Business Plan For Luiz’s Home Bakery

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Introduction

Small businesses are critical in all economies across the planet. Such countries as the United State comprise millions of such enterprises, which makes them the backbone of the economy (Better Accounting, 2020). Therefore, there is a growing interest in the subject of running and planning for small-scale firms, as well as the challenges that most of them face (FindLaw, 2018; Smallwood, 2018; Wabara, 2019). This paper presents a business plan for a home bakery, a small-scale family business specializing in baked products. The plan will be presented in the form of a case study where a real business idea is used. According to Duermyer (2020), the business of baked goods is increasingly growing in popularity. Most firms of this nature often operate from home where they can supply products either to consumers or to restaurants and local stores (Shain, 2021). The plan will cover several aspects of a business canvas model.

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Case Study: Luiz’s Home Bakery

Key Activities

A home bakery business comprises a few key activities, which can be summarized simply as producing a variety of baked products. The entrepreneur uses flour to produce such items as biscuits, bread, cakes, and pastry (Hughes, Vaiciurgis, and Grafenauer, 2020, p. 1). Therefore, it can be argued that a home bakery produced flour-based edible items for a large customer base. Baking is the overall term that describes the main activities. However, most family businesses are involved in multiple operations. In this case, the baker has to design, bake, market, and sell the products. Some studies indicate that there is a real possibility for home bakeries to make losses unless an ideal business model is chosen (Priya and Kaur, 2020, p. 7157). Innovation will also be part of the key activities of Luiz’s home bakery, which may include such aspects as customization and innovative product designs.

Customer Segments

Many businesses serve a broad clientele in an attempt to broaden their market base. However, a business must develop a good customer segmentation to help serve each customer base effectively. In literature, it has been established that competition across industries changes the priority for businesses from customer acquisition to customer retention (Christy et al., 2021, p. 1251). For a home bakery, the small-scale operations imply that the owner is more concerned with keeping all the loyal customers as opposed to expanding the business to serve more people. Customer segmentation can be defined as developing characteristics that unify a consumer base (An et al., 2018, p. 2). In other words, a segment comprises customers that have similar consumption behaviours and demographic characteristics. In a modern world comprising new and smart technologies, social networking is increasingly used as a tool and means of segmenting a customer base (Balestar, Grau-Carles, and Saiz, 2018, p. 408). Even small-scale businesses can find useful applications for social media and other technologies

For Luiz’s home bakery, a wide customer base is served despite each of the segments comprising only a few clients. The segmentation can be approached from different angles, including product-based and demographic-oriented segmentation. From a product-based segmentation, the business produces different commodities that can be sold to various consumers. There is a market for cakes, pastry, biscuits, and bread. The use of traditional recipes can also be a critical selling point, especially in a neighborhood with many elderly people or a young population that is enthusiastic about ancient recipes. However, a product-based segmentation simply involves producing a variety of items and marketing them to potential consumers.

Demographic segmentation is more effective since it helps in such efforts as the design and marketing of the products. Luiz’s home bakery targets children and adolescents with such treats as biscuits. These are cheap and delicious and should keep the younger population attracted to them. For the older population, functional products are designed and marketed since this population has different attractions than the younger ones. Therefore, birthday and wedding cakes can be customized to suit the needs of each customer. Fewer orders for this product category are made, which means customization is possible. Bread is often a product consumer daily, especially as part of a family’s breakfast. In this case, a family-friendly product can be designed, which targets such dimensions as nutrition. For health-conscious individuals, including adolescents, the nutritional value is a critical selling point. As a modern business, Luiz’s bakery can learn more about the consumers through reviews across social media platforms, which should help develop further and more discernible customer segments.

Value Proposition

For a business to effectively compete with rivals, it has to develop a good value proposition for its consumers. Customers have different perceptions of value for the products and services they purchase. The concept of customer perceived value (CPV) has been described by Satar, Dastane, and Ma’arif (2019, p. 455) as the way how consumers calculate the overall usefulness of an item based on what is expected and what is delivered. The functional benefits are also a critical component of CPV on the assumption that rational buyers purchase items that they seek to use to satisfy a particular need. Some scholars have revealed that the perceived value dictates user behavior. In the food industry, businesses encounter such perceptions as halal and organic foods developed through religious beliefs and ideologies of health and nutrition (Kaur et al., 2021, p. 1131). Luiz’s home bakery is subject to similar conditions, which means that the business has to offer value acceptable and attractive to the local consumers.

The greatest value proposition for a home bakery is the health and nutritional value of the products sold. The modern population is increasingly becoming aware of the health issues surrounding the food they consume. For instance, sugar and fat are two elements in fast foods associated with obesity and other health problems. Bakeries often use considerable amounts of these substances, which could be seen as a health hazard. However, innovative recipes can eliminate these concerns and promise consumers that the baked products are indeed healthy. As opposed to baked goods from large-scale businesses, a home bakery can offer foods designed for health as opposed to longer shelf life, which means preservatives can also be eliminated. The absence of undesirable elements and chemicals in baked products can offer desirable value.

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Besides health and nutrition, Luiz’s bakery offers another value proposition in the form of customization. Since the business also makes birthday and wedding cakes, customization becomes a major selling point since different consumers have varied preferences. The size and the aesthetic appeal of these commodities can make Luiz’s home bakery the go-to business when ordering these cakes. Lastly, traditional recipes and innovative products can also offer value to consumers, especially if the firm can outcompete rivals in these dimensions. The rationale for this value proposition is that customers place more value on items that have greater appeal. In the case of baked products, traditional recipes often have appealing properties that can also be attractive to consumers.

Business Structure

One of the crucial steps in establishing and running a business is identifying its structure. Luiz’s home bakery can be described as a family-owned and operated business whose premises can be located within the home of the entrepreneur. According to Kim and Parker (2021), there has been limited effort to determine why many entrepreneurs chose to locate their firms at their residential places. However, it can be argued that small-scale enterprises often lack the funds and resources to rent or purchase commercial premises from which to operate. The most appropriate structure for a home bakery would be a sole proprietorship as it is owned and run by one of the family members. As a family business, the rest of the members may help with various tasks as part of the hired labor. Depending on the size of the business, several employees are recruited by the sole proprietor to help carry out major activities.

For a sole proprietorship, the ownership structure comprises simply the owner and any worker hired. Luiz’s home bakery is an inherited business previously operated by Luiz’s mother and handed down to Luiz. The firm uses the help of Luiz’s wife and five chefs recruited for specialty products, including custom cakes and pastries not previously produced by the previous owner. A horizontal structure manifests itself from the fact that Luiz is at the top as owner and all the five employees operate at the same level. Luiz’s wife is excluded from the structure since her position and role in the business are informal. In other words, it is difficult to label her either as an employee or as co-owner of the business. therefore, the legal documents show that Luiz’s home bakery is a sole proprietorship comprising of one owner and five workers.

Key Resources

Key resources are among the major components of a business model canvas. According to Oakley (2018), the term ‘key resources’ entails the major assets and inputs that a firm uses to function effectively. Additionally, an entity can only deliver a competitive value proposition if these resources are deployed appropriately and strategically. For a small-scale entity, such elements as premises, employees, intellectual property, and expert knowledge can be considered key resources.

Luiz’s home bakery is a small family-owned business that does not require heavy investments in key resources. First, the proprietorship operates at the residential premises, which means that commercial facilities are not needed. However, the home itself can be considered a critical resource since it offers the firm a location from which to operate. It can be argued that using the home as a business location helps save costs. Second, the workers hired are a key resource since they have the expert knowledge required to produce the various specialty products. All five employees are well-trained and help the proprietor develop commodities that compete well in the market. Traditional recipes that Luiz inherited from the family business are another resource that helps perpetuate the family business. The argument is that with the firm maintaining loyal customers for such products as cakes, bread, and biscuits, the recipe acts as a major customer attraction.

Lastly, a good website and several social media accounts are other resources used mostly in marketing. Even though the business has been inherited, Luiz has made critical progress in modernizing the enterprise, especially regarding the adoption of new technologies. The firm’s customer base comprises people who have embraced technology and are more inclined towards online shopping. An e-commerce platform is a critical asset that allows a business to maintain the necessary online presence to keep up with the competition and to gain an edge.

Key Partners

Businesses often form relationships with other entities to help them achieve certain goals. For example, a firm can outsource some activities to other entities in the supply chain (Keane, Cormican, & Sheahan, 2018, p. 68). A small-scale business may find it beneficial to use the competencies of another firm to procure goods or services at lower costs. Other relationships are strategic such that two entities are interdependent and their missions could be intertwined. For instance, a baker that seeks to sustain certain quality standards may depend on a particular supplier whose core competencies make it possible for them to achieve the quality levels. For Luiz’s home bakery, some of the key partners are the distributors of the baked products. Luiz’s bakery cannot sell all the products directly to consumers since doing so may require the proprietor to set up a store or a shop. Supermarkets and restaurants have become a critical component of Luiz’s business where the well-labeled and packaged products are sold.

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Marketing Mix

All businesses need to undertake marketing activities for them to attract customers and make sales. The marketing mix can be described as the choice of tools used by a company to satisfy target markets (Lahtinen, Lahtinen, and Rundle-Thiele, 2020, p. 357). Additionally, marketing mix implies a conceptual framework clarifying the key decisions by managers on what to offer to consumers to meet their needs (Thabit and Raewf, 2018, p. 100). The marketing mix comprises several elements, including place, price, product, and promotion. The product refers to the items offered for sale by the business. in this case, Luiz’s home bakery produces baked goods, including cakes, pastries, biscuits, and bread. Place refers to where the products and services are offered by a firm. As a home bakery, Luiz’s business sells mostly to local stores and restaurants, which can then sell to consumers. Additionally, the bakery also takes orders and makes deliveries, mostly to bulk buyers within the neighborhood.

The element of promotion focuses on raising awareness of the business and its offering. As a modern business, most of the promotion is done through social media and the internet. The firm’s online presence comprises social media accounts with Facebook, Twitter, and Instagram. YouTube videos are also made where the business showcases its products and recipes. Lastly, the price component entails the amount of money the firm asks for its products. Luiz’s bakery is a small-scale business that sells majorly to stores and restaurants. Therefore, mark-up pricing allows the proprietorship to account for all production costs and design a profit margin that keeps the business afloat. The prices also differ between direct customers and retailers since Luiz’s home bakery is aware that the prices at the stores and restaurants are higher. Therefore, extra revenue can be raised by retailing products and charging higher prices. The business also makes sure to keep the prices affordable to avoid driving away consumers.

Cost Structure and Funding Sources

Operating a business involved incurring costs, which can be financed through different sources. The cost structure can be defined as a framework that gathers the critical costs involved in the entire operation from the start (Pereira, 2020). Therefore, different firms adopt various cost models based on their priorities. For example, cost-driven models seek to reduce costs, which means cheaper structures. Others maintain value-driven models, which insinuates that they are less concerned with the costs. As explained earlier, Luiz’s bakery focuses on selling products to stores and restaurants for resale, which means that costs are a key issue. Therefore, a cost-driven structure is adopted where the firm focuses on maintaining low operational costs. Such an approach is also evident from the fact that Luiz’s bakery uses home premises as opposed to renting commercial facilities.

As an inherited business, the funding for the businesses majorly comprised what was handed over to the current owner. Additionally, the firm only relies on the previous sales and profits to run the business. upon acquiring the business, Luiz used family savings to make initial purchases of critical supplies and to pay initial worker wages. With time, the business has evolved into a self-sustaining model where sales are adequate to finance all operations. During critical times, small bank loans have also helped Luiz save the business from collapsing.

Revenue Streams

Luiz’s home bakery is a small-scale business producing and selling baked products, which comprise the primary revenue stream. Pereira (2020) defines revenue streams as the revenue flow generated by the business, which should not be confused with the profits made. As a family bakery, the sale of baked products generates virtually the entire revenues of the business. however, Luiz’s home bakery offers specialized services to customers, especially when custom orders for wedding and birthday cakes are made. In this case, the firm prefers to offer the products and services at the customer premises since transportation offers a challenge for the highly fragile and perishable products. An opportunity for more revenues is established where the delivery of these products is accompanied by other services that can be categorized as catering. However, this revenue stream remains less significant since few orders are made on any given week.

Conclusion

A business plan can be critical in outlining how a business can be established and operated. In this case, a case study of Luiz’s home bakery, a small-scale business, is used. the plan has touched on several elements of the business canvas model since they are critical to how a firm is operated. Some of the key points highlighted in the plan include the structure of the business, where a sole proprietorship is selected as the most appropriate structure. Regarding financing, an inherited business has most of the key components, and the owner’s savings can help kickstart the business. There is only one critical revenue stream, which is the sale of the products. A cost-focused cost structure allows the firm to minimize costs to allow it to sell to retailers. Therefore, it can be established that the small home bakery is self-sustaining in terms of revenues and costs, while key partnerships are formed with distributors or retailers.

Reference List

An, J. et al. (2018) ‘Customer segmentation using online platforms: isolating behavioral and demographic segments for persona creation via aggregated user data’, Social Network Analysis and Mining, 8(54), pp. 1-19.

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Balestar, M., Grau-Carles, P. and Saiz, J. (2018) ‘Customer segmentation in e-commerce: applications to the cashback business model’, Journal of Business Research, 88, pp. 407-414.

Better Accounting (2020) Small businesses are the backbone of the economy. Web.

Christy, A. et al (2021) ‘RFM ranking – an effective approach to customer segmentation, Journal of King Saud University – Computer and Information Sciences, 33(10), pp. 1251-1257.

Duermyer, R. (2020) Selling baked goods from home. Web.

FindLaw (2018) Tips for a successful small business. Web.

Hughes, J., Vaiciurgis, V. and Grafenauer, S. (2020) ‘Flour for home baking: a cross-sectional analysis of supermarket products emphasizing the whole grain opportunity’, Nutrients, 12(7), pp. 1-14.

Kaur, P. et al. (2021) ‘The value proposition of food delivery apps from the perspective of theory of consumption value’, International Journal of Contemporary Hospitality Management, 33(4), pp. 1129-1159.

Keane, S., Cormican, K. and Sheahan, J. (2018) ‘Comparing how entrepreneurs and managers represent the elements of the business model canvas’, Journal of Business Venturing Insights, 9, pp. 65-74.

Kim, N. and Parker, S. (2021) Entrepreneurial homeworkers’, Small Business Economics, 57, pp. 1427-1451.

Lahtinen, V., Lahtinen, T. and Rundle-Thiele, S. (2020) ‘Long live the marketing mix. testing the effectiveness of the commercial marketing mix in a social marketing context’, Journal of Social Marketing, 10(3), pp. 367-375.

Oakley, D. (2018) What are the key resource needed to deliver value proposition?. Web.

Pereira, D. (2020) Cost structure. Web.

Pereira, D. (2020) Revenue streams. Web.

Priya, A. and Kaur, P. (2020) ‘Innopreneurship: a case on ‘baking through home makers’’, Psychology and Education Journal, 57(9), pp. 7157-7162.

Satar, N., Dastane, O. and Ma’arif, M. (2019) ‘Customer value proposition for e-commerce: a case study approach’, International Journal of Advanced Computer Science and Applications, 10(2), pp. 454-458.

Shain, S. (2021) Calling all home bakers: here’s how to earn money selling your treats. Web.

Smallwood, T. (2018) 8 challenges faced by small business and how to solve them. Web.

Thabit, T. and Raewf, M. (2018) ‘The evaluation of marketing mix elements: a case study’, International Journal of Social Sciences & Educational Studies, 4(4), pp. 100-109.

Wabara, C., 2019. How to keep your small scale business running. Web.

Appendix: SWOT and PEST Tables

SWOT Analysis

Positive Negative
Strengths Weaknesses
Internal
  • Strong brand image
  • Extensive local supply chain
  • Diversification
  • High product price
  • Low scale production
  • Imitability of products
Opportunities Threats
External
  • New products
  • Customization of products
  • Social media marketing
  • New market niches
  • Low-priced alternatives from fast food businesses
  • Diet trends and health awareness
  • Competition from similar home bakeries

PEST Table

Political Factors Economic Factors
  • Food safety regulations
  • Bread and flour regulations
  • Employment policies
  • Minimum wage issues
  • Flour price fluctuations
  • Taxation issues
  • Recessions caused by COVID-19 pandemic
Social Factors Technological Factors
  • Health-conscious consumers
  • Growing consumption of fast foods
  • Reducing size of households
  • Growth of online shopping
  • Social media marketing

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