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Strategic analysis of Cake Masters

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  1. Industry analysis
    1. The intensity of competitive rivalry
    2. The bargaining power of the suppliers
    3. The bargaining power of the customers
    4. The threat of the entry of new competitors
    5. The threat of substitute products or services
  2. SWOT analysis
    1. The internal analysis
    2. The external analysis
    3. The financial analysis
    4. The strategies
  3. Conclusion: Kuchen's opportunities and objectives

David Kuchen commenced his career in the investment division in a Canadian bank. However, his zest for challenges and desire to build his own business led him to create and run his own business in investment banking. But the company did not reach the dimensions that Kuchen wished. So he plunged headlong into a study regarding marketing, strategy and operations, and he put together a team of potential investors and advisors in order to purchase and operate a small business.

After some initial hesitation between some companies of different sectors, he chose Cake Masters, a small growing business in the bakery industry that represented a lot of growth potential. With the help of the team of advisors, he researched about the bakery sector and Cake Masters. Through these researches, Kuchen realized that this market and especially this company presented very interesting advantages and that the sale of this company was an opportunity not to be missed.

In the first section, we are going to analyze the bakery industry through the Porter's five forces analysis. In the second part, we will examine the strengths and weaknesses of the acquisition of Cake Masters as well as the opportunities and threats facing this company. Subsequently, we will talk about the strategies that ensue from the SWOT. In the conclusion, we will see the opportunities and objectives David Kuchen can establish in order to lead a successful small business.

The Porter's five forces analysis enables us to identify the main factors influencing a business sector or an industry. The Porter's five forces are: the intensity of competitive rivalry, the bargaining power of the supplier, the bargaining power of the customers, the threat posed by the entry of new competitors and the threat of substitute products or services. Following this analysis, we will understand why it is easy or difficult to establish a company in the bakery industry, and identify the main threats met in the market and the different actors of this industry.

Local competition is rather strong. There is intense rivalry between the competitors which target local and regional markets (strategy of niche). Their sales reach tens of millions each year. As competitors have based their activities in the same limited location, the customer base of the companies often overlap. Battles are waged among the firms to acquire customers and create loyalty among them.

David Kuchen identified about six competitors in the high-end cake segment by visiting sellers of the hospitality channel. Therefore, we can assume that the competition in this segment is already strong, considering that the consumption of high-end cakes is not a usual and daily phenomenon. It is also important for a company to be better than its competitors to attract the customers and win market shares.

The competitors that Kuchen identifies shared the following features that enabled him to establish the average profile of the main competitors:
-Between $5 million and $15 million mainly for local sales
-They operate for at least 10 years
-They target the high-end dessert segment

David Kuchen identified about six competitors in the high-end cake segment of the hospitality channel. Even if it does not seem to be a high number, it is much for high-end products, particularly for competitors located in the same region and concentrated on the two same countries.

Tags: David Kuchen, Canadian bank, Local competition, high-end cake segment.


[...] The Greater Toronto Area gives Cake Masters a wide variety of consumer tastes thanks to the multicultural population of the GTA. Moreover, the GTA constitutes the third biggest concentration of food workers in North America (after Chicago and Los Angeles). The GTA is a particular attractive location in the bakery industry, testified by the two well-known success stories of this territory. Kuchen estimated the potential of the retail cake market at Cdn$147 millions in GTA million in Canada and 5,880 million in the USA. [...]


[...] David Kuchen identified about six competitors in the high-end cake segment by visiting sellers of the hospitality channel. Therefore, we can assume that the competition in this segment is already strong, considering that the consumption of high-end cakes is not a usual and daily phenomenon. It is also important for a company to be better than its competitors to attract the customers and win market shares. According to research from Dun & Bradstreet: - Bakeries composed of fewer than 100 employees realize 16% of the business sector sales, with 32% of sector employees. [...]


[...] Even if the American market is huge, difficult and demands time to develop an activity in the entire country, the growth and the amount of sales are very attractive and could enable Cake Masters to extend its sales of high-end baked products on a larger scale Cake Masters' financial analysis a. Income Statement According to the historical financial statements of Cake Masters (exhibit 2 of the case), the revenues of the company have almost doubled between 2000 and 2004. This shows a substantial growth reflecting the success of the company. [...]

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