1.0 Executive Summary - Edwards School of Business Painter/businesspl… · Web viewIntroduction....

Business Plan

Presented by: Meghan Gervais, Brooke Klassen, Lori Sly and Stephanie Yong March 2010

The CupcakeConspiracy

The Cupcake Conspiracy Business Plan

Contents1.0 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

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4.0 Human Resources Plan..............................................................................................................20

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

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8.0 Appendix........................................................................................................................................32

1.0 Executive SummaryIntroduction

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

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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

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

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risk of eroding the company’s profitability. The financial feasibility decision is also firmly backed by well-

defined operational and marketing strategies.

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2.0 Introduction2.1 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.

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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2001 20050

1000020000300004000050000600007000080000

IncomeInflation

Figure 2.1 – Saskatoon Income Levels


2.3.2 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 Plan3.1 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) 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.

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2) 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.

3) 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.

4) 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:

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

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Future Site ofthe Cupcake Conspiracy


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

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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3.3.3 Floor Plan Diagram

Figure 3.1 - The Cupcake Conspiracy Floor Plan

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product display case

packaging, coffee, and sales station

$

Window display

drypantry

rawcooler

raw prep station

mixeroven

mixer

icingcooler

storagerack

icing station

closet

final product storage rack

delivery entrance

STOREFRONT

hand wash

PRODUCTION AREA


3.4 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.

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

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measure dry ingredients into

raw product mixer

measure wet ingredients into

raw product mixer

mix ingredients for 3 minutes

pour batter into lined cupcake

pans

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


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.

3.5 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:

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Responsibilities include: Begin production of cupcake baking and icing making, icing cupcakes,

opening store, ensuring adequate supplies and packaging is available

Closing shift:

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

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

3.7 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.

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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

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.

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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.

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 8 th 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

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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.

3.8 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 Contract Service Provider Details Cost

Safe food handling course

Mike McCann Consulting

Training courses are led by Certified Public Health Inspectors. Will provide safe food handling training to all Cupcake Conspiracy employees.

$500 per attendee

Marketing and Website Programmer

Refresh Inc. Marketing agency to design all promotional and advertising materials including websites, brochures, flyers, in-house advertising, etc.

$15,800 in Year 1, Variable in Year 2-5 (approx. $7,200)

Business Advisor Stephen Yong, CA (Ernst and Young)

Will provide consulting for business start up and tax management.

$10 000 year one, $5000 (plus inflation) years 2 - 5

Appliance Warranty Work

Shaughnessy Appliance

Certified maintenance provider for Hobart appliances.

2 year warranty included, then per call charge

Photography Memories by Mandy

Semi-annual photo shoots will be scheduled, featuring a mix of cupcake designs. Printed canvasses will be hung in the storefront.

$500 per session

Credit Card Terminal

Moneris Stationary countertop credit card processing terminal supply and service.

$500 annual fee, plus 2% of amounts processed

Laundry Canadian Linen Supply and laundry service for kitchen towels $100 per month

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and employee aprons.

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:

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

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measure dry ingredients – 30

seconds per batch

measure wet ingredients – 60

seconds per batch

mix ingredients for 3 minutes

fill muffin cups with batter – 20

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)


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).

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

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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.

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

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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

3.14 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 PlanThe 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

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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.

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 Plan5.1 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

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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.

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,

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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.

5.3.2 Market Share

We expect to attract 30% of our target market, partly

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

market share for special events, in year one the

Cupcake Conspiracy expects to gain five small events

(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.

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Cupcake Corner,

15%

Grocery Stores, 55%

Cupcake Con-spiracy, 30%

Walk-In Cupcake Market Share


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).

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 PolicyTo 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 Important Notes

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Cupcake Corner Standard Cupcake $3.00Cupcake Corner Specialty Cupcake $3.75Grocery Stores Standard Cupcake $1.00 - $1.25 Not available in large

ordersSweetcakes Cupcakery Standard Cupcake $1.75 Closed in 2007Sugar Moon Cake Co. Custom Cupcake $3.00 Large quantities onlyOther Splurge Food Competitors

Chocolate, Ice Cream, Baking, Pastries

$2.00 - $7.00

Table 5.1 – Competitive Analysis

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 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.

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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

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 Year 1 Years 2-5Display $3,000 $3,000Website $10,000 $1,000Online Media $7,000 $7,000Samples/Product Giveaways $12,000 $12,000Promotional Materials $3,000 $3,000Billboard Advertising $12,000 $0Radio Advertising $22,000 $0Tradeshow/Event Marketing $10,000 $10,000

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Total Marketing Budget $79,000 $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.

Table 5.3 - The Cupcake Conspiracy Revenue

6.0 Financial Plan6.1 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 Estimated Net WorthMeghan Gervais $1.4 millionBrooke Klassen $1.5 millionLori Sly $0.4 millionStephanie Yong $1.5 million

Table 6.1 - Shareholders’ Statement of Net Worth

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6.2 Financing Structure

Debt40%

Equity60%

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.

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

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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.

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.

-10% decrease in volume Base volume +10% increase in

volumePayback Period 3.44 years 2.96 years 2.48 yearsNPV ($10,137) $3,569 $15,542IRR 24% 32% 40%

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 break-

even point is earlier.

-10% decrease in price Base price +10% increase in price

Payback Period 3.59 years 2.96 years 2.51 yearsNPV ($17,808) $3,569 $24,794IRR 18% 32% 45%

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.

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Table 6.4 – Sensitivity Analysis #1



-10% increase in COGS Base COGS +10% decrease in

COGSPayback Period 3.59 years 2.96 years 2.51NPV ($17,808) $3,569 $24,794IRR 18% 32% 45%

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.

Daily Sales Volume

Year Break Even Required Projected

1 227 2502 361 3753 524 5634 548 6005 536 600

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 well-

defined 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

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Table 6.7 – Break Even Analysis


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.

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 long-

term 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.

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8.0 ReferencesStatistics Canada. 2006 Community Profile. Saskatoon, SK (Metropolitan Census Area). Accessed on 11

March 2010. Available at: http://ceps.statcan.ca/census-recensement/2006/dp-pd/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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http://www.canadabusiness.ca/eng


9.0 Appendix

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