining customer loyalty. However, there are some limitations with this tactic that Ucake’s service can be imitated or its targeted segment changes consumer needs.Guerilla marketing: Ucake has to do marketing activities strongly in the first year as it is a new and small firm in the market, and guerilla marketing is an ideal tool for new business which has limited marketing budget like Ucake. Some experts (Levinson, Levinson, & Levinson 2007) indicate that guerilla marketing is an easy and inexpensive marketing method for small business. Guerilla marketing strategy focuses on low cost, unconventional marketing tactics, and puts more time and effort to achieve maximum result. One week before the opening of the shop, some of refrigerated cabinets made by glass can be placed on public places such as parks or supermarkets. Then Ucake’s big designed cakes are displayed inside to catch people’s attention and trigger their curiosity. The slogan â€Å"Your Cake† will be put on cabinets to introduce Ucake’s business idea to clients. * Additionally, few days before the launching day, the banner of announcing the decoration contest will be also situated near refrigerated cabinets to invite people to participate. The contest will be held during the opening day.Customers can join and buy their cakes with half prices Advertising: advertisements of Ucake’s establishment day will be posted on magazines for youths and teenagers such as Tiep Thi va Gia Dinh and Hoa Hoc Tro. A Facebook page of Ucake will be created as well in order to expand the brand community. Facebook is an ideal place for us to reach large number of potential customers. Ucake’s products and other activities will be informed which are easy for consume rs to view wherever they are. This social media tool can draw customers’ interests and Ucake can receive advantages from this marketing effect. 5. Stakeholder AnalysisBeside the owners, people that influence the performance and success of Ucake’s business can consist of the customers, supplier and employees. Those important stakeholders are categorized and emphasized in 4 particular aspects in the table below. Stakeholder| Role| Level of effect| Expectation| Supposed risks| Investors| Devoting for the establishment of the business| Moderate| Making decisions in right investing and capitalizing for beneficial profits of the company| Lack of financial sources or bankruptcy would threaten the operation of the business| Customers| Consuming goods and service of the bakery| High| More usage of roducts and services from customers helping the business to gain status and revenue to compete with others| Bad comments from customers affecting the reputation of the business whethe r quality of goods or services do not satisfy them| Supplier| Supplying raw materials to the client bakery (i. e. flour, sugar, butter, milk, etc. | Moderate| Providing required quality and quantity of materials not only to enhance relationship with customers but also help generating profitable products for customers | Bad quality of raw materials supplied or late delivery time will cause unqualified products or delay in the plan of the business| Employees| Supporting and controlling the operation of the bakery| High| Adding efficient value to the business by applying their trained skills to the service and attending to customers in order to improve the bakery’s performance| Low capability, misbehavior to customers leading to decrease in turnover of the business|III. Business Model Analysis (referred to Appendix 6) 1. Revenue sources The revenue is mainly generated from two items which are customer’s ordered cake and self decorated cakes. Customer’s ordered cake is produced based on the design that customers choose from Ucake’s menu. Therefore, the price of each cake is the revenue varying due to the size and design from 300,000VND to 400,000VND. Customer’s self decorated cake is made through this process, in which Ucake provides a plain base cake and customers decorate the cake by adding toppings and creams according to their preference.The fixed revenue will be sale price of the base cake (150,000VND), and additional revenue is earned by the amount of toppings they supplement which costs 15,000VND per package of one kind of topping. Minimum of 100,000VND of toppings is expected to be just enough for decorating a whole cake nicely. Furthermore, revenue from self – decorated cakes is anticipated to be greater than from ordered cakes. Research result shows that there are no competitors providing this service at the present time. Other revenue is earned by the sale of soft drinks sold for customers in the shop, and one c an of the drink costs 15,000VND.As the price is relatively cheaper, it will not be considered as crucial revenue to ensure maintenance of business. 2. Cost drivers Number of consumers or sales of cakes will increase the raw material expense. Ucake only sells cakes, and the expense to satisfy customers’ demand will have the greatest impact on cost structures. Ingredients to bake plain base cake, such as eggs, sugar, butter, milk, salt, flour and cream, must be kept fresh so JIT (Just In Time) strategy will be utilized to decrease inventory costs.Being located nearby Ucake, the supplier (referred to ‘Resources requirements’ part) will conduct prompt delivery at lower costs in daily basis. 3. Resource requirements / mapping In order to offer satisfactory services to customers, raw materials and human resources are decisive in our business. The raw materials mentioned in ‘Cost drivers’ part above will be purchased from Tan Nhat Huong, the only local firm supplying cream, operating in Tan Binh district, Ho Chi Minh City. The quality is as high as other foreign companies’ products.As Ucake and the supplier’s locations are geographically close to each other, Ucake can decrease significant logistic costs. Ucake needs four people to run this business. One professional chef will bake the plain base cake and ordered cake. Two more amateur chefs will work as supportive assistants to help the main chef and to advise customers decorating cake. One person will be hired as receptionist. For this job, as there is no complex calculation involved, a person with no background of accounting can also be recruited.People will be hired from the online labor market (timviecnhanh. com), and Ucake will upload specific requirements of employees and interview the favorite candidates. 4. Investment size The first financial investment must be at least 100,000USD in order to start and operate Ucake for first year. Below is the cost analysis for the first five years after opening Ucake. * Fixed cost Ucake will be opened on Nguyen Trai Street, District 5 by renting a two – floored shop . The rental fee will be 1,000USD per month which will be totally cost 12,000USD for the first year of contract.Also, other costs to operate the business like electricity, water are calculated to be 167USD per month (2,000USD / first year). * Variable cost As the cakes are baked after receiving orders from customers, ingredients are considered as variable costs. All costs related to baking process such as electricity, labor, ingredients are regarded as 100,000VND per cake. Assuming that Ucake produces 3,720 cakes per year, including two types of products based on the revenue analysis, the variable cost will be 20,000USD per year. * Semi variable cost Semi variable costs comprise two expenses: wage and marketing.The wage is for the four employees. The wage amounts for main chef, supportive chefs and receptionist are 200USD, 150USD and 10 0USD, respectively. In the initial year, monthly wage will be 600USD which adds up to 7,200USD of wage expense for the first year. Ucake will conduct marketing vigorously in the first year to present the differentiated services and gain customers’ awareness. The annual cost is estimated to be 5,000USD. * Non recurring cost Equipments like baking ovens, furniture, and shop renovation costs will be spent before launching Ucake shop. All the equipment costs are calculated approximately 50,000USD.Sum of the first year’s costs are 96,000USD. However, in case of not covering expenses by the revenue, 4,000USD is needed as a back-up fund when Ucake meets unexpected costs. Hence, the first investment cost should be 100,000USD to cover the whole first year and half of second year’s expense. The first investment fund of 100,000USD will be recovered at the end of third quarter in year 2. Even though the price of cake is cheaper than other consumer products like electronic d evices or automobiles, huge profit margin of cake will allow the business to step up from survival to growth level. 5. Critical success factorsDuring the investment process, there are two main critical success factors of sustaining Ucake’s operations. First of all, one of the most vital elements for a bakery to accomplish is the role of the head baker. A head baker needs to have long time experience in baking and decorating cakes. Yet, this is still not enough. Cakes are quite attractive to many people, but customers have begun fussier about this kind of desserts over time due to changes of their perceptions about nutrition and safety of goods (Viet Bao Newspaper, 2005); thus, the head baker has to update consumer's behaviors and apply ethods that are adequate with their demands. For instance, he can use fresh cream instead of butter cream to reduce the fat of the cake’s topping cream for making buyers more secure as regards their health. In addition, he is in charge o f planning and estimating the number of sellable cakes per day to verify profits for the bakery also encourages products sold within 24 hours upon baking and avoids surplus of stock. Another critical success factor of Ucake is the quality of customer services.As a bakery providing self – decorated cakes, in order to serve the customer’s needs, it is significant to hire a group of staffs that meet the working standard for this new type of service. Basically, the staffs need to have limited knowledge about cake’s basis and skills of decorating cakes for instruction whether their buyers cannot garnish themselves or need assistants. Besides, they are to support customers in providing them options of cake toppings shapes for their self – decorated cakes, directing them to park vehicles, and make the shop atmosphere hygienic and convenient for them.With those points, Ucake can expect to match the criterions of services and keep its customers satisfied. 6. Risk analysis and management Among the risks, some distinguishing points strongly affect Ucake’s enlargement that need to be aware and administrated in terms of its business conception. The first threat that Ucake might face is that the idea of customer self – decoration services can be imitated by others which is estimated with high chance.As being appeared at the maturity stage, products of Ucake are common in the industry, except that its services are developed to a different standard and have never been applied by other competitors. Nevertheless, although self – decoration is new and unique compared to others, this concept does not require so many sophisticated progressions to implement the services; in consequence, other bakeries, including existing and potential ones, can easily reproduce Ucake or create similar serving styles even if Ucake tries to protect its company via Intellectual Property Rights registration.Copying service is an unavoidable problem to Uc ake; still, Ucake would be the pioneer in applying self – decorated cakes for clients in the market, so it is an extremely cautious period for Ucake to deliberate its growth as well as gaining customer loyalty by performing satisfactory products and services once it is first publicized. Additionally, the moderate possibility of employees’ misbehaviors to customers throughout their serving mission might occur. During the business, employees have high responsibilities in making clients feel worthy with what they pay for the services and want to return to Ucake again.On the other hand, employees are sometimes negative effects of discouraging customers of using services due to their slow serving or bad attitudes, and this would be very dangerous for the bakery because customers have diverse options of bakeries to prefer. As a consequence, Ucake needs to spend a period of time training the employees carefully with some particular rules of the bakery before the store’ s launch to look forward to attaining effective services satisfying its consumers.What is more, employees should be praised with rewards or other incentives whether they do their job well in order to increase their productivity in addition to Ucake’s efficient services. IV. Future Action Plan 1. Sources of start – up capital Ucake is a relatively small size in aspects of budget, establishment cost and labor wage. The business model analysis shows that Ucake requires at least 100,000USD as set up cost. There are three possible financial sources to raise the fund. * Angel investment: Ucake will open a business plan presentation to potential angel investors to persuade them that it is a feasible business.Angel investors will receive corresponding amount of return related to their investment size. * Loan from bank: Banks allow the Vietnamese to receive loan if credibility is guaranteed. Ucake will summit five years of financial budget and business plan to convince that Uca ke is a trustable business. 50,000USD is the amount Ucake plans to receive from the bank as a loan. * Financial supports from acquaintance: four owners of the business are running their own family business and being successful. Ucake can be financially supported by their families. . Further information needed Ucake lacks legal knowledge about food market. As a result, the future operation of the bakery must be checked and advised by a law firm called TopicLaw. TopicLaw will support by providing standard of food and necessary licenses for Ucake to run the bakery such as sanitation of bakery, safety of equipments. Also, as Ucake’s business idea is very easy to be copied, it should contact with consulting firm to protect the Intellectual Property Rights. The consultation will be about patent registration.The Target market analysis shows that the targeted market is quite potential. However, Ucake must implement further surveys before opening to identify what kind of toppings and decoration style that the target market prefers. It is vital to run regular survey on customers’ feedback and preference after setting up Ucake in order to maintain competitive advantages in such dynamic food market. 3. Support needed Due to the fact that parents of the four Ucake’s owners are successfully running family business overcoming economic crisis, they can be consultants of Ucake.External environments cannot be consistent as Ucake assume. Therefore, their parents may recommend direction of future operation and performance of Ucake. Excluding law firm and consulting firm which was mentioned in ‘further information needed’ section above, Ucake is looking forward to surviving and growing in the target market without further outside supports. 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Appendix 2: Uca ke staffs’ job description Staff| Function| Head chef| The person who has long time knowledge and experience of working in the bakery industry.Typically, he holds good recipes of cakes and manages every baking step to ensure the cakes look stunning and tasty. | Supportive chefs| These chefs can be amateur and to assist the head chef in doing the baking process and help instructing customers towards self – decoration services. They also direct customers in decorating cakes whether customers suggest. | Receptionist| Has a responsibility of managing the quantity of toppings, charging bills of customers and reporting the revenue daily to owners. | Appendix 3: Direct and Indirect competitors analysis 3. 1. Direct competitors