Sift Cupcake and Dessert Bar Case

Topics: Strategic management, Revenue, Gross profit margin Pages: 12 (2349 words) Published: October 20, 2014

Industry and Competitive Analysis

Exhibit 1: Dominant Economic Features

Market Size and Growth Rate
Nationwide cupcake sales projected to rise another 20% between 2009 and 2014 Retail bakery sales expected to grow 8.1% per year on average through 2014 106 cupcakeries in the bay area
Sift estimates net sales of around $961,000 in 2010
Number of Rivals
As of November 1, 2010, there were 106 cupcakeries in the bay area Hundreds of additional bakeries, dessert bars, and other commercial venues also selling cupcakes Grocery stores and big box in-store bakeries

Scope of Competitive Rivalry
Most companies compete locally and regionally
Few companies like Sprinkles compete nationally
Number of Buyers
In 2009, customers between 35-54 years old spent the most on bakery products Largest percentage of Sift’s customers are ages 25-34
Largest percentage of Sift’s customers have total family income of over $100,000 Largest percentage of Sift’s customers are individuals with no children followed by parents with children under 10 years old Shoppers buying cupcakes for themselves as dessert snacks

Parents buying for children
Shoppers buying for events such as birthday parties

Consumer Spending on Bakery Products by Age Group

Sift’s Customers by Parenting Group

Degree of Product Differentiation
Products are relatively undifferentiated among competitors
Rivals are making specialty cupcakes to differentiate
Product Innovation
Little new innovation in the baking industry
Small costs associated with R&D in the baking industry
Companies must research different recipes and the types of bakery products customers prefer Demand-Supply Conditions
Industry is majority small businesses competing locally
Demand for bakery products increasing represented by the 8.1% that bakery sales are expected to grow per year through 2014 Cupcake sales projected to rise 20% between 2009 and 2014 in the U.S. Pace of Technological Change

Increasing number of customers using the internet for everything including bakery shopping Must have user-friendly website for customers
Vertical Integration
Most competitors are fully integrated running every part of their small business Bigger competitors such as grocery stores are only partially integrated Economies of Scale
Baking Industry is characterized by economies of scale especially in advertising and purchasing Bigger companies like Sprinkles can afford to purchase a larger quantity of materials to provide more options to customers Bigger companies can also spend more on advertising to increase brand awareness Smaller companies like Sift are profitable but are struggling to expand because of less capital Sprinkles, national leader in specialty cupcakes, plans to open 15 more locations in 2011

Learning/Experience Cure Effects
High learning curve involved with being innovative and creative to attract customers Experience is needed to handle and satisfy customer’s needs Experience is needed with baking equipment and other supplies Employees must learn recipes for different bakery products

Exhibit 2: The Five Forces Model

Competition Among Rivals – Moderate
Many competitors offering bakery products
Weakly differentiated products
Buyers costs of switching companies are low
Rivals face low exit barriers
Market growth
Potential New Entrants – Moderate
Buyer demand is growing and newcomers can expect to earn profits Existing industry members are looking to expand their market reach by entering product segments or geographic regions where they do not have a presence Entry barriers are relatively low

Competition from Substitutes – Strong
Acceptable substitutes for cupcakes and other bakery products are readily available Competitive prices for substitutes
Low buyer costs to switch to substitutes
Power of Suppliers – Weak
Large number of suppliers with relatively small market shares Industry member’s switching costs...
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