please answer these five questions

1. Looking forward, do you think Mr. Holmes Bake- house would have as much potential if Aaron Cadell were to continue operating the business as an e- commerce venture as it did when the company only did business through the physical facilities that it had before the pandemic?

2. In a post-pandemic scenario, do you think it would be best for Cadell to operate his business through both physical facilities and online? Or should he choose to stay with only one mode or the other? If he should choose just one mode, which option would you recommend?

3. What recommendations would you have for Cadell if he should opt to continue operating the new online side of his business? Do you think he should try to reposition the business in some way? For example, do you think he should sell different products, target different markets, or make some other adjustments?

4. Aaron Cadell launched his business initially in the two largest cities in California, San Francisco and Los Angeles. Consider the five key factors that are pre- sented as important to selecting a good location for a business with physical facilities (refer to Exhibit 9.1 for a summary of these). In light of these factors, do you think Cadells initial location decisions were wise? Rate these locations on a scale of 1 to 10 (with 10 being highly favorable and 1 being highly unfa- vorable) across each of the five key factors. How did Cadells locations stack up? What did you use as your point of comparison?

5. Cadells business came under extreme pressure when the pandemic hit in 2020, forcing him to close down his physical facilities and transition to online-only operations. As you think about his situation, what would you say are the odds that his online business will survive these current conditions and continue operating in the future?

It was April of 2020, and Aaron Cadell had to make a quick decision. He had been forced to close his retail and wholesale bakery operations and coffee houses in San Francisco and Los Angeles because of the COVID-19 pandemic and a mandate by Governor Gavin Newsome of California. The order declared a state of emergency and closed most of the states businesses. Now Cadell had to decide what steps to take to keep his business going for the sake of his employeesa number of whom were single mothers and desperately needed the income. There were a few options that quickly came to his mind: (1) produce an online baking show from the bakery; (2) produce masks and/or hand sanitizer, both of which were urgently needed because of the pandemic; (3) operate as a grocery store and sell off the companys baking products; or (4) develop, produce, and sell baking kits online.

In 2012, when he was 19 years old, Cadell left his job as a barista in San Francisco after negotiating a profit- sharing agreement with a failing chocolate retailer. Shortly after the deal was consummated, he decided to turn the business into a craft bakery. He named the bakery Mr. Holmes Bakehouse after a friends cat named Mr. Holmes.

Then, in 2013, Cadell opened another retail bakery and cafe in San Francisco. These efforts met with success, leading him to consider expanding to other locations else- where in California. His first venture outside of the Bay Area was a coffee shop in the Highland Park neighbor- hood of Los Angeles, which he opened in 2016. The Mr. Holmes Bakehouse concept was beginning to get real trac- tion as it evolved into a thriving small business.

As is the case with any young venture, there were always challenges that needed to be overcome. One of the greatest of these for Cadell was obtaining pastries from the wholesale bakeries that served San Francisco. There were three such businesses in the area, but they were already operating at full capacity and still didnt seem to be able to provide all of the baked goods Cadell figured he could sell. To overcome the constraint, he decided to open his own wholesale bakeries in 2014, one in San Francisco and another in Los Angeles. Although he had a handle on run- ning retail operations, Cadell realized that he now would have to learn the ropes of managing a wholesale venture, too. It wasnt long before he proved he could make it work.

By the spring of 2020, Cadells bakeries and coffee shops were bringing in $2 million annually in retail business

666 Case 9 Mr. Holmes Bakehouse and another $3 million a year in revenues from wholesale operations. But when the COVID-19 pandemic hit in early 2020, it all came to a screeching halt. Cadell was forced to temporarily close all of his retail bakery and cafe opera- tions on March 18 of that year. To make the best of a very bad situation, he opened the Los Angeles cafe the next day as a grocery store so he could keep his workers employed and sell all of the bakery products that he had on hand.

The COVID-19 virus had swept across the United States, but those states on the West Coast were among the earliest to be affected. The first confirmed case of COVID-19 infection in California was reported on Janu- ary 26, but that set off a chain of events that had a devas- tating impact on businesses across the state.

At that time, economic advisers predicted the econ- omy in California would probably not reopen until July at the earliest, so Cadell knew he had to make a decision quickly to keep his employees on board. He had already come to realize that he would have to radically re-create his business model if his enterprises were to survive the restrictions of the epidemic. Something had to give. To add to his headaches, within 72 hours after the state-mandated quarantine, all 60 of the companys wholesale customers called to say they were canceling their orders. As a result, Cadell had no choice but to close his bakery locations in both San Francisco and Los Angeles. Since the state gov- ernment had already mandated that all restaurants had to be closed, he also was unable to serve his retail customers. It was clear that he would have to make major changes if he wanted to keep his ventures alive.

Mr. Holmes Bakehouse had a warehouse in San Fran- cisco and another in Los Angeles that were used as facilities for dough production for the companys wholesale baking program. Each warehouse had over 40,000 square feet of space and a staff of skilled bakers, and the company had a favorable social media presence with more than 121,000 Instagram followers. These were substantial assets, and Cadell would need to turn to them to find a way out of the jam he was in. At the front of his mind were the people who worked for him. Before the pandemic swept through the state, he had 52 employees, and he wanted to keep as many employed as he could.

Cadell decided to do some quick research to see what he could learn that might help him figure out what to do. From his research, he learned that the baking industry had experienced little growth in revenue between 2005

and 18803_case_ptg01.indd 666 05/07/22 11:36 AM 2020, with annual rates of increase ranging from a high of 4.41 percent to a low of 3.91 during this period.

This slow growth in revenues was primarily due to changes in health trends (in particular, gluten-free food choices and low-carbohydrate dieting plans), which resulted in adjustments in consumer tastes and buy- ing preferences. And a handful of entry barriers to the industry tended to keep new competitors out, including the following: Consumers demanding healthy options in bread, such as less sugar, fat, and carbohydrates; declining demand for conventional breads; the increasing price of wheat on global markets; steadily declining per capita con- sumption of white loaf bread between 2010 and 2020; and acquisitions and mergers in the industry that had resulted in increased market concentration.

Recognizing that many people had changed their eating habits because of the pandemic, the International Food Information Council conducted a survey to identify more precisely the shifts that had occurred. The Council found the following:

business. He took note of three things in particular: (1) the inaccessibility of bread in grocery stores, (2) the trend toward cooking at home during the pandemic, and (3) the starter they used in Mr. Holmes Bakehouse bread was regenerative and lasted a long time.

The shift to a grocery store to sell the companys exist- ing bread making supplies had been successful, but Cadell knew it could only be a stopgap measure. He would have to come up with a more developed plan if he wanted to survive the rest of the pandemic and eventually reopen his businesses. But his main concern for the moment was keeping his employees on the payroll.

By the middle of May 2020, he was down to 36 employ- ees who were helping him with the grocery store operation. Many of those who could afford to drop out of the work- force had chosen to stay at home instead. But in Cadells mind, his employees were like family, and he wanted to keep employing any who wanted to or needed to remain on the payroll.

Cadell had noticed when he opened the grocery store that one of the top sellers was bread starter, which is the mix of flour, water, and yeast that causes bread to rise and gives it its distinct flavor and texture. He had also observed that the other ingredients for breadmaking were difficult to find on store shelves. This led Cadell to the conclusion that offering a bread starter kit would allow people who were shut up in their homes a way to ease their boredom and make their own bread. The kit would include all nec- essary starter ingredients, along with detailed instructions on how to bake bread.

Mr. Holmes Bakehouse Kits were sold online, a business-to-consumer (B2C) operation that greatly increased the reach of the store. The team was able to leverage their existing assets in this new online venture. With these as a foundation, Cadell put together a website in only 24 hours and was delighted to see orders flowing in almost as soon as it was launched. As a check on opera- tions, the team mailed the first kits to themselves to be cer- tain that they could handle the process. Since no one in the company had experience with e-commerce, they scram- bled to find and hire someone with that expertise, which didnt take long. Having trained briefly as an engineering student in college before going into business, Cadell had always found it natural to bring an efficiency mindset to his ventures. Leaning on this background, the team was able to increase their efficiency at packing goods for ship- ment by around 70 percent in a short time. Everything seemed to be coming together.

To make a long story short, the formula the team had dreamed up worked! Offering starter kits for $25 each, Mr. Holmes Bakehouse had orders to ship kits to 47 states in the first 10 days. The transition from a physical operation to an online operator had been achieved, and in a very short period of time. But as Cadell took time to

Case 9 Mr. Holmes Bakehouse 667

Types of Changes	Percentage of Respondents
Adults changing eating or food preparation habits	85
Women reporting eating more than usual	24
Men reporting eating more than usual	17
Parents admitting snacking more	41

The survey also found that when COVID-19 hit and schools had to close, which was around the middle of March 2020, more people began cooking and eating at home. In addition, more people began working from home, so they tended to migrate to the kitchen and spend more time cooking and teaching their children to cook. However, the supply chain for most goods had slowed down during the pandemic, and it was difficult to get some ingredients.

It is important to point out that changes resulting from the pandemic were good for some businesses. For example, companies selling online found that their sales had increased significantly during this period. Consum- ers were buying everything from office supplies and jigsaw puzzles to dumbbells and hot tubs. At the beginning of the pandemic, people began to hoard paper products because they were in short supply. Shoppers also discovered that many of the staples they normally bought in stores were completely out of stock. Bread was one of the food items that tended to be snatched up as soon as it hit the shelves.

Questions

1. Looking forward, do you think Mr. Holmes Bake- house would have as much potential if Aaron Cadell were to continue operating the business as an e- commerce venture as it did when the company only did business through the physical facilities that it had before the pandemic?

2. In a post-pandemic scenario, do you think it would be best for Cadell to operate his business through both physical facilities and online? Or should he choose to stay with only one mode or the other? If he should choose just one mode, which option would you recommend?

3. What recommendations would you have for Cadell if he should opt to continue operating the new online side of his business? Do you think he should try to reposition the business in some way? For example, do you think he should sell different products, target different markets, or make some other adjustments?

4. Aaron Cadell launched his business initially in the two largest cities in California, San Francisco and Los Angeles. Consider the five key factors that are pre- sented as important to selecting a good location for a business with physical facilities (refer to Exhibit 9.1 for a summary of these). In light of these factors, do you think Cadells initial location decisions were wise? Rate these locations on a scale of 1 to 10 (with 10 being highly favorable and 1 being highly unfa- vorable) across each of the five key factors. How did Cadells locations stack up? What did you use as your point of comparison?

5. Cadells business came under extreme pressure when the pandemic hit in 2020, forcing him to close down his physical facilities and transition to online-only operations. As you think about his situation, what would you say are the odds that his online business will survive these current conditions and continue operating in the future?