Little Dessert Shop Case Study Analysis

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Introduction

The present paper evaluates a case study of Little Dessert Shop run by Mary Jones and her business partner, Sue Jackson. The shop works in Bullring Centre in Birmingham, which provides enough customers during the weekends. However, the business partners consider investing in marketing to attract more customers during the weekdays. Moreover, Mary and Sue consider diversifying their product line to cater to a wider range of customers. In particular, they believe that buying organic ingredients from local producers may attract customers concerned about healthy living. However, turning to healthier ingredients would increase the cost of the products, which contradicts the current values of the shop. First, the present report evaluates partnership as a type of organization based on the case of Mary and Sue’s venture. Second, it uses Porter’s 5 Forces framework to provide recommendations for achieving competitive advantage. Finally, the paper discusses three macro-environmental factors that can help to improve the current performance. The report claims that, despite the COVID-19 pandemic, Little Dessert Shop has the potential to grow.

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Partnership as a Type of Business Organization

Partnerships are common organization types as they are easy to set up and manage. Partnerships are businesses that two or more individuals organize and run together (Tanski-Phillips, 2020). There are four types of partnerships, which differ depending on the amount of participation in the decision-making process and operations. General partnerships suppose that every partner shares equal responsibility and profits for the company (Lupulescu, 2017). Limited partnerships have two types of partners: general (directly involved in the decision-making process) and limited (acting as investors), which help to divide the responsibilities and liabilities (Tanski-Phillips, 2020). In limited liability partnerships, the owners of the business are not held personally responsible for the debts of the organization or the actions of their partners (Tanski-Phillips, 2020). Finally, LLC partnerships are limited liability companies with multiples members, in which the personal assets of partners are protected, while members can be held responsible for each other’s actions (Tanski-Phillips, 2020). All types of partnerships have different taxation, which makes them different in terms of profitability and managing issues.

Little Dessert Shop appears to be an example of a general partnership, in which Sue and Mary have similar rights and responsibilities. They invested equal amounts of capital in the venture, which makes them eligible for the same share of profits. According to Lupulescu (2017), general partnerships are relatively rare, as they are associated with various issues. The central problem with this business structure is unlimited joint liability for the company’s debts and each other’s actions (Lupulescu, 2017). In the selected business structure, both Mary and Sue are responsible for the company’s debts, which present significant risks to personal assets. Additionally, the partners are responsible for each other’s actions, which means that partners need to trust each other. Thus, according to (Lupulescu, 2017), general partnerships are usually formed between close long-term friends or relatives.

Despite all the disadvantages associated with the business structure, it is an appropriate organization type for Little Dessert Shop. There are several advantages associated with establishing a general partnership instead of the limited partnership. First, this type of organization is easy to establish, as it does not require much paperwork (Lupulescu, 2017). However, it is still recommended that partners have a partnership agreement, under which the responsibilities are described, and the closure or selling of business in case the partnership dissolves (Tanski-Phillips, 2020). Second, the organization is easy to operate, as the regulations are simple and cheap (Lupulescu, 2017). Finally, taxation is straightforward and low, which allows the company to maximize profits by reducing costs (Tanski-Phillips, 2020). Lupulescu (2017) states that “this legal form of company is appropriate and can be used in the case of small-scale activities, which do not require important funds for their exercise” (p. 15). Since Little Dessert Shop is a small-scale venture with a limited number of stakeholders, the business structure is appropriate. However, Sue and Mary are advised to create a partnership agreement if they do not have one yet.

Porter’s Five Forces

External factors are central to forming a long-term strategy, even in small businesses. Competition is one of the central external factors that can affect strategic decision-making. According to Porter’s model, the competition is formed by five forces: the threat of new entrants, the threat of substitution, the bargaining power of buyers, the bargaining power of suppliers, and the intensity of competition (Varelas and Georgopoulos, 2017). The analysis of these five forces can help to form a long-term strategy to become a successful competitor in the industry.

Competitive Rivalry (Strong Force)

The intensity of competition in the industry is high, as there are numerous competitors in Birmingham that offer desserts. According to Trip Advisor (2021), there are at least 66 organizations that offer desserts as their main product or as a part of the menu, including Kiss Me Cupcakes & Cakes, Krispy Kreme Doughnuts, and Cafephilia. Some of the competitors have multiple shops in around Birmingham, which increases their sustainability and popularity. Even though the COVID-19 pandemic made some of the competitors close their businesses due to the three-month lockdown, many of the larger players in the industry survived and started implementing aggressive marketing measures to win the customers. Thus, competition is a strong force in the dessert industry. Thus, Mary and Sue need to monitor their competitors to adjust their strategy if needed.

The Threat of New Entrants (Strong Force)

The dessert business is considered to be an easy industry to enter, as it does not require significant investments or knowledge. Sue and Mary’s initial investment was £60,000, which was enough to cover three years of the lease and some working capital. However, even if businesses do not have enough saved money to start a small shop, they can use loans to cover their initial expenses. According to Cabinet Secretary for Finance (2020), the UK implemented several measures that reduced the cost of capital for small businesses and provided taxation benefits. Thus, the industry is relatively easy to enter; however, the pandemic reduced the number of potential entrants due to the high volatility of demand. Additionally, the threat of new entrants is partially regulated by the intensity of competition and larger players, such as Krispy Kreme Doughnuts. Thus, the emergence of new competitors should be closely monitored.

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Threat of Substitution (Moderate Force)

Desserts sold in shopping centers can be easily substituted for other products, such as burgers, pizza, sandwiches, and coffee. However, all of these products do not substitute the product completely, as it allows the unique utility of the customers. Other food sold in shopping centers is not sweet. At the same time, the products sold by Little Dessert Shop can be replaced by healthier desserts, such as organic or vegan desserts. Additionally, many buyers prefer ordering food delivery to reduce the chance of contamination with COVID-19. Thus, it would be rational for the company to diversify its product line and offer home delivery to reduce the influence of the threat of substitution. However, such efforts may require relatively risky investments.

Power of Buyers (Strong Force)

The power of buyers is an extremely strong force in the industry due to a high number of competitors and a decreased number of customers due to the pandemic. Companies in the industry may be willing to reduce their profit margins or offer additional choices of desserts to win the customers. Thus, Mary and Sue need to adjust their strategy to consider the needs and wants of their buyers. This may involve small-scale market research to understand what their customers value the most: increased choices of products, commitment to environmental sustainability, or utilization of healthy ingredients. After that, the owners of the shop can implement the most appropriate measures to attract more customers.

Power of Suppliers (Weak Force)

Currently, the power of suppliers is weak due to their large availability. Mary and Sue use the local Cash & Carry as their primary supplier; however, there are multiple companies that can offer raw materials for Little Dessert Shop. However, the influence of the force can increase significantly if the owners decide to turn to local suppliers of organic products, as their availability is lower. Thus, it is crucial to consider this fact when evaluating future strategies.

Macro-Environmental Factors

There are several types of macro-environmental factors that affect any industry. These factors can be divided into political, economic, social, technological, legal, and environmental ones (Samnani, 2014). These six types of factors are determined during the PESTLE analysis. However, instead of providing a full PESTLE analysis for Little Dessert Shop, the present paper aims at outlining three crucial macro-environmental factors that can positively affect the venture.

Healthy Diet Trends (Social Factor)

One of the most impactful macro-environmental trends is increasing health concerns among the general public. According to Spenser (2020), health is expected to be one of the central concerns of the consumer through 2030. Experts believe that personal motivation for healthy lifestyles will encourage people to turn to healthy nutrients (Spenser, 2020). In particular, people are expected to prefer healthy nutrients from fruit and vegetables (Spenser, 2020). Mary and Sue can exploit this macro-environmental factor to diversify their product line to serve a wider variety of customers’ needs. Investment in the production of healthier foods is expected to raise sales due to the increased number of customers and improve the reputation of the shop. Additionally, the shop will become more financially stable if the tastes of the customers change. However, it is crucial to understand that the factor described above can have a positive effect only if Sue and Mary decide to invest in a new product line. Increasing health concerns will have a negative effect on the current business strategy (low prices and tasty food) in the long run.

Sustainable Development (Environmental, Social, and Legal Factor)

Push toward sustainable development is a multifaced matter that can be viewed as an environmental, social, and legal factor simultaneously. Currently, the awareness of the global community concerning environmental problems together with social and economic challenges is rising. In 1987, the United Nations (UN) coined the principles of sustainable development, which is meeting the needs of the current generation without compromising the ability of future generations to do so (UN, 2015). In order to achieve sustainable development, the UN (2015) set seventeen comprehensive goals associated with 163 targets to achieve by 2030 to address the problems related to poverty, inequality, climate change, environmental degradation, peace, and justice. One of the central goals of the UN’s agenda is to turn sustainable waste management. Thus, Little Dessert Shop can turn to paper bags and eco-friendly packaging to improve their public relations. Additionally, Dedication to healthy food and environmental sustainability can be used for effective marketing. Even though such changes may reduce the profit margin, it will attract more customers, which means larger net profits.

Food Delivery (Social Factor)

The COVID-19 was disastrous for Little Dessert Shop, as Sue and Mary were out of business for three months. Moreover, the number of customers after the lockdown decreased, which led to reduced revenues. However, the pandemic gave rise to food delivery as an alternative to eating out. According to EHL Insights (2020), the demand for food delivery increased as customers explore new types of food at home. Thus, the factor can help Sue and Mary to develop their business in the future if they partner with food delivery services.

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Conclusion

Even though the pandemic had a significant negative effect on Little Dessert Shop, the venture has the potential to develop. In particular, the company can diversify its product line to include healthy products. Additionally, Mary and Sue can organize food delivery and turn to sustainable packaging and waste management. These aspects can be used to create a marketing campaign to attract more customers. However, there are several concerns that should be considered before selecting a development strategy. First, general partnership as a form of business organization is appropriate only for smaller firms, which implies that Sue and Mary may choose another form of organizational structure as the business grows. Additionally, the owners of the should monitor their competitors and assess the needs of their customers to control for possible threats.

References

Cabinet Secretary for Finance (2020) Coronavirus (COVID-19) – UK fiscal path: update – November 2020. Web.

EHL Insights (2020) COVID-19 and the F&B industry: Delivery services to the rescue. Web.

Lupulescu, A. M. (2017) ‘Some considerations on the general partnership’, Tribuna Juridică, 7(14), pp. 6-16.

Samnani, A. (2014) ‘Macro-environmental factors effecting fast food industry’, Food Science and quality management, 31(1), pp. 37-40.

Spenser, N. (2020). Healthy living, healthy diets and a healthy planet inspire 2030 nutrition trends: Mintel. Web.

Tanski-Phillips, M. (2020) Do you know the types of partnership in business? Web.

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Trip Advisor (2021) Restaurants in Birmingham. Web.

Varelas, S. and Georgopoulos, N. (2017) ‘Porter’s competitive forces in the modern globalized hospitality sector–the case of a Greek tourism destination’, Journal of Tourism Research, 18, pp. 121-131.

United Nations. (2015). Transforming our world: the 2030 agenda for sustainable development. New York, NY: United Nations.

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