Download 3.0 Operations Plan - Edwards School of Business

The
Cupcake
Conspiracy
Business
Plan
Presented by:
Meghan Gervais, Brooke Klassen, Lori Sly and Stephanie Yong
March 2010
The Cupcake Conspiracy
Business Plan
Contents
1.0 Executive Summary ............................................................................................................................ 4
2.0 Introduction ........................................................................................................................................... 6
2.1 Mission Statement .............................................................................................................................. 6
2.2 Corporate Goals .................................................................................................................................. 6
2.3 Industry Overview ............................................................................................................................... 6
2.3.1 Opportunities and Social Trends ............................................................................................... 6
2.3.2 Threats ...................................................................................................................................... 7
3.0 Operations Plan ................................................................................................................................... 7
3.1
Business Structure......................................................................................................................... 7
3.1.1 Organizational Structure ........................................................................................................... 7
3.1.2 Legal Structure .......................................................................................................................... 7
3.2
Site Plan......................................................................................................................................... 7
3.3
Building and Floor Plan ................................................................................................................. 8
3.3.1 Store Front ................................................................................................................................ 8
3.3.2 Production Area ........................................................................................................................ 9
3.3.3 Floor Plan Diagram .................................................................................................................. 10
3.4
Work Plan .................................................................................................................................... 11
3.5
Quality Control Program ............................................................................................................. 12
3.6
Business Day/Week/Month/Year ............................................................................................... 12
3.7
Supply Analysis ............................................................................................................................ 13
3.8
Service Providers ......................................................................................................................... 16
3.9
Technical Processes .................................................................................................................... 16
3.10
Capacity Limits and Capital Budget ............................................................................................. 17
3.11
Environmental Limitations on Production .................................................................................. 18
3.12
Cost of Goods Sold ...................................................................................................................... 19
3.13
Operating Expenses .................................................................................................................... 19
3.14
Working Capital Planning ............................................................................................................ 20
4.0 Human Resources Plan .................................................................................................................... 20
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The Cupcake Conspiracy
Business Plan
5.0 Marketing Plan ................................................................................................................................... 21
5.1 Competitive Analysis ......................................................................................................................... 21
5.1.1 Direct Competition .................................................................................................................... 21
5.1.2 Indirect Competition .................................................................................................................. 22
5.2 Target Audience Analysis .................................................................................................................. 22
5.2.1 The Modern Socialite ................................................................................................................. 22
5.2.2 The Chic Bride ............................................................................................................................ 22
5.3 Market Analysis ................................................................................................................................. 22
5.3.1 Estimated Market Size ............................................................................................................... 22
5.3.2 Market Share ............................................................................................................................. 23
5.4 Positioning Statement....................................................................................................................... 23
5.5 The Marketing Mix ............................................................................................................................ 23
5.5.1 Product/Service Features .......................................................................................................... 23
5.5.2 Prototypes.................................................................................................................................. 24
5.5.3 Pricing Policy .............................................................................................................................. 24
5.5.4 Promotion .................................................................................................................................. 24
5.5.5 Distribution Strategy .................................................................................................................. 25
5.6 Sales and Profit Objectives................................................................................................................ 26
5.7 Marketing Budget ............................................................................................................................. 26
5.7.1 Projected Revenues ................................................................................................................... 26
6.0 Financial Plan ..................................................................................................................................... 27
6.1 Major Shareholders .......................................................................................................................... 27
6.1.1 Statement of Net Worth ............................................................................................................ 27
6.2 Financing Structure ........................................................................................................................... 27
6.3 Financial Analysis .............................................................................................................................. 28
6.3.1 Critical Variables ........................................................................................................................ 28
6.3.2 Break-even Analysis ................................................................................................................... 29
6.3.3 Financial Feasibility .................................................................................................................... 30
6.4 Risk Analysis and Contingency Planning ........................................................................................... 30
7.0 References ......................................................................................................................................... 31
8.0 Appendix ............................................................................................................................................. 32
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The Cupcake Conspiracy
Business Plan
1.0 Executive Summary
Introduction
The mission of The Cupcake Conspiracy is “to provide the secret to a sweet life.” This will be
accomplished by providing quality products and a memorable customer experience that is the icing on
their day. We want to be the hip, trendy dessert destination of choice in Saskatoon; with the current
popularity of cupcakes, we will satisfy this niche.
Operations Plan
The Cupcake Conspiracy will be a corporation with four equal shareholders, who will also be full time
employees. The Cupcake Conspiracy will be located in the newly renovated King George building in
downtown Saskatoon; it will consist of a walk-in storefront and a production area for the in-house
baking process. The store will be open from 11am – 7pm Monday through Saturday, with baking
commencing at 9am daily; we plan to operate 310 days per year. The maximum capacity for production
is 600 cupcakes per day. Baking supplies and other service providers will be primarily sourced from local
suppliers; packaging will be sourced to an American supplier.
The capital budget will include costs for equipment, including production area, and product displays,
totalling approximately $60,000. The Cupcake Conspiracy plans to use $120,000, including debt and
equity, towards the working capital budget for the first year to ensure a positive cash flow. Therefore,
the total requirements for the capital budget are $180,000 at the onset of operations.
Human Resources Plan
All four shareholders will share equal duties and work hours, and will receive the same amount of
benefits budgeted at 17% of wages. The estimated wage will total 25% of total sales. All staff will be
participate in food safety certification, training, and work seminars.
Marketing
The Cupcake Conspiracy has the following sales and profit objectives:

To sell 250 cupcakes per day in year 1, and to increase to full capacity of 500 cupcakes by year 4;

To achieve a profit margin of 60%; and

To sell at a $3.00 per unit selling price, increasing at the rate of inflation.
Competitive Landscape
The competitive landscape for The Cupcake Conspiracy includes direct competition (The Cupcake Corner,
grocery stores, and specialty bakeries) and indirect competition (other sweet substitutes including
specialty ice creams, chocolates, pastries, and desserts).
Target Audience and Positioning Statement
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The Cupcake Conspiracy
Business Plan
The target audience is the modern, Saskatoon woman aged 20-49; the estimated market size is 20,000
women. The positioning statement is as follows: “For the modern socialite, The Cupcake Conspiracy is
the trendy dessert shop that delivers the secret to a sweet life. Only The Cupcake Conspiracy presents
intriguing and sensuous sweets in a chic atmosphere.”
The Marketing Mix
The Cupcake Conspiracy offers a trendy, fun dessert in an upscale, French-inspired atmosphere. The
product line offers a variety of specialty cupcakes derived from 12 flavours of icings and 2 varieties of
cake. The average cost per cupcake will be $3.00, slightly lower than the competition; volume orders will
receive a discount. The promotional themes for The Cupcake Conspiracy will focus around the
conspiracy theme and the icing swirl in our logo. An awareness campaign will introduce The Cupcake
Conspiracy to the market, using online, radio, billboard, display, giveaways, promotions, and event
marketing; the year one marketing cost is estimated to be $79,000. The marketing budget for years 2 to
5 is $36,000, for ongoing promotions, giveaways, and event marketing. The distribution will be direct to
customer, through our busy, downtown storefront and online ordering.
Financials
The financial structure of the Cupcake Conspiracy is 50% by equity and 50% by bank loan. The financial
outlook for the company looks good, and is summarized below. The internal rate of return (IRR) for the
company is 32% and a net present value (NPV) of $3,569.
Year
1
2
3
4
5
Net Income
(87,788)
(2,285)
56,919
66,412
64,821
Cash Flow
19,545
2,277
61,111
67,992
63,066
The critical variables that significantly impacts the IRR are volume of sales, selling price, and cost of
goods sold.
We believe that the strength in the IRR, NPV, and net incomes after we break even warrants the start up
of The Cupcake Conspiracy; however, we need to tightly control variable costs to mitigate its potential
risk of eroding the company’s profitability. The financial feasibility decision is also firmly backed by welldefined operational and marketing strategies.
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The Cupcake Conspiracy
Business Plan
2.0 Introduction
2.1 Mission Statement
The mission of The Cupcake Conspiracy is “to provide the secret to a sweet life.” This will be
accomplished by providing quality products and a memorable customer experience. However, a cupcake
is so much more than just another sweet treat. It’s a lifestyle. We believe that occasions large and small
should be celebrated. But we also believe that you should keep your friends close and your cupcake
closer.
2.2 Corporate Goals

Our primary goal is to help customers realize that they can have their (cup)cake and eat it too.

We want to be the hip, trendy dessert destination of choice in Saskatoon

We will provide customers with a memorable experience that is the icing on their day
2.3 Industry Overview
2.3.1
Opportunities and Social Trends
We have identified a number of opportunities within the premium dessert industry. The population of
the Saskatoon metropolitan area grew 3.5% from 2001 to 2006, and
average family income increased 13.2% net of inflation (Statistics
Canada, 2006). There has been a trend of increased urbanization in
Saskatchewan as people move from rural to urban communities. In
the past several years, the downtown area of Saskatoon has been
revitalized with many new businesses offering clothing, shoes,
personal services and furniture for the young urban professionals
living in Saskatoon.
80000
60000
40000
Income
20000
Inflation
0
2001
2005
Figure 2.1 – Saskatoon Income Levels
The Cupcake Conspiracy will take advantage of a number of social trends which could add to the target
market’s interest in our business. We plan to incorporate local sourcing, allergy consciousness,
environmental concern, and social responsibility into our operations. We will source all (or virtually all)
ingredients locally from Saskatoon and area suppliers. We will produce only peanut-free products that
can be safely shared in all public environments. We will use only recyclable bakery boxes and will donate
the daily leftover products to local charitable organizations.
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The Cupcake Conspiracy
2.3.2
Business Plan
Threats
The Cupcake Conspiracy has identified a number of threats to starting this business, including rent
increases in the downtown area as it becomes more popular and increased food safety concerns. The
location is threatened by proximity to the bus mall, which brings with it a number of concerns.
3.0 Operations Plan
3.1
Business Structure
3.1.1
Organizational Structure
The organizational structure of The Cupcake Conspiracy will be flat, with four partners sharing all
responsibilities. No additional staff will be hired until Year 3, when sales have been established and
future growth is more certain. However, a summer student may be hired to assist with extra orders
during the busy wedding season. A summer student would work part-time hours from May to August,
with actual hours dependent upon the number of orders.
3.1.2
Legal Structure
The Cupcake Conspiracy will be registered as a private corporation in the Province of Saskatchewan.
Ownership of shares will be split evenly among four partners, who will also serve as the management
team. Corporate status was selected as the legal structure to enhance access to capital, to take
advantage of the income tax deferrals available to new and growing businesses, and to ensure
protection against any liabilities that may occur. The Cupcake Conspiracy will not have a board of
directors, but will utilize the services of renowned business consultant Stephen Yong, who currently
works at Ernst & Young LLP in Calgary, Alberta, and specializes in advising start-up companies.
3.2
Site Plan
The Cupcake Conspiracy has chosen downtown Saskatoon in the newly renovated King George Building
as the future site of the store. The exact address for the store will be at #4 - 157 2nd Ave N, crossroads
of 2nd Avenue North and 23rd Street. This choice was made for several reasons:
1)
2)
With future plans by the City of Saskatoon and other non-profit organizations to
“revitalize and urbanize downtown Saskatoon” (See Urban Playground Report,
www.urbanplayground.ca for more information), this location was seen as ideal in
attracting potential customers and contributing to the community.
Access to parking is another advantage to this location. Parking will be available in
front of the store, across the street and parallel to the site, on both the north and
south side.
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The Cupcake Conspiracy
3)
4)
Business Plan
Deliveries will be easily accessible into the Cupcake Conspiracy via the back entrance.
The back entrance of the Cupcake Conspiracy will lead into a hallway that exits out
into a large alley. This alley will easily accommodate any delivery trucks and vans and
will make the ease of transferring supplies to and from vehicle to store, effortless and
easy.
This site is also located centrally, being very close to the main business district
downtown and can be easily adaptable to the flow of traffic on foot and in vehicles.
The following image highlights the advantages of the Cupcake Conspiracy’s future site:
Future Site of
the Cupcake
Conspiracy
3.3
Building and Floor Plan
3.3.1
Store Front
The Cupcake Conspiracy will serve walk-in traffic, and corporate and private customers who pre-order
cupcakes for meetings or events. It is important that the storefront have large, street facing windows,
to maximize product visibility for passing traffic. The cupcakes will generally be packaged as a take away
item. As such, customer seating areas will be limited to a capacity of approximately 10. Product for sale
will be stored in a glass case, with access facing the customer service area (thus only accessible to
Cupcake Conspiracy employees). Coffee and tea will also be available for eat-in customers. One side of
the storefront windows will hold a display case, containing sample product. Canvasses printed with
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The Cupcake Conspiracy
Business Plan
professional photographs of product prototypes will be displayed on the walls of the storefront. Store
furnishings and accessories will represent the fresh, feminine philosophy of the Cupcake Conspiracy.
One washroom will be located in the storefront area.
3.3.2
Production Area
Intersecting walls will separate the production area from the north facing storefront. The production
area will be separated into raw and cooked product areas, to mitigate contamination concerns. A hand
washing sink will be located at the entrance to the production area. A product storage cooler and
pantry will be located at the south end of the east wall in the production area. One large commercial
mixer will be located in the “raw products” area, located directly west of the raw product cooler. All raw
batter ingredients will be handled in this area, ending with baking in the commercial oven located along
the south wall of the production area.
Cooked, un-iced cupcakes will be stored on an east wall cooling rack, separated by a wall from the
delivery entrance. The delivery entrance is accessible from a service hallway, which will offer protection
from outside air. Batches of icing will be prepared at the second mixing station, located along the east
wall. A second cooler for icing and ingredient storage will be located next to the icing mixing station.
Counter space for cupcake icing will be located in the center of the production area, with final product
storage along the north wall of the production area.
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The Cupcake Conspiracy
3.3.3
Business Plan
Floor Plan Diagram
Window display
STOREFRONT
product display case
$
packaging, coffee, and
sales station
hand
wash
closet
storage
rack
final product storage rack
icing
cooler
icing station
PRODUCTION AREA
mixer
raw prep station
delivery
entrance
oven
mixer
dry
pantry
raw
cooler
Figure 3.1 - The Cupcake Conspiracy Floor Plan
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The Cupcake Conspiracy
3.4
Business Plan
Work Plan
The most common task assignments will fall under the categories of production or sales and customer
experience management. Figure 3.2 outlines the cupcake production process that will be followed for
both chocolate and vanilla cupcakes, and all flavours of icing. Other tasks included in production are
dishwashing, production area cleaning, and maintenance of stock records.
measure dry
ingredients into
raw product mixer
pour batter into
lined cupcake
pans
measure wet
ingredients into
raw product mixer
mix ingredients
for 3 minutes
Repeat prep process
(above) as necessary
(5 dozen cupcakes per
batch)
bake cupcakes
(15 minutes)
cool cupcakes
(minimum 2 hours
on a cooling rack
at ambient
temperature)
prepare base
icing recipe
Flavour and color
base icing recipe
as necessary
Pipe icing and
add compliments
onto finished
cupcakes
Figure 3.2 - The Cupcake Conspiracy Production Work Plan
The following list of tasks will be completed as part of sales and customer experience management:





Providing friendly, prompt, and personal service to walk in and pre-order customers
Transferring stock from the production area to the storefront display case
Preparing and serving coffee and tea for eat in customers
Storefront and washroom cleaning as necessary
Receiving telephone orders for corporate and personal events
As outlined in section 3.6, regular cupcake production will occur twice daily. When production and sales
periods overlap, two staff members will be required on site to ensure that adequate attention can be
paid to production as well as sales and customer experience management.
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The Cupcake Conspiracy
3.5
Business Plan
Quality Control Program
The Cupcake Conspiracy will be exempt from HACCP (Hazard Analysis and Critical Control Point)
requirements as administered by the Canadian Food Inspection Agency. However, the proposed site
floor plan was designed as per HACCP guidelines (with one directional product flow to isolate raw and
finished products). The facility will be subject to local health inspections as a requirement for site
licensing.
Raw eggs will be stored in a cooler separate from that used for prepared icing. Raw cupcake batter will
be isolated to the south end of the production area, while final product will be stored at the north end.
The delivery entrance (located at the south end of the production area) will be blocked from the product
by floor to ceiling walls. Access to the delivery entrance is through a double door hallway, minimizing
the threat of outdoor air being blown into the production area. Access from the storefront is through an
open hallway system, eliminating the need for handling of door knobs or handles.
All Cupcake Conspiracy team members will attend a safe food handling course presented by Mike
McCann consulting, which will provide education on provincial standards for safe food handling. Hand
washing will be required whenever individuals enter or leave the production area. Product available for
purchase will be handled by Cupcake Conspiracy employees only, to reduce handling opportunities.
Good personal hygiene practices such as tied back hair and trimmed fingernails will be required of
production and sales personnel.
The Cupcake Conspiracy team considers the promise of peanut free products to be important for
business growth. All suppliers will be required to provide written peanut free guarantees as part of their
service contract.
3.6
Business Day/Week/Month/Year
The Cupcake Conspiracy will operate on Monday through to Saturday, closed on Sundays. Store hours
will be from 11:00am to 7:00pm daily.
Business Day

Shifts will be divided from 9:00am to 3:30pm and 12:00pm – 7:30pm

Opening shift:
Responsibilities include: Begin production of cupcake baking and icing making, icing cupcakes,
opening store, ensuring adequate supplies and packaging is available

Closing shift:
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The Cupcake Conspiracy
Business Plan
Responsibilities include: Baking final batch of cupcakes at 5:00 pm for morning supply of
cupcakes, cleaning equipment and supplies, closing and storing of products in airtight containers,
closing and locking the store

The Cupcake Conspiracy utilizes the FIFO (First In, First Out) method of inventory for its
cupcakes
Business Week

Inventory of supplies and ingredients

Thorough clean conducted by in-house staff to ensure all healthy and safety measurements
are upheld

Meet with suppliers to discuss any improvements or concerns
Business Month

Monthly management meetings – Agenda will include operations, store hours, marketing
and finances

Future marketing plans – includes any promotions or specials offered to customers

Discuss work schedules and shifts
Business Year
3.7

Compile financials for the year

Ensure taxes are completed and filed

Analyze any popular trends for future strategies in the new year

Evaluate equipment and supplies
Supply Analysis
The Cupcake Conspiracy product base will include both chocolate and vanilla cupcakes. Twelve types of
icing will also be prepared. Cupcakes will be baked in re-useable metal pans, containing paper cupcake
liners. Finished cupcakes will be packaged in paper boxes as they are purchased by clients. The cost of
ingredients and other supplies are outlined in the Cost of Goods Sold section (see section 3.12). The
price of most ingredients is expected to rise evenly with inflation for the foreseeable future.
Dawn Food Products Inc. will be contracted to supply both chocolate and vanilla cake bases. The dry
chocolate base will contain sugar, flour, cocoa, baking soda, baking powder, and salt in predetermined
proportions. The dry vanilla base will contain sugar, flour, baking soda, baking powder, and salt in
predetermined proportions. A non-disclosure agreement has been signed with Dawn Foods, allowing
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The Cupcake Conspiracy
Business Plan
for discussions of the required ingredient proportions. The product requirements match a standard
Dawn Foods product, and thus the product will not be considered a “special order”. Dawn Foods will
also supply bulk icing sugar to the Cupcake Conspiracy. Chocolate and vanilla cake base and icing sugar
will be delivered monthly. Projected requirements for the first year are five twenty kg bags of each
chocolate and vanilla cupcake base per month, and three twenty kg bags of icing sugar per month. The
required volumes will increase proportionately with demand.
Dawn Food Products was selected as a cake base and icing sugar supplier after careful review of their
ability to reliably supply the required quantities of ingredients. Dawn Food has a Saskatoon-based sales
office, allowing for personal interaction with a sales representative. Two supply risks were identified for
the Cupcake Conspiracy’s relationship with Dawn Foods. The primary risk is unavailability of additional
product in the event that monthly sales exceed the projected demand. To mitigate this risk, Dawn
Foods has indicated that they will retain a one month supply of the Cupcake Conspiracy’s product on
site, and that it can be delivered to the bakery within 24 hours notice. An additional $100 delivery fee
will be charged. The second risk (longer term) is that Dawn Foods will cease to provide delivery service
to Saskatoon. This is a low level risk in the short term, as the Saskatoon office is Dawn Food Products
sole service center in Western Canada. Representatives have indicated that Dawn Foods has
experienced increasing growth in their Western Canadian market in the last three years, and that they
will maintain their Saskatoon presence into the foreseeable future.
Star Egg is a Saskatoon-based distributor and marketer of fresh eggs. Based on their ability to supply
quantities of eggs consistently and reliably, Star Egg has been selected to supply the Cupcake Conspiracy
with grade A, large eggs. Approximately one lot of 180 (15 dozen) eggs is expected to be required
weekly, at the projected volume level for year one. Egg orders must be submitted within 24 hours of
the required delivery time. Given Star Egg’s proximity to the Cupcake Conspiracy, the risk of delivery
service being unavailable is mitigated by the ability of Cupcake Conspiracy employees to pick up
additional eggs if required.
Canola oil will be supplied by Cargill Ltd., from their crush and extraction plant located in Clavet, Sk.
Approximately 20 L of canola oil will be required weekly. Cargill will arrange delivery of one pallet (8 x
20 L pails) of canola oil to the Cupcake Conspiracy, when given one week of lead time. While the supply
and availability of canola oil are not expected to be of concern, it is likely that price fluctuations for
canola oil will be realized as the market price for canola shifts. Currently canola is a low value
commodity, but shifting market demands will cause price fluctuations over time.
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The Cupcake Conspiracy
Business Plan
The Cupcake Conspiracy will require dairy products including cream and butter for icings, and a “secret”
dairy product to be added to the vanilla cupcake recipe. Saputo Canada, with a distribution plant
located in the north industrial area of Saskatoon, will be contracted to supply the three required dairy
products. Approximately 1 kg of butter and 1 L of cream will be required to produce required volume of
icing in year one. Approximately 2 L of the “secret” dairy product will be required for the projected daily
volume of vanilla cupcakes. Dairy deliveries will occur on Wednesdays, with order confirmation
completed on Tuesdays. In the event that large orders requiring additional dairy supplies do not come
in on time for the order confirmation deadline, the Cupcake Conspiracy will purchase additional Saputo
branded supplies from a local retailer such as “The Wholesale Club”, located on 8th Street in Saskatoon.
As with Dawn Foods, there is a long term risk that Saputo will discontinue distribution service in
Saskatoon. This is seen as a low level risk in the short term.
All cupcake will be iced with a flavoured butter cream frosting. Frosting flavours will include lemon,
coconut, mint, vanilla, chocolate, rum butter, white chocolate, orange cream, cherry, and banana.
Bulk flavouring will be purchased through a contract with Souleio Foods. Souleio is a Saskatoon
distributor of a range of organic flavours. The flavouring products are used in deserts and beverages
produced by both Calories and Souleio Foods in Saskatoon. The supplier was selected for their proximity
to the Cupcake Conspiracy, and because of their reputation for using only the highest quality ingredients.
Supply chain risk analysis has indicated that Souleio will maintain a large enough supply of the required
flavourings, as their business also depends on access to them.
Coffee beans will also be required for cupcake toppings, and for the “secret” ingredient in the chocolate
cupcake recipe. Broadway Roastery will supply dark roast coffee beans to the Cupcake Conspiracy.
Employees will pick up 20 kg supplies of roasted coffee beans from the Broadway Roastery on the first
and third Mondays of each month. These coffee beans will also be used to prepare coffee for eat-in
cupcake purchasers. Broadway Roastery was selected as a supplier because of its history as a Saskatoon
small business, and because of its reputation for supplying consistently high quality products.
Packaging materials (boxes, cupcake holders, and labels) will be supplied by the BRP Box Shop located in
Clinton, Iowa. This supplier was selected based on their ability to provide the mix of product sizes
required (for single and multiple cupcake orders). The cardboard used by BRP is made of recycled
material, which is in like with the “environmentally friendly” philosophy of the Cupcake Conspiracy.
Packaging materials will be delivered on a biweekly schedule, with provisions for emergency orders to
be delivered overnight with applicable FedEx shipping charges.
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The Cupcake Conspiracy
3.8
Business Plan
Service Providers
The following table lists services that the Cupcake Conspiracy will require, and the suppliers who will be
contracted to provide them. Brief details regarding service provider selection and scope of the
proposed contract for service are also included.
Service
Safe food
handling course
Contract Service
Provider
Mike McCann
Consulting
Details
Training courses are led by Certified Public
Health Inspectors. Will provide safe food
handling training to all Cupcake Conspiracy
employees.
Marketing agency to design all promotional
and advertising materials including websites,
brochures, flyers, in-house advertising, etc.
Marketing and
Website
Programmer
Refresh Inc.
Business Advisor
Stephen Yong, CA
(Ernst and Young)
Will provide consulting for business start up
and tax management.
Appliance
Warranty Work
Shaughnessy
Appliance
Certified maintenance provider for Hobart
appliances.
Photography
Memories by
Mandy
Credit Card
Terminal
Moneris
Semi-annual photo shoots will be scheduled,
featuring a mix of cupcake designs. Printed
canvasses will be hung in the storefront.
Stationary countertop credit card processing
terminal supply and service.
Laundry
Canadian Linen
Supply and laundry service for kitchen towels
and employee aprons.
Cost
$500 per
attendee
$15,800 in Year
1, Variable in
Year 2-5
(approx.
$7,200)
$10 000 year
one, $5000
(plus inflation)
years 2 - 5
2 year warranty
included, then
per call charge
$500 per
session
$500 annual
fee, plus 2% of
amounts
processed
$100 per month
Table 3.1 - List of Service Providers
3.9
Technical Processes
The Cupcake Conspiracy estimates that 850 cupcakes will be the maximum daily production capacity,
given the capital investment plan. This production capacity fits within the expected maximum sales
level of 600 per day. Production times for each required step are outlined below:
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The Cupcake Conspiracy
measure dry
ingredients – 30
seconds per
batch
Business Plan
measure wet
ingredients – 60
seconds per
batch
fill muffin cups
with batter – 20
minutes
mix ingredients
for 3 minutes
repeat process as
required
bake cupcakes
(15 minutes)
cool cupcakes
(2 hours)
prepare base
icing recipe
(10 minutes)
flavour and color
base icing recipe
(5 minutes)
ice individual
cupcakes
(45 seconds)
Figure 3.3 - Cupcake Production Process
The expected rate of cupcake sales is approximately 38 per hour. Below is The Cupcake Conspiracy’s
work flow plan with estimated time allotment added in to project how many cupcakes can feasibly be
made in a day.
Other processes to consider will be ensuring equipment is maintained and kept up-to-date for safety
and efficiency and maintaining proper cleaning processes to ensure all products served meet food safety
standards. This includes proper storage and separation of raw and dry ingredients, cleaning and
sterilizing.
3.10
Capacity Limits and Capital Budget
Based on the target market analysis (outlined in section 5.2), the projected maximum demand capacity
for The Cupcake Conspiracy’s target market is 600 (50 dozen) cupcakes daily. The proposed capacity for
year one is an average daily volume of approximately 250 cupcakes.
The proposed capital budget is outlined below. The budget includes costs for the production area and
product displays as outlined in the site floor plan (section 3.3).
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The Cupcake Conspiracy
Business Plan
Table 3.2 - Capital Budget
The expected life of the production equipment such as ovens, coolers, mixers, etc is approximately 10 to
15 years. Kitchen tools such as mixing bowls, the icing piping system, and baking pans may have a
shorter useful life, and will be replaced as needed using the allocated “tools, utensils, and other” budget.
3.11
Environmental Limitations on Production
The baking process of the Cupcake Conspiracy will not generate any heavy impact on the environment.
However, the Cupcake Conspiracy does plan to take measures to be known as a “environmentally
friendly” organization. The Cupcake Conspiracy will use SaskPower’s Green Options Partners Program to
streamline power processes and create stable pricing on utilities to guarantee the sustainability of
power supply for the province.
The Cupcake Conspiracy also plans to use local suppliers where possible for all ingredients and products
that are needed in its production process.
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The Cupcake Conspiracy will also use environmentally friendly, recycled cardboard boxes for packaging
and presentation of products. These boxes will be made of recycled material and will be supplied from
BRP Box Shop.
3.12
Cost of Goods Sold
Table 3.3 - Cost of Goods Sold
3.13
Operating Expenses
Operating expenses for the Cupcake Conspiracy will include utilities, rent, wages, benefits, marketing
costs, insurance, interest, consulting services and CCA expense. These costs are outlined in the table
below.
Table 3.4 - Operating Expenses
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3.14
Business Plan
Working Capital Planning
From the initial financing of $180,000, the Cupcake Conspiracy plans to use $120,000 including debt and
equity towards the working capital budget for the first year to ensure a positive cash flow in the initial
year.
4.0 Human Resources Plan
The initial organizational structure of the Cupcake Conspiracy will be flat, with four equal partners
sharing equal duties and work hours. Additional staff may be added on in Year 3, depending on the
demands and sales and a summer student could be hired for the summer seasonal months (May to
September) to help with special orders.
Stephanie Yong will serve as the General Manager. Stephanie’s experience in customer service and her
strong network within Saskatoon’s business community are assets that will be valuable as she manages
the human resource and sales aspects of the Cupcake Conspiracy. Lori Sly will fill the role of Marketing
Manager, bringing extensive marketing experience from her time at Tap Communications. Brooke
Klassen has spent a number of years instructing financial management classes at the University of
Saskatchewan. This experience will be valuable in her new role of Finance Manager for the Cupcake
Conspiracy. Meghan Gervais’ engineering experience provides her with the skills necessary to fill the
role of Operations Manager. In addition to managing the various aspects of the business, each member
of the management team will also work in both production and sales roles.
All four partners will have full benefit plans which are budgeted at 17% of their wage. All four managers
will work as full-time employees until the company becomes self-sufficient. Future training in the art of
cupcakes will take place a various seminars and workshops provided locally and around Western Canada.
All four managers will partake in these seminars equally to create new ideas and experiences for the
customers of The Cupcake Conspiracy.
All staff will be trained and educated to operate mixers, ovens and cashier tills to help with store
operations and baking activities. All four managers will also participate in the Red Seal & Patisserie
program to ensure that baking and training skills are adequate enough to provide quality products and
to educate future staff hired on.
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Business Plan
All four managers will also be food safety certified to comply with any standard regulations. The costs of
training for these seminars are projected to be approximately $500 per person which will be included in
the training and education budget.
Wages will be allocated equally amongst the four partners and will consist of 25% of the total revenue
on top of direct labour hours. Managers will have full benefits plans which are budgeted at 17% of their
wage. All partners will be employed full time.
5.0 Marketing Plan
5.1 Competitive Analysis
5.1.1 Direct Competition
There is only one cupcake-only competitor for the Cupcake Conspiracy, the Cupcake Corner. It also
offers a homemade, specialty product; however, its main product is standard cupcakes flavours topped
with standard icing flavours that are priced at $3.00. The Cupcake Corner’s specialty cupcakes, which
closely compare to our product, are priced at $3.75. Our products are superior in creativity and quality,
and are offered at a lower rate.
The bakeries within grocery stores (Sobeys, Safeway, Extra Foods, Co-op) are also competitors because
they offer cupcakes and other baked goods. Grocery stores compete on convenience and price; the
average price would be about 30-50% of our price. However, a lower price brings a much lower quality
experience and less concern with social responsibility. Grocery stores also act as indirect competition, as
consumers may decide to purchase a cake mix and premade icing and in 30 minutes, make homemade
cupcakes.
Direct competition in the special occasion market includes the Sugar Moon Cake Co. – a local bakery
that specializes in high-end, special occasion cakes that also sells some custom cupcakes. It does not
offer a standard set of cupcakes, but allows custom orders. Therefore, it competes with us for special
event orders but not for our walk-in traffic. It competes based on custom quality, not on convenience.
There are other home-based cake catering companies that would also compete with us on a smaller
level.
Another competitor in the special events market is Calories, a local restaurant and bakery. Calories
offers special occasion cakes and by-the-serving desserts. It offers premium cupcakes for custom orders,
but does not have cupcakes on its daily dessert menu for walk-in traffic. The Calories brand is known for
its quality and richness.
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PicNic’s Restaurant also has a bakery that offers special occasion cakes, and by-the-serving desserts. It
offers premium cupcakes for custom orders, but does not have cupcakes on its daily dessert menu for
walk-in traffic. The PicNic’s brand is not as strong; the quality and service are average, but the location is
at the heart of downtown (22nd Street).
5.1.2 Indirect Competition
Indirect competition comes in the form of other types of splurge comfort foods. These include gourmet
ice cream (Jerry’s, Homesteads), chocolate (Laura Secord, Harden & Huyse), pastries, desserts (Calories,
Alexander’s, PicNic’s) and others. The price range and experience are comparable, and these products
may attract some of our potential sweet-tooth traffic.
5.2 Target Audience Analysis
5.2.1 The Modern Socialite
The Cupcake Conspiracy brand is targeted towards the Modern Socialite, a group of Saskatoon women
aged 20-49 that have some post-secondary education. This target has an above average disposable
income, is trendy and intelligent (many of the cupcake names involve intellectual humour) and frequent
the revitalized downtown for shopping, socializing, dining, and entertainment. This audience purchases
approximately 1-2 times per month, usually for the purpose of entertaining friends or bring a unique gift
to the host of the party. The Modern Socialite will also attract volume customers for parties including
birthdays, anniversaries, corporate events and weddings. The Modern Socialite is influenced by friends,
coworkers, and family members. She understands the tongue and cheek slogan: “Keep your friends
close and your cupcakes closer”.
5.2.2 The Chic Bride
A subset of the Modern Socialite audience is the Chic Bride. Possessing the same characteristics as the
Modern Socialite, the Chic Bride is planning an upscale, trendy, modern wedding. Therefore, she is
willing to forgo the traditional wedding cake for the chic alternative, the cupcake.
5.3 Market Analysis
5.3.1 Estimated Market Size
According to the 2006 Census of the Saskatoon Metropolitan Area, 43,870 women are between the ages
of 20-49 (Statistics Canada, 2006). Of these, about half are professional, modern women. This makes up
a large portion of the primary target audience. We anticipate there will be approximately 1000
weddings in Saskatoon each year, 25% of which would be in our chic bride target audience.
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5.3.2 Market Share
We expect to attract 30% of our target market, partly
Walk-In Cupcake
Market Share
due to our trendy location and partly due to our
quality products. Because our direct competition isn’t
located near us, we believe this will help us reach the
downtown, professional, modern woman. In terms of
Cupcake
Corner,
15%
Cupcake
Conspiracy,
30%
market share for special events, in year one the
Cupcake Conspiracy expects to gain five small events
Grocery
Stores,
55%
(averaging 12 cupcakes each) and 20 wedding per
year (averaging 125 cupcakes each).
Figure 5.1 - Market Share
5.4 Positioning Statement
For the modern socialite, The Cupcake Conspiracy is the trendy dessert shop that delivers “the secret to
a sweet life” because only The Cupcake Conspiracy presents intriguing and sensuous sweets in a chic
atmosphere.
5.5 The Marketing Mix
5.5.1 Product/Service Features
The Cupcake Conspiracy offers a trendy, fun dessert in an upscale, friendly atmosphere; the location is
modelled after upscale French patisseries such as Laduree in Paris, with a North American flavour.
Offering more than just cupcakes, Cupcake Conspiracy fills the need of trendy, cool, intelligent upperly
mobile women looking for a pick-me-up or a great party treat.
The product line features a variety of premium cupcakes baked daily with interesting conspiracy-related
names; we produce vanilla or chocolate cupcakes with a variety of icing flavours and colours, as well as
decorative, edible finishing touches (cherries, sprinkles, shavings, non-traditional toppings).
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Business Plan
5.5.2 Prototypes
Figure 5.2 - Cupcake Prototypes
The products are made from scratch, using grandmother’s recipes and top-of-the-line, local ingredients.
In addition, all products are guaranteed peanut and tree nut free product. The cupcakes are packaged in
100% recycled, boxes are made from natural paperboard (SFI certified) that uses 25-30% less fibre than
other box materials. The boxes are wrapped with a beautiful ribbon and sealed with a logo sticker.
5.5.3 Pricing Policy
To gain market share quickly, the pricing strategy for the Cupcake Conspiracy is to enter the market at a
slightly lower cost than the direct competition (Cupcake Corner) at $3.00 for a specialty cupcake. This
allows a 60% gross profit margin, and a mark-up of 250%. To encourage volume orders, we will offer
volume discounts. Also, for order of 100 or more, we will throw in the cake stand rental for free. The
optional delivery and setup charge is an additional $50.
Competitor
Product
Unit Price
Cupcake Corner
Cupcake Corner
Grocery Stores
Standard Cupcake
Specialty Cupcake
Standard Cupcake
$3.00
$3.75
$1.00 - $1.25
Sweetcakes Cupcakery
Sugar Moon Cake Co.
Other Splurge Food
Competitors
Standard Cupcake
$1.75
Custom Cupcake
$3.00
Chocolate, Ice Cream,
$2.00 - $7.00
Baking, Pastries
Table 5.1 – Competitive Analysis
Important Notes
Not available in large
orders
Closed in 2007
Large quantities only
5.5.4 Promotion
The promotional themes for the Cupcake Conspiracy will focus around: (1) the conspiracy theme –
which will be present in the presentation of the product and the advertising creative, and (2) the icing
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Business Plan
swirl in our logo – to be used as the seal on our boxes, in our logo, and present in the advertising
creative.
The Cupcake Conspiracy will use an awareness campaign to introduce ourselves to the market. The
campaign will launch a conspiracy-related contest (i.e. win an cupcake/wine party for you and your
closest friends) and promote it through various media, including:

Company website (including an online ordering system)

Social media (Facebook, YouTube, Flickr, Twitter, BlogSpot, etc.)

30 second radio spots (on C95 and Magic 98.3)

Billboard advertising (1 downtown, 1 north end, 1 east side)

Display (for Farmer’s Market and other events)
In addition, the Cupcake Conspiracy will be present at key gourmet food tradeshows like Saskatchewan
InDemand, at bridal showcases, and at other target market events throughout the year. The Cupcake
Conspiracy will also put on surprise sampling events held at businesses in the downtown area that target
the same clientele (i.e. Frakas, Tonic, Swank, etc). Samples will also be provided at the store itself; we
will also have promotional materials available at the store including business cards, stationery, product
catalogues, brochures, and product order forms.
After Year 1, we will continue to improve the displays and website, to promote via online social media,
to provide product samples and giveaways, and to produce marketing materials. Due to capitalizing on a
key market trend combined with our exciting “conspiracy” campaigns, we will gain word of mouth
marketing. We will also involve the media through public relations efforts, focusing on our events.
5.5.5 Distribution Strategy
The Cupcake Conspiracy will sell direct to customer and will be located at the main floor of the
renovated King George building in downtown Saskatoon. This location is upscale and trendy, and will
attract many nearby shoppers in our target audience. Modelled after Laduree and similar French
patisseries and simplified for North American taste, our storefront will add to the chic dessert
experience.
Orders can be placed in the following ways, and can be either picked up or delivered (for an extra
charge):

Website orders – great for busy professionals who need/want to pick up great dessert on the go
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
Business Plan
In person orders – great for people who need more consultation on their orders, or for those
who have a craving and want to pick up a “quick fix” on the spot
Our direct competition also sells via storefront and website ordering but doesn’t boast a high-traffic,
upscale, downtown location.
5.6 Sales and Profit Objectives
The Cupcake Conspiracy has the following sales and profit objectives, which are outlined in our financial
plan:

To sell 250 cupcakes per day in Year 1, and to increase to full capacity of 600 cupcakes by Year 4;

To achieve a profit margin of 60%; and

To sell at a $3.00 per unit selling price, increasing at the rate inflation.
5.7 Marketing Budget
The promotional initiatives, as discussed in the promotional section, make up the following marketing
budget for the Cupcake Conspiracy:
Promotional Initiatives
Display
Website
Online Media
Samples/Product Giveaways
Promotional Materials
Billboard Advertising
Radio Advertising
Tradeshow/Event Marketing
Total Marketing Budget
Year 1
$3,000
$10,000
$7,000
$12,000
$3,000
$12,000
$22,000
$10,000
$79,000
Years 2-5
$3,000
$1,000
$7,000
$12,000
$3,000
$0
$0
$10,000
$36,000
Table 5.2 - Marketing Budget
5.7.1 Projected Revenues
The total revenue is calculated from the 310 days per year that the Cupcake Conspiracy will be open,
times the estimated volume sold per day, times the projected sale price. The total revenues are seen in
the table below.
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Business Plan
Table 5.3 - The Cupcake Conspiracy Revenue
6.0 Financial Plan
6.1 Major Shareholders
The major shareholders of the Cupcake Conspiracy are backing the bank financing with a personal
guarantee. Please see our estimated statement of net worth below; further detailed statements on net
worth can be obtained from our financial representative, Steven Young, CA, Ernst & Young LLP, Calgary,
AB, (403) 206-5140.
6.1.1 Statement of Net Worth
Shareholder
Meghan Gervais
Brooke Klassen
Lori Sly
Stephanie Yong
Estimated Net Worth
$1.4 million
$1.5 million
$0.4 million
$1.5 million
Table 6.1 - Shareholders’ Statement of Net Worth
6.2 Financing Structure
Debt
40%
Equity
60%
Figure 6.1 - Financing Structure
The Cupcake Conspiracy will be financed 60% by equity and 40% by a bank loan. The net present value
and internal rate of return are positively impacted (see table below) by leveraging debt financing.
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Business Plan
Table 6.2 - Leveraged IRR
6.3 Financial Analysis
Table 6.3 - Summary Income Statement
The fixed expenses that are included in the income statement above include:

Fixed utility charges

Rent for 1,000 square feet of ground floor space ($25/square foot)

Wages and benefits for marketing, financial, operations, and human resource management
personnel (25% of sales)

Marketing costs (see marketing plan on pg. 19 for details)

Capital cost allowance for equipment

Property and liability insurance

Interest on the $60,000 10 year bank loan

Financial representative consulting fees

Equipment maintenance costs

Baking tools, utensils, and other related costs
6.3.1 Critical Variables

Sensitivity analysis on these projections shows significant loses if unit sales or sales price are not
realized. Holding all other factors constant, the number of cupcakes sold per day significantly
impacts the profitability of the business case.
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The Cupcake Conspiracy

Business Plan
At a decline in volume of 10%, IRR is eroded by 8%; however, if volume is increased by 10%, the
IRR is strengthened to 40%, and the break-even point is earlier.
Payback Period
NPV
IRR
-10% decrease in
volume
3.44 years
($10,137)
24%
Base volume
2.96 years
$3,569
32%
+10% increase in
volume
2.48 years
$15,542
40%
Table 6.4 – Sensitivity Analysis #1

Another important variable is the sales price. At a 10% decline in sales price, IRR is eroded by
14%; however, if sales price is increased by 10%, the IRR is strengthened to 45%, and the breakeven point is earlier.
Payback Period
NPV
IRR
-10% decrease in price
Base price
3.59 years
($17,808)
18%
2.96 years
$3,569
32%
+10% increase in
price
2.51 years
$24,794
45%
Table 6.5 – Sensitivity Analysis #2

Variables costs (cost of goods sold/COGS) is also a critical variable in the financial success of The
Cupcake Conspiracy. If COGS is increased by 10%, the IRR drops below the required rate of
return and the business case is no longer appealing.
Payback Period
NPV
IRR
-10% increase in
COGS
3.59 years
($17,808)
18%
Base COGS
2.96 years
$3,569
32%
+10% decrease in
COGS
2.51
$24,794
45%
Table 6.6 – Sensitivity Analysis #3
6.3.2 Break-even Analysis
Break-even analysis was performed based on the projected five year NPV of $3569.00. As shown below,
the Cupcake Conspiracy’s projected sales for the five year period are greater than those required for
break even.
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The Cupcake Conspiracy
Business Plan
Daily Sales Volume
Year
1
2
3
4
5
Break Even Required
227
361
524
548
536
Projected
250
375
563
600
600
Table 6.7 – Break Even Analysis
6.3.3 Financial Feasibility
We believe that the strength in the IRR, NPV, and net incomes after we break warrants the start up of
the Cupcake Conspiracy; however, we need to tightly control variable costs to mitigate its potential risk
of eroding the company’s profitability. The financial feasibility decision is also firmly backed by welldefined operational and marketing strategies.
6.4 Risk Analysis and Contingency Planning
As discussed in the sensitivity analysis above, there are three critical variables to the success of the
Cupcake Conspiracy:
1.
Maintaining selling price – as selling price is a critical variable, we need to ensure that the price
doesn’t need to be lowered below $3.00 per cupcake. We are confident that, by pricing our
product slightly below the competition, we will not need to do this. We will conduct regular
marketing research to ensure that the market will continue to pay our price, and we may
consider increasing the price in the future, if the market will bear a price increase over inflation.
2.
Achieving projected unit sales – to ensure that we achieve our projected volume, another
critical variable, we have placed a large deal of emphasis on our promotions strategy. We plan
to have a large awareness campaign, followed by regular promotions to continue to remind our
target audience of our brand.
3.
Controlling variable costs – to control variable costs, we have a partner that is abreast in
operational cost control and will work, on a daily basis, to ensure that we meet our cost targets.
We will also have supplier agreements in place, and backup suppliers when necessary, to
manage our supplier relationships.
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Business Plan
Other potential risks association with this include:

Consumer demand – cupcakes are a trendy dessert item right now. If the demand for cupcakes
slows, our projected unit sales may be affected. We plan to stay ahead of this trend by keeping
up with the current trend, and introducing other trendy sweet desserts in the future.

Rent increases in downtown area - as the downtown grows in popularity, the rent may increase.
Although this is not a critical business variable, significant increases to rent will impact the longterm profitability of the company. In the short term, this risk has been mitigated by signing a five
year lease.

Food safety – we have guaranteed a nut-free product; there is a possibility that a supplier’s
product may be contaminated and affect the safety of our food. We can mitigate this risk by
inspecting supplier plants and implementing set regulations.

Concern of inhabitants in downtown area – due to the crime and homeless population in the
downtown area, we need to implement certain precautions: an alarm system, regular bathroom
inspections, and signage to discourage loitering.
8.0 References
Statistics Canada. 2006 Community Profile. Saskatoon, SK (Metropolitan Census Area). Accessed on 11
March 2010. Available at: http://ceps.statcan.ca/census-recensement/2006/dppd/prof/92591/details/page.cfm?Lang=E&Geo1=CMA&Code1=725__&Geo2=PR&Code2=47&Data=
Count&SearchText=saskatoon&SearchType=Begins&SearchPR=01&B1=All&Custom
Canada Business, Services for Entrepreneurs. Available at: http://www.canadabusiness.ca/eng
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9.0 Appendix
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35