Improvement and Changes in Amy’s Bread Company

Amy fell in love with baking when she was in Europe. Doubtful profitability and lack of funding did not scared her from beginning her own wholesale bakery in New York, named Amy’s Bread. After she had perfected the art of handmade bread, she transferred that culinary knowledge on to her workers. With the right combination of training and benefits, she now has experts who will not leave her. In 6 years, she had 4 times as many engaged employees as she began with.

Manually mixing and shaping the bread requires great effort and exertion and tires out her staff but they are loyal, as are her customers (made up of mostly wholesale customers with 25% retail customers recently acquired). Amy now wants to expand her business even though running it is already challenging enough and new competitors are pouring in every day (due to the rapid growth surge of small specialty bakeries in the industry). The continuous support of her engaged employees, satisfied customers and an enamoured press (who she wooed with great marketing), Amy’s Bread is finally profitable but she must now confront new obstacles such as shortage of labor, mechanised bakeries and unreliable ingredient prices.

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Problems identified:

Amy’s Bread is a small bakery which makes bread by hand. The problems she is facing at present and the problems she may face in the near future are analysed below:

• Limitation of space in the present location. The main problem that they are facing is lack of space, due to which they cannot match supply of their bread with demand for it.
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  As a small bakery, it is not easy for them to afford more space to increase their production. They are currently maintaining three different shifts but it is not enough.

• Amy has to hire more employees than her competitors at a time when there is a low employment rate. Amy’s bread is handmade and consequently requires more employees than bakeries that have introduced machines into the process. She chooses not to mechanise her bakery because she believes in differentiating her breads from competitors rather than copying them. How much the narrow-scope strategy has worked for her is questionable and some might suggest that it is time for her to adopt an imitations strategy instead to reduce risk. Additionally, if Amy expands her business, she will require even more employees, even though they will be hard to recruit.
• Prices of ingredients are volatile. The price of flour, nuts, dairy products, and olive oil fluctuate frequently.
• Amy must decide whether to buy space for wholesale production only, retail production only, or both retail and wholesale production. There are trade-offs to both buying and leasing. Amy must make her choice after much analysis. She must choose between buying a 6,000-square-foot building on 31st Street for wholesale production or leasing a 7,500-square-foot space on 15th Street for retail production.
• Amy has a long waiting list of customers. Long waiting time is costing Amy sales. One bad experience can scare a customer away. Eventually, she will lose many customers because she is unable to serve them on time. Moreover, as Amy relies on word-of-mouth marketing, bad reviews can convince potential customers to choose a different bakery.
• Prices have never been changed. The decision to change prices is a tough one, with many ramifications, but it is unavoidable for Amy as she cannot cut costs.
• Retail production is more profitable than wholesale production but Amy’s gross sales are 75 percent wholesale and 25 percent retail. Retail production is still relatively foreign territory to Amy and it will take her time to focus on retail production.
• Lack of skilled staff due to small salaries. Many talented employees are not willing to work at the pay she can afford to give them right now. Amy also has to find another manager she can trust.
• Getting a loan is not easy in the bread baking industry. Banks and other financial institutions are reluctant to provide substantial loans to bakeries, making it hard to weather tough times or expand.

Solutions:

Amy should redo her business plan.

Amy should come up with a new and improved business plan that considers her perspective, the marketing perspective and the investor’s perspective, reflects the strength of her personnel and her bread. She is struggling to prove her ability to pay debts but we believe if she can show to potential investors the commitment she has made to her business, she will be able to get some funding. She should then present the business plan to the bank and ask them to raise their loan of $150, 000. If this does not work, she should try to find an angel investor who will provide capital for Amy’s Bakery in exchange for ownership equity.

Amy should buy the building on 31st Street for wholesale production instead of leasing the space on 15th Street for retail production.

Retail business is not as stable as wholesale business and it took 6 years for Amy’s Bread to become profitable. She still has cash flow problems and will most likely continue to have them in the future. She is not in a position to take such a risk right now, which would result in loss of control and might result in financial loss, especially because she will face new competition and unfamiliar marketplaces if she chooses to focus solely on retail production. Buying results in lower long-term costs. However, Amy should also try to increase gross retail sales by 10% to 15%.

Amy should develop strategies to manage her waiting list.

It is evident that Amy cannot serve all of her customers on time. She should therefore prioritise the most important customers (i.e. customers who purchase the most and have been with her the longest). She could also create self-service opportunities for retail customers, such as inviting them into the kitchen so that they can see the bread baking in real time. They could be asked to mix some of the bread, shape it or bake it. If marketed right, it would be perceived as a fun and unique experience. This would reduce waiting time as Amy would be, for a short time, gaining another pair of hands to work the dough.

Amy must raise her prices to reduce demand.

According to the law of demand, the higher the price of a good, the lower the quantity demanded. As there is currently much more demand for Amy’s handmade bread than she can satisfy, a reduction in demand may be a boon in disguise. She can focus on satisfying her customers. On average, loyal customers are worth up to 10 times as much as their first purchase. Complete customer satisfaction is the key to securing customer loyalty. She can raise her prices by reducing sizes, raising fees or bundling breads that are frequently bought together.

There are many solutions that can help Amy overcome price fluctuations. She could buy software that will help her implement a least-cost formulation strategy. Alternatively, she could stop baking non-profitable products and innovate with new products or generate some other new entry opportunity by creating a resource bundle that is valuable, rare, and inimitable. She could adopt the lean startup methodology, which shortens product development cycles by iteratively building products or services to meet the needs of early customers. If all else fails, she must adapt existing products.

There are many strategies available to Amy for managing staffing shortages that she should consider. Overtime, hiring temporary employees, subcontracting work, transfers or promotions are just a few of them.

Amy should hire another entrepreneur like herself, who can focus on increasing supply. Amy should employ another entrepreneur as a second manager. Right now, she needs an individual who can pursue profits (i.e. increase supply of bread) under conditions of uncertainty. The second entrepreneur can be an administrator, leaving Amy free to be the innovator. Her output should be incremental rather than radical. Trends such as the Green trend and the Health trend can also provide opportunities - Amy could make more earth friendly loafs or make sprouted/ gluten-free/whole grain bread as well. If research and development does not yield satisfactory results, she could also ask consumers what they would like to see in the future by formally arranging for them to express their opinions, perhaps on her website.

Furthermore, according to Say’s Law, supply creates its own demand. As Amy’s Bread increases supply of its products through expansion, the reduction in demand that was a result of raised prices will eventually right itself.

Works cited

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