Catherine's Confectionaries

CATHERINE'S CONFECTIONARIES

CASE STUDY

EXECUTIVE SUMMARY

Catherine Horton is the owner of Catherine's Confectionaries and her business has been in operation for seven years. When Catherine eventually made the move from selling out of her house to leasing a retail location, she encountered several problems. These included a high leasing cost and a larger than necessary building space. This caused Catherine to increase her initial business model of providing desserts for made-to-order clients to include walk-in clients as well. As a result, Catherine was forced to hire additional staff to manage this side of the business. These unexpected costs have contributed to her minimal profitability in the last few years. It has also led to a loss in her passion for the business.

In order to solve this problem, four main alternatives were considered. These included closing the business, reducing the staff members and increasing the quality of those members, raising prices and leasing a smaller space and eliminating the walk in business. Based on these alternatives, Catherine decided to lease a smaller space and eliminate the walk in business because the benefits far outweighed the disadvantages.

MAIN PROBLEMS

Catherine's Confectionaries has several issues. The space that Catherine leased in order to meet increased demand was not ideal for her business and the lease was more expensive than she anticipated. In order to cover the increased cost and utilize the excess space that she acquired, she developed a walk-in business. To facilitate the demands of her new and pre-existing customers Catherine needed to hire staff. Her initial decision to hire two minimum wage workers turned out to be unsuccessful. These workers needed constant supervision and high turnover also led to a constant need for training. As a result Catherine was forced to hire two additional workers that were more highly skilled: one to assist in the kitchen and one to manage the walk-in business. This additional expense put a further strain on her finances. Due to these problems, Catherine's Confectionaries is barely profitable after 7 years and Catherine Horton is burnt out and has no time to indulge in her initial passion of creating new recipes.

ANALYSIS OF ALTERNATIVES

Firstly, Catherine can consider closing Catherine's confectionaries. Due to the fact that the business is barely profitable after 7 years, and Catherine feels as though she no longer has the opportunity to pursue her real passion of creating new recipes, it may be time for the business to close. The advantages of closing include the potential to earn greater income in a regular full time job, the release of the burden of managing her business and her staff and the increased time and freedom to return to her initial passion. The cons of this decision include the loss of autonomy that comes with owning your business, the disappointment that may be associated with the realization of business failure and the possibility of great earning potential if the business was able to become more successful.

Secondly, Another Alternative is to hire one full-time worker at a higher salary instead of two minimum wage employees, and a part time worker to manage the books, once or twice a month. A higher salary will help to attract more qualified staff, which will help to eliminate the need for constant supervision. It will also reduce the turnover ratio which can reduce the training time. Since this person will not require much supervision, if Catherine still needs help with the books, someone can be brought in on a part time basis to perform this function. The advantages of these options include a reduction in costs. Catherine will now be paying one full time worker and two part time workers instead of three full time workers and one part time worker. Reduced costs can help to contribute to increased profitability. One major disadvantage of having one full time worker is that on days when he unable to come to work, Catherine will be forced to perform his functions.

Thirdly, Catherine can consider raising the prices of her goods for walk-in customers and her made-to order customers for special occasions. These customers are less price sensitive than the made-to order customers from other business. Their order winner is quality; as a result, a small increase in price should not impact the demand of these customers. The advantage of increasing prices would be greater profitability, if demand remains constant. However, if the increased prices are met with a decrease in demand, there will be no change or potentially a negative change in overall profitability.

Lastly, Catherine should also consider looking for another space to lease. After 7 years, it is possible that a new space that is more suited to her initial business model is available. If she can find a smaller, cheaper space Catherine can eliminate her walk-in business since it is not the major contributor to her income. If this business is eliminated, she will no longer need three of her staff members, including the 2 part-time workers and Tom. The major advantages of this decision include reduced costs, which can lead to increased profitability; and more time to focus on her made-to-order customers and return to her initial passion of creating new recipes. Disadvantages include loss of revenue from walk-in customers, and the initial financial burden of breaking the previous lease and hiring realtors to find a new location.

RECOMMENDED SOLUTION

Based on the problems presented in the case, Catherine should lease a smaller space and eliminate the walk-in business. The need for the walk-in business initiated from the unexpectedly high cost of the lease. The large size and location of the space were probably the main contributing factors to the cost. If Catherine eliminates the walk -in business she will not need the extra space provided by the former restaurant, nor will she need a prime location that facilitates walk-in traffic. The lease for a smaller, less central location should be significantly less. Although Catherine will lose revenue from eliminating her walk-in business, the cost savings in the reduced lease and salary expenses should outweigh it and thus increase her profitability. Also, this decision should allow Catherine to reduce the hours in her work week and rediscover her passion of creating new recipes.

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