Case Analysis: Mia’s Wagashi Shop

Introduction

Mia is an aspiring entrepreneur who plans to open a new wagashi (traditional Japanese sweet)
business. As she starts the business, her intention is to sell one type of sweet: a Dorayaki. She
has narrowed down her options to three potential locations: Apaca, Bodef, and Contoy. Mia has
paid an analyst to research the market and costs associated with each of these three locations.
Due to government regulation across the locations, the store can operate 8 hours a day and 20
days a month. She hires you to further analyze the characteristics of each market, propose
suitable pricing strategies, determine the impact on the company's profit, and ultimately
recommend the most favourable location for Mia to start her Wagashi business.

The analyst has left the following information and data on the three cities.

Apaca
Apaca is home to many cultural foods and there are lots of Japanese sweet shops operating in
the city. Specifically, multiple stores already offer Dorayaki, which is exactly the type of sweet
that Mia is planning to sell. Mia’s productivity is higher than the current marginal firm in the
market, but the only available storefront available is very small, which limits her production to
25 units/hour. The market price in Apaca is $2.40, which Mia takes as given.

Bodef
Bodef is a small town where there are currently no other Wagashi stores and Mia would be the
sole provider if she were to enter the market. To figure out more about the demand in Bodef,
the analyst conducted extensive surveys of potential customers, the results of which are
summarized in Exhibit 1. Note that quantity in this data is measured in units per hour.

Contoy
Contoy is a mid-sized tourist town, attracting travelers year-round. Currently, another identical
Wagashi shop is dominating the market. The analyst gathered information for the existing shop
and found out that they share the exact same cost structure. If Mia were to enter, both firms
would choose the quantity of dorayaki available per hour simultaneously. Exhibit 2 presents
data on the market quantity and price for Contoy quarterly for the past 3 years, with quantity
expressed as units per hour.

Additionally, the analyst gathered the cost-related data for each town. One of the key
ingredients in Dorayaki, red bean paste, has experienced fluctuating purchase prices. However,
it is expected to exhibit a high degree of stability in upcoming years. Exhibit 3 presents data on
the relevant costs for each town.

Finally, the analyst left a few comments to aide the next stage of analysis.
 • Previous price fluctuations in Contoy are due to fluctuations in the price of red bean
paste.
• It would be beneficial to find out the maximum monthly profit in each location, given
the estimated market conditions.

Questions
1. What is the most reasonable assumption for the type of market in each of the three
cities? Briefly provide your reasoning for each city (max: 50 words) [6 pts]

2. Provide a recommendation for which market Mia should enter, based on analyses of the
markets and the information provided. Be sure to state your assumptions. [15 pts]

3. In each market, how might Mia further enhance her profitability? Go beyond the case
information to describe one idea briefly and qualitatively for each market. [4 pts]

Exhibits
Exhibit 1: Survey data for Bodef demand

Price ($) Quantity (units/hr)

1.7 29.8
2 28.3
2.2 21.6
2.5 24.2
2.8 24.6
2.5 21.3
3 18.2
3.5 13.9
4 14.7
4.5 9.3
5 7.2
5.5 2.9
6 0.6
Exhibit 2: Market data for Contoy

Quarter Quantity (units/hr) Price ($)

2020 Q1 26.85 8.63
2020 Q2 27.45 8.51
2020 Q3 28.45 8.31
2020 Q4 28.25 8.35
2021 Q1 27.65 8.47
2021 Q2 26.35 8.73
2021 Q3 25.45 8.91
2021 Q4 24.95 9.01
2022 Q1 25.95 8.81
2022 Q2 26.75 8.65
2022 Q3 25.10 8.98
2022 Q4 25.95 8.81
2023 Q1 28.80 8.24
2023 Q2 26.25 8.75

Exhibit 3: Costs and productivity by location

Costs are expected to be stable as follows.

Cost Monthly Rent Direct Labour/hr Direct Material/unit Productivity (units/hr)

Apaca $1,000 $15.00 $0.80 25
Bodef $2,000 $23.00 $1.08 25
Contoy $1,500 $17.00 $0.82 25