Sugar & Spice

Strategic Position Defensibility

Operations Strategy PGPBL02
Term 3 – Group 3
 Case Facts

 Average American was getting weight-conscious and hence single service or portion controlled food was gaining
much popularity, giving an edge & advantage to cupcake’s booming business
 By 2010, 1000 specialty cupcake shops were operating in United States, in LA itself was 35
 Sugar & Spice – Founded in 2009 by Alison Thatcher operating in making Cupcakes in LA, US
 Main considered competitor was “Sparkles”, 2005 established Cupcake Bakery Chain across US, especially with
strong presence in LA
 Sparkles was in business of completely standardized cupcakes with no price differentiation, wherein Sugar &
Spice was house-built brand with complete range of customization and price differentiation
 April 2010, Sugar & Spice was considering few Expansion plans to expand their business and review the
appropriate options
 Cupcake Industry Analysis

 Low Entry Barrier.

 Simple Baking Process.
 High Margins.
High

 Strong appeal of cupcakes for Threat of

 Price sensitive customers.
New Entrant
increasingly busy Americans.  No Switching costs.
 Trendiness for individually  1000 specialty cupcake
w

Hi
sized treats. Lo
Threat of shops in USA.

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substitutes Bargaining
Products Power of
Porter’s Customer
5 Forces
Analysis
 Presence of Big players like  Huge no. of supply
Sparkles. Rivalry options available.
 Huge No. of specialty among
Bargaining
 Standardized Raw
existing
shops . materials being used.
gh

competition Power of

w
Supplier
i

 Rapidly growing Industry.

H

Lo
08/05/2021 Annual Review 3
 No significant Exclusivity of
What is the competitive threat/opportunity for SSD?
 Customized , whimsical and
unique cupcakes.
 Strong connection in
Entertainment industry.
S W
 High Customer responsiveness due
to flexible workforce.
O T
 Strong appeal of cupcakes for
increasingly busy Americans.
 Trendiness for individually sized
and customized treats.
 Rapidly growing Industry. Huge
opportunity to capture increasing
demand.
08/05/2021 Annual Review
 Operational Inefficiency.
 Low Capacity utilization.
 Low Brand Awareness.
 High level of creative control may
restrict geographical expansion.
 Low Entry barrier may intensify
competition.
 Established players like Sparkles ,
Morsels may move to customized
market.
 Failure to get investments may
restrict volume growth that can a
threat to business sustainability.
4
Is the current position of SSD defensible?
COST STANDARDIZED CUSTOMIZED
 With no major competitor in
Ingredient costs (per dozen) $5.58 $6.90
Customized market SSD has a chance
Decorations (per dozen) 0 $7.20
to grow rapidly and leverage first
Packaging (per dozen) $0.69 $0.69
mover advantage.
Variable hourly labor $13 $13
Fixed costs (per month)    
 As shown in the table if SSD decides to
Rent & utilities (annual) $3,000
Fixed salaries (annual) $5,000
produce standardized production then it
Time Taken for 4 dozen (in minutes) 55 164
breaks even at near 95% capacity
Time Taken per dozen (in minutes) 13.75 41
utilization but with current business
Variable Labour cost per dozen $2.98 $8.88 model of selling customized
Total variable Cost per dozen $9.25 $23.67 cupcakes, it can make substantial
Selling Price per dozen $30 $51 profit even at 85% utility
Profit per dozen $20.75 $27.33 capitalization.
For Breakeven minimum cupcakes produced (in dozen) 385.5 292.8
       Increased scale would also result in 5%
Profit at 85% utilization (assuming 400 dozen as savings in ingredients cost price and
maximum capacity) ($944.72) $1,291.07
Profit at 100% utilization (assuming 400 dozen as
time reduction in prep time.
maximum capacity) $300.33 $2,930.67
What are the strategic differences between SSD and its competitor (Sparkles) -
i.e. differences related to strategic choices and competitive position

Sparkles Sugar & Spice

Flow-Shop Model Made-to-Order Model

Standardization Mainly Customization

Advantage of Scale Flexibility as per Customer’s Preference

Retail Storefront sales Model Delivery-Pick up sales Model

Main Customers were Business for Corporate events and
Main Customers were Individuals Individuals for Private Parties, special occasions and
gifts
1.5 Times bigger than S&S cupcake size Miniature Size (33% smaller than Sparkles)

Line Extension with Pets Treats, Clothing & Accessories No Extension as of now
What are the operational differences between SSD and Sparkles?

Sparkles Sugar & Spice

No Customization Full Customization

Standard Pricing Price Differentiation as per order variety

Permanently employed Labor Temp-as & when needed Labor

Higher Wages to compensate flexible availability of

Fixed Salaries, Perks & Benefits to Labor
Temp labor

$36 per Dozen – Standard Order $48 per Dozen Custom Order, $30 for Standard Order

Bulk mixes reduces prep time by half No benefit of bulk Mixing

Should SSD continue to focus on custom cupcakes?

YES, Primary Focus should be on ”Customization” because it is the business’s core competency compared to its competitors
which has given SSD its edge

Expand existing business with added Marketing Efforts to increase existing capacity utilization

Max Capacity = 400 dozen /month | Existing Capacity = 180 dozen/month hence, Capacity utilization (180/400 = 45%)

Explore standardized cupcakes market by utilizing the Cupcake Truck to see if this is a viable and profitable option to venture
into in future. This will also increase the capacity utilization

Competitive advantage for Sugar & Spice is their ability and creative knack of making customized cupcakes with whimsical &
unique ideas which will garter attention and price differentiation points for future success

Leverage Celebrity Orders to generate publicity and establish itself as premium brand to increase demand

Take on the “Wedding” market to get the benefits through customization which will get them the extra price differentiation
Thank You.