Case Study #4 Read the case study Sugar and Spice Bakery on pages 14 - 17. Write a 2 paragraph summary of the case and answer the following questions please liste questions above each answer): 1. What are the bakery's best product lines and why are they the best? 2. Would you recommend that Kilourne close the bakery and become a FT caterer? Why or why not? Be specific in your answer. 3. What should Kilbourne know about the competition before she makes her final decision? thir arrinmont SIvey Publishing W17231 SUGAR AND SPICE BAKERY: THE CATERING OPPORTUNITY Wedness on A Gay Boy provide material for class SS The hos otroceave handing of agron Thothors may hart The doctor other produced in any form or by any means with Torderada contact Ivey Posing Ivey Business School W of the Reproduct of not cover donation by soy reproduct ang monto prontcorealty Version 2019.90 www.comin On Care NOG ONTO 5120522080) cave www.iveycases.com Stosowane for her business's future. The lease on Kilbourne's bakery, located in Strathroy, Ontario, Canada, would On May 5, 2016, Rosetta Kilbourne, owner of Sugar and Spice Bakery (Sugar and Spice), was planning expire at the end of August. Operating the bakery had become expensive, and Kilbourne wondered it would be financially feasible to close the bakery and focus on catering events full time. STRATHROY-CARADOC Strathmey was located 40 kilometres west of a major southwestern city, London (population 367,000), and was the largest community within Middlesex County outside of London. The town of Strathroy and the township of Caradoc amalgamated in 2001 to form the municipality of Strathroy-Caradoc (Strathroy). Of its 20,000 residents, 12.000 lived in the urban centre. Strathroy supported urban and rural areas with range of businesses and industries, including agri-business, manufacturing and logistical operations. With direct access to rail and trucking routes to the rest of southwestern Ontario and approximately 71 kilometres to the U.S. border, businesses had easy access to regional and international markets. Strathroy was home to Caddy Farms, a global leader in producing and delivering commercial turkey eggs and poults. Each June, the town hosted Turkey Fest, a weekend event including a midway, camival games, a turkey-calling contest, a battle of the bands, an antique car show, and a poult petting 200. A popular event for the residents of Strathroy, the festival also attracted visitors from London and other towns within Middlesex County. A county was a geographical region of a country used for administrative or other purposes Doing Business Home Doing Business Strathroy Caradoc Urban OpportunityRural Hospitality, accessed January 24 017, www.strahyarados.caten Doing Business asp?_mid_29211 A pout was a young domestiche, turkey. pheasant, or other low being raised for food Page 2 SUGAR AND SPICE BAKERY 9B17B011 Rosetta Kilbourne Kilbourne had always had a passion for baking. From a young age, she had created her own recipes. which her family thoroughly enjoyed taste testing. Her dream had always been to open a bakery of her own, but she feared financial instability and the risks of becoming self-employed. After graduating from college, Kilbourne accepted what she thought was a secure position working as an administrative assistant for a security company based in London, Ontario. During the spring of 2007. Kilbourne was laid off The Purchase While Kilbourne contemplated her next steps, a small bakery, Sugar and Spice, was for sale in her hometown of Strathroy. The bakery served classic desserts, soups, and sandwiches and was open Monday to Friday from 7 a.m. to 4 p.m. Kilbourne decided she had put her dream on hold for long enough, with financial help from her father, Kilbourne purchased the bakery and opened in September 2007 as a sole proprietorship. The bakery was well known and had a good reputation within Strathroy, so Kilbourne kept its existing name and hours of operation, but altered the menu to include a wider variety of lunch and dessert options. Kilbourne also continued to employ the bakery's existing full-time employees. Customers Sugar and Spice was a popular morning destination for local retirees of the Strathroy community. Several regular groups of customers would arrive together for their morning coffee and a pastry. These customers typically would visit with each other at the bakery for approximately an hour and a half. On average, the retirees spent less than $5 per visit. Kilbourne knew all of their names and regular orders a personal touch that she believed kept the retirees coming to the bakery. Aside from the retirees, the bakery rarely had customers who stayed to consume their purchases. Sugar and Spice's main revenue came from take-out orders, made either in person or over the phone. It was common for phone orders to be received early in the morning for pick-up during the lunchtime rush between 11 a.m. and 1 p.m. These phone orders were primarily large orders over $150 from local businesses or community groups. Sugar and Spice did not offer delivery. Operations Kilbourne had two full-time employees who were paid $12.50 an hour and two part-time employees who were paid $11.25 an hour. Both full-time employees worked from 6 a.m. to 2:30 p.m. each weekday, and one of the two part-time employees worked from 2 p.m. to Sp.m. each weekday. During the morning and lunchtime rushes, Kilbourne desperately needed help to fill all orders, but often, for several hours in the afternoon, the part-time employee on duty did not help a single customer, in fact, the bakery's sales were frequently less than the total cost of wages for this employee's three-hour shift, Al currency in Canadian dollars unless specified otherwise Full-time employees had one thirty-minute unpaid break during their shin, wyby me fresh poods in time for the doing as the goods were needed and per Ayday atmospher two young children where bold ask Kilbourne was thi hectic schedule. The bakery was Saa 540,000 annual salary. Supardie curvedas had been deprecated, the e vertel THE COMPETITION Lapang hours This prody's residents with everything they needed with the Po including Wal-Mart, Canadian Tire, and Food To Moda Coffee Care. All of these businesses of wwel heel fast-food restaurants and coffee chains, Sony Xper front and desert platters. Ir Sugar and Spice warto frutan desserters as well as its current lunch oflcrinies of Sally and well in advance for large orders, the cateter's potential and Consequently, Sugar and Spice would be able to So, I would then he competing with caterers outside of Cheet of Supard Spice's catering orders would come from Indien die County sed over 10 companies that provided catering THE CATERING OPPORTUNITY Kime thought the end improve profitability by reducing costs if she closed the bakery manecerer. Kibune expected to handle the catering preparation and delivery complet Waldhesto be able to improve her work-life balance by closing the bakery and Kilbourne cieved catering alone would let her complete some of her household beri were in cool and she would work only when she had a catering customer Kalycering, and it was successful, she hoped to take drawingsanalys worker child'vocation top of her salary of $40,000. Her salary alone was the me of her personal obligations cach year. 17 Nissed, the cost of goods sold was 0 per cent of sales. Ir Kilbourne cloed be opo, Kilbered its would be similar to fiscal 2015 y she telling between 84 and 120 catering orders annually East 550. Suce she would purchase most of the ingredients needed and hair opery, Godly. cost of goods sold would decrease to 25 per cent of sales corder, the predicted there would be much less waste than curs Page 4 9B17B011 the catering opportunity. All catering clients would be required to pay a 50 per cent deposit when ordering and would be granted credit terms of net 14 on the outstanding balance. Kilbourne would purchase a used van for $7,000 to deliver the orders. The van would have a useful life of five years with no residual value and would be depreciated using the straight-line method. Fuel and insurance costs for the van were projected to be $225 and $150 per month, respectively. If her high catering order projections were met, Kilbourne expected to spend an additional $100 on fuel per month. For $800, Kilbourne planned to advertise the business, Sugar and Spice Catering, on both sides of the van. She would allot another $1,200 annually to advertising something she had not deemed necessary For the bakery. Kilbourne had exhausted all external financing opportunities, therefore, for all initial investments for the catering option, she would have to use her personal line of credit at an interest rate of 5.5 per cent per annum with interest payments due on the first of each month. If she opted for the catering option, Kilbourne would no longer need to rent the building that Sugar and Spice currently occupied for $1,350 a month plus utilities averaging $200 a month. Kilbourne would operate the business entirely out of her home, but she would need to purchase an additional refrigerator for $1,600. Kilbourne projected her home's monthly utility bill would increase by $25 a month. CONCLUSION Kilbourne was eager to determine whether closing the bakery and running Sugar and Spice solely as a catering business would be financially feasible. She knew it would be difficult to continue working the number of hours she had been working, but she needed to draw at least the same salary from the business as she had the last three years. If she were to close the store, Kilbourne would need to provide written notice to her landlord by the end of the month that she would not be renewing her lease at the end of August