TB0065

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August 7, 2007

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Graeme Rankine

Aussie Pies (C)

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Aussie Pies, Inc. was established in Seattle, Washington in 2005 after Anna Amphlett and Andrew Ferris
discovered Aussie meat pies on a vacation to Australia. The meat pie, a hand-sized pot pie made with
pastry and filled with minced (ground) beef and gravy, is consumed as a takeaway food snack in Austra-
lia (see Exhibit 1). The average Australian consumes an average of 45 meat pies per year—the popular
meat pie brand, Four’N Twenty, produces 50,000 pies per hour. The meat pie is about four inches in
diameter and traditionally eaten in the hands with tomato sauce (aka tomato ketchup). The pie has a

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short crust bottom and flaky pastry top.

Amphlett and Ferris found that meat pies were consumed in vast quantities in Australia, and were
usually washed down with large quantities of ice-cold beer. Although widely popular at sporting events,
Australians eat meat pies anywhere at anytime. They are widely regarded by Australians as the country’s
national food. Amphlett and Ferris located the first Aussie Pies store in Seattle, Washington’s Pike Place
Market, a popular tourist destination for locals and international tourists. Marketers often used Seattle
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as a test city for new foods because Seattle had a well-educated, higher-income population, which
consumed more ethic cuisine and exotic foods than many other major U.S. cities. Amphlett and Ferris
both had extensive retailing experience in Seattle. Amphlett worked at Starbucks Coffee Corporation,
where she gained valuable retailing experience as a regional manager. She had been involved in many
different aspects of Starbucks’ business including personnel, supply chain, production, and business
development. Ferris, an accountant by training, worked as an assistant controller at the Seattle head-
quarters of Tully’s Coffee Corporation where he had became familiar with the financial side of retailing
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as well as customer service.

Business
Since many international travelers to Seattle were between 30 and 50 years of age and conscious of their
diet, Amphlett and Ferris decided to make the pies with high-quality, low-fat beef that had been range
fed, not lot fed. They would also ensure that the beef had been raised on ranches that used no hormones
or insecticides. They would develop a marketing and sales campaign emphasizing the use of high-
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quality ingredients. They also decided to make the pies fresh at the store rather than serving customers
with reheated products.

The store would emphasize strict hygiene and sanitary conditions in making and serving the meat
pies. Amphlett and Ferris came up with a design for the store in which the meat pies would be made at
the back of the store with a glass wall panel separating the front section so that customers could see the
spotlessly clean facilities in which the pies were made. They felt that this would enhance the customers’
perception that Aussie Pies was a premium product using high-quality ingredients and produced under
impeccably sanitary conditions.
Do

Copyright © 2007 Thunderbird School of Global Management. All rights reserved. This case was prepared by Professor
Graeme Rankine for the purpose of classroom discussion only, and not to indicate either effective or ineffective manage-
ment.

This document is authorized for educator review use only by MUHAMMAD AJMAL, University of Management and Technology until Aug 2022. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
 The entrepreneurs initially set the price of the pies at $3.25 per pie, and expected to generate

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about $2.25 per pie in profit (before interest and taxes) based on production capacity of 30,000 Aussie

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Pies per month. To obtain financing from Bank of America, the company’s business plan initially fore-
casted sales of a little over one million dollars in 2006, the first year of operations. But with an aggressive
sales and marketing campaign, sales reached $6 million in 2006 (see Exhibit 2 for the company’s finan-
cial statements). During 2006, the company expanded capacity by acquiring vacant stores adjacent to
their store in Pike Place Market. Although sales greatly exceeded their expectations, Amphlett and Ferris
were disappointed that net income in the first year was only $786,000.

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In 2007, they planned to expand beyond standard meat pies by introducing specialty pies such as
steak and kidney pies, meat and sun-dried tomato pies, chicken and potato pies, and even Barramundi
pies.1 These products were sold in smaller quantities and required custom production techniques.
Amphlett and Ferris also experimented with baking and distributing fresh breads including wine bread,
Barramundi bread, and Bodalla cheese bread.2 Ferris’s experiments in making wine bread had been
quite successful, so they negotiated an agreement with the makers of the popular Australian wine [Yel-
low Tail] about co-branding the new wine bread. But with the decline in profit performance, Amphlett

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and Ferris hesitated to pursue the new products.

The Future
After Amphlett and Ferris looked over the 2006 results, they became concerned about the company’s
cash holdings, which had declined to $200,000. Why had the cash dropped so low in 2006? With
limited cash, they decided to put on hold their plans to negotiate an agreement with Costco Wholesale
for the sale and distribution of Aussie Pies in the company’s network of stores in the U.S. and Korea.
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After a short discussion, the entrepreneurs decided they needed expert advice on the company’s finan-
cial performance from their chief financial officer, Sona Brabcová.
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1
A barramundi is a popular fish with Australia consumers. It is usually pale grey-green with a coppery
shimmer, and can grow to a maximum length of 2 m (6 ft 7 in), weighing up to 60 kg (130 lb); specimens
weighing 5–6 kg (11–13 lb) are more commonly seen, however (http://en.wikipedia.org/wiki/Barramundi).
2
Bodalla cheese, a popular cheese with Australian consumers, is made in Bodalla, Australia.

2 TB0065
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copyright. Permissions@hbsp.harvard.edu or 617.783.7860
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Exhibit 1 A Typical Aussie Meat Pie

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Source: http://en.wikipedia.org/wiki/Australian_meat_pie
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TB0064 3
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copyright. Permissions@hbsp.harvard.edu or 617.783.7860
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Exhibit 2 Aussie Pies, Inc. Financial Statements

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Aussie Pies, Inc.
Balance Sheet at December 31 2005 2006
Current Assets
Cash 280 200
Receivables 0 493

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Inventory 20 444
Total current assets 300 1,137

Property, plant and equipment (at cost) 500 1,500

Accumulated depreciation 0 (100)
Total assets 800 2,537

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Current Liabilities
Accounts payable 0 100
Short-term loans payable 0 451
Total current liabilities 0 551

Long-term debt 700 100

Total liabilities 700 651
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Stockholders’ Equity
Paid-in capital 100 1,200
Retained earnings 0 686
Total stockholders’ equity 100 1,886
Total liabilities and stockholders’ equity 800 2,537
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Aussie Pies, Inc.

Income Statement
For the Year Ending December 31 2006
Sales 6,000
Cost of goods sold (3,600)
Gross profit 2,400
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Depreciation expense 100

Other operating expenses 840
Operating income 1,460
Interest expense 150
Income before income tax expense 1,310
Income tax expense 524
Net income 786
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This document is authorized for educator review use only by MUHAMMAD AJMAL, University of Management and Technology until Aug 2022. Copying or posting is an infringement of
copyright. Permissions@hbsp.harvard.edu or 617.783.7860