DESSERT PARADISE Final Report By: Suzanne So (0893 3851) Bryan Cheung (0893 3564) Chris Li (0893 4178) Eric So (0893 6229) Vincent Ng (0893 3409 Master.

DESSERT PARADISE DESSERT PARADISE Final ReportFinal Report

By: Suzanne So (0893 3851)

Bryan Cheung (0893 3564)Chris Li (0893 4178)Eric So (0893 6229)

Vincent Ng (0893 3409

Master of Business AdministrationMaster of Business AdministrationSCHOOL OF BUSINESS & MANAGEMENTSCHOOL OF BUSINESS & MANAGEMENT

Consulting Skills for ManagersConsulting Skills for ManagersFall 2009Fall 2009

24 October 200924 October 2009

Executive SummaryExecutive Summary

Dessert Paradise…..

OverviewOverview

Situation Since its opening 1 year ago, Dessert Paradise (DP) has been generating a net income (NI) that is just about breakeven.

Complication

However, DP’s revenue growth stalled.

Question How to achieve a significant increase in NI through solid revenue growth?

Answer Expand customer base by attracting out-district destination customers (destination customers) through the introduction of signature desserts, recruiting in-district passers-by customers (passers-by customers) by introducing lunch set, and improving brand awareness by leveraging promotion, publicity & merchandising.

Rationale

1. Signature desserts are effective in attracting destination customers from outside districts with high growth potential.

2. DP can meet the existing lunch demand of passers-by customers through lunch set introduction.

3. Promotion and publicity is a pertinent mean to expand customer base.

A. Heavy reliance on passers-by of local residents, students and workers limits DP’s growth opportunities.

B. The propensity to spend and the purchasing power in the area are rather low in which DP cannot charge a high price.

C. Hong Kong people like to make deliberate trip for signature dessert.

A.DP is getting a low percentage of the total customer traffic during lunch time.

B. There is a lot of spare capacity at DP during lunch time.

C. DP can provide lunch set not currently available in the market but demanded by customers

A. The brand awareness of DP is significantly lower than other dessert stores.

B. All established dessert stores have put effort on publicity

C. Attractive in-store merchandising (standee/POS) further attract customers.

1. Signature Dessert1. Signature Dessert

A) Heavy reliance on passers-by of local residents, students and workers limits DP’s growth opportunities.

Observation: DP heavily relies on in-district customers and hence the business growth is limited.

Source: Shop Interviews

1. Signature Dessert1. Signature Dessert

B) The propensity to spend and the purchasing power in the area are rather low in which DP cannot charge a high price.

Observation: Destination customers spend more than passers-by customers

Source: Survey of 50 local customers / residents during lunch time

1. Signature Dessert1. Signature Dessert

C) Hong Kong people like to make deliberate trip for signature dessert.

Observation: 75% of People Make Deliberate to a Dessert Store for Signature Desserts.

People Making Deliberate Trip to a Dessert Store for Signature Storesby %

Source: Survey of 100 in-district and out-district people

1. Signature Dessert1. Signature Dessert

C) Hong Kong people like to make deliberate trip for signature dessert.

Observation: 61% of people like to make deliberate trip for signature desserts if the store is at Shek Kip Mei.

People Making Deliberate Trip to a Dessert Store at Shek Kip Mei for Signature Storesby %

Source: Survey of 50 out-district people

2. Lunch Sets2. Lunch Sets

A) DP has a low percentage of the total customer traffic during lunch time.

Observation: If DP reaches Ice Joyce’s customer flow (double existing) during lunch time (11am-2pm), DP NI will be increased by 70%

Daily Customer Flowby %

Source: Physical count on site

2. Lunch Sets2. Lunch Sets

B) There is a lot of spare capacity at DP during lunch time.

Observation: DP can handle the surge in customers during lunch.

Staff Workload Utilizationby %

Source: Owners’ Tallying

2. Lunch Sets2. Lunch Sets

C) DP can provide lunch set not currently available in the market but demanded by customers

Observation: Over 40% of local customers / residents want a “Sandwiches Set”.

Food style preferred by customers / residentsby %

Source: Survey of 50 local customers / residents during lunch time

3. Promotion & Publicity3. Promotion & Publicity

A) The brand awareness of DP is significantly lower than other dessert stores.

Survey: Only 2% of Hong Kong people is aware of DP while 40% is aware of Honeymoon Dessert, 10% Lucky Dessert and 13% Chung Kee.

Percentage of people who are aware to the particular dessert shopby %

Source: Survey of 50 out-district people

3. Promotion & Publicity3. Promotion & Publicity

B) All established dessert stores have put effort on publicity

Observation: Word of mouth is not frequently used to promote DP on the internet.

Source: Customer Comments @ Openrice.com

Dessert Paradise

VS

3. Promotion & Publicity3. Promotion & Publicity

C1) Attractive merchandising (standee/POS) further attract customers.

Observation: The shop outlook of DP is not as attractive as its competitors.

Source: Mystery Patrons

VS

Dessert Paradise

Hui Lau Shan Shek Moh Fong

Honeymoon Dessert

3. Promotion & Publicity3. Promotion & Publicity

C2) Attractive merchandising (leaflet, standee/POS) further attract customers.

Observation: Takeaway leaflet of DP is dull and lack of photos. .

Source: Mystery Patrons

VS

Dessert Paradise

Dessert Guy

Chung Kee

Honeymoon Dessert

3. Promotion & Publicity3. Promotion & Publicity

C3) Attractive in-store merchandising (standee/POS) further attract customers.

Observation: DP does not have enough merchandising to attract customers.

Source: Mystery Patrons

Display BoardMagazine Clippings

Elegant Interior Design

Dessert Story

Large Poster

List of AppendicesList of Appendices

Appendix 1 – Interview GuidesAppendix 1 – Interview Guides

a. Schedule

b. Objectives● To obtain insights about the dessert / food and beverage industry● To understand the key success factors about the industry

c. Key Questions● How is the industry situation? How does your shop compete?● Can you rate the following factors – location, chef, servicing staff, special products, promotion, and

menu? Which are the most successful?● How is your cost structure? Is it typical?● Do you have signature products? How much percentage of sales do they represent the total?● Do you use differentiation strategy? Combo products? How are they going?● What is your shop’s average margin and that of normal against signature products?

Date Interviewee Interviewer (Leading in Bold) Status

25 Sept Owner, Dessert Parade – Mr. David Kuan Suzanne/Vincent Completed

27 Sept Owner, Dessert Parade – Mr. Martin Yu Bryan/Eric Completed

11 Oct Manager, Lok Lam Dessert Store, Chris/Suzanne Completed

11 Oct Manager, Chung Kee Dessert Store Bryan/Eric Completed

13 Oct Consultant, Tsui Wah Restaurant – Mr. Ng Suzanne Completed

14 Oct Owner, Yummy Baking – Ms Nancy Tsui Vincent Completed

Appendix 1 – Owner Interview 1 Appendix 1 – Owner Interview 1

Interviewee: David Kuan (Owner) Interviewers: Vincent and Suzanne Date: 8pm, 22 Sep, 2009

Key Takeaways

Background: Current Situation: DP can barely make a profit in its 1st year, however, it faces several key issues,

e.g. too few customers, fierce competition and few dessert selections. Future Plan: It targets to increase its profit sharply in its 2nd year and aims to open one more store

in the same district. Strength:

It adopts a low price strategy to attract customers. Its brand awareness is enhanced by word of mouth and good comments on the Internet He is keen on trying new desserts at idle time and regularly updates the menu to offer more choices

to customers. Weakness:

As DP does not have any covered areas to serve customers, it has to be close during bad weather. Due to limited space, it cannot order too much ingredient and this limits its customers’ choices. Due to limited manpower, leaflet distribution / free delivery was on hold. Customers in this district is quite price sensitive, DP has difficulty in increasing price. Without much bargaining powers on suppliers, it has no ground to further reduce its cost of goods

sold.

Appendix 1 – Owner Interview 2Appendix 1 – Owner Interview 2

Interviewee: Martin Yu (Owner) Interviewers: Bryan and Eric Date: 8pm, 25 Sep, 2009

Key Takeaways

Opportunities for DP Pricing – If the price of all desserts increases by HK$1, its daily turnover will be improved by ~$200 and

its annual net income can improve by $63K. Lunch Time – DP only has a few customers at lunch time and this period would be a new revenue

source in the future. Partnership – A few competitors near DP has approach them to form partnership to launch lunch

combo or discount promotion to boost sales in the district. Manpower – DP plans to recruit a permanent staff to replace one of its owners, so that he can focus on

strategic planning or return to his original industry to lower its opportunity cost. Customer Relation – With the high quality of services, DP has successfully developed a customer base

from repeated customers in nearby schools and local estates.

Threats for DP New competitors – As the start up cost for new cafés is low in this district, a few new snack shops have

open recently to compete for customers. High rental – Its landlord is likely to increase its monthly rent in 2010 and this would further affect its

profitability. Government Penalty – DP has a risk to be accused of illegally occupying public areas to set up tables

to serve customers.

Appendix 1 – Expert Interview 1Appendix 1 – Expert Interview 1

Interviewee: Nancy Tsui

Owner of Yummy Baking (a cake & dessert school in Yuen Long) Interviewer: Vincent Date: 1pm, 14 Oct, 2009

Key Takeaways

Key successful factors for signature dessert Understand the ever-changing needs of customers in different seasons in different districts /

countries. Compare and analyze the SWOT of the signature product in the district Keep focus on learning one or two signature desserts by attending intensive class or working in

famous dessert shop Offer free tasting / discount coupon to passers-by to enhance word of mouth Drive customer flow (instead of revenue) by signature desserts

Critical factors to run a dessert store Shop location: It is essential to analyze the customs flow, customer preferences and competitor

offerings in the nearby areas Product variety: Focus on a few key high margin items Promotion: Advertise on magazine, discussion board and social network such as facebook/twitter Partnership: Identify any potential partners in the nearby areas to enhance sales

Appendix 1 – Expert Interview 2Appendix 1 – Expert Interview 2

Interviewee: Mr Ng Tak Leung

Consultant of Tsui Wah Restaurant (Received “Eating in Hong Kong Image Flagship Store” Award)

Interviewer: Suzanne Date: 7pm, 13 Oct, 2009

Key Takeaways

Key successful factors for food & beverage industry Visionary – successful restaurants in Hong Kong sets goals beyond making profit. Tsui Wah has

the vision to bring Hong Kong style food to the international platform Signature products – salient element to attract customers and build brand Standardization – Tsui Wah has a central kitchen in preparing food items and standardized

process in controlling quality and food safety. For example, the restaurant uses of refractometers to measure dissolved sugar level in food.

Publicity – position the brand as “Hong Kong Quality Restaurant”. Promotion through editorial in magazines and internets discussion board

Threat for start-ups Competitive – the competitive force in food & beverage industry is increasingly intense Rent – most landlords request for 7 months deposit in lieu of rent. New start-up that rent district

with high traffic flow requires a minimum of more Hk$1 million on purely on rental payment Salary – salary dominates a large proportion of cost

Appendix 1 – Expert Interview 3Appendix 1 – Expert Interview 3

Interviewee: Mrs Chan (Manager of Chung Kee Dessert Shop) Interviewers: Bryan and Eric Date: 4pm, 11 Oct, 2009

Key Takeaways Industry overview

Intense competition in dessert industry Under such competition, need to maintain high quality and reasonable prices

Key success factors Among different factors food quality is the most important; also need to maintain regular update

on the menu so as to suit changing taste due to season and different segments of customers

Cost Costs may be high due to the need to ensure quality raw materials Traditional dessert generally has a higher margin than newer ones, especially those with a lot of

fruits. Therefore need to keep a healthy ratio to control costs and profits while catering customer tastes

Take note of additional costs incurred from launching new desserts but failed.

Tips Be a mystery patron in their own shop to objectively listen to customer comments, thus help with

future product development with high success rate Be enthusiastic and determined to improve and grow the shop, it generally needs at least a year

or two to recoup investment

Appendix 1 – Expert Interview 4Appendix 1 – Expert Interview 4

Interviewee: Mrs Lee (Manager of Lok Lam Dessert Shop) Interviewers: Chris, Suzanne & Vincent Date: 4pm, 11 Oct, 2009

Key Takeaways

Industry overview There is a keen competition in HK dessert industry Entry barrier for dessert industry is low. There are many new dessert shops opened in HK

every year HK people easily accept new things. They are willing to try new dessert products Many HK people like to make deliberate trip for signature desserts with high food quality

Key success factors Food quality is the most important factor for attracting customers and building customer loyalty Wide variety of products and seasonal desserts are important to increase purchase frequency Word of mouth is a powerful promotion channel in dessert industry.

Costs Generally rental cost is the major expenditure in running a dessert shop in HK Raw material cost for fruit dessert is relatively higher than that of other desserts

Appendix 2 – Mystery Patron ChecklistAppendix 2 – Mystery Patron Checklist

Dessert Stores Lok Lam Chung Kee Honeymoon Dessert Yuen Kee

Location Shum Shui Po Shum Shui Po Kwun Tong West PointDate 11-Oct 11-Oct 27-Sep 4-OctTime 3pm 3pm 9pm 10pmMystery Patron Chris, Suz, Vincent Bryan, Eric Vincent Vincent

1. Product a) Food Quality 4 4 4 5 b) Menu Selection 5 5 5 3 c) Signature Products 3 3 3 4 d) Product Bundling 2 2 3 1

2. Service a) Waiting Time 5 4 4 4 b) Responsiveness 4 5 4 3 c) Politeness of waiters 4 4 4 2

3. Store Environment a) Hygiene 4 4 5 3 b) Merchandising 3 3 4 1 c) Location 3 3 5 1 4. Price 4 5 2 5

5. Promotion a) Coupons 0 0 0 0 b) Partnership 0 0 0 0

Total 41 42 43 32

Remark: 1 = Bad, 5 = Excellent

Questions?Questions?Comments?Comments?

Thoughts?Thoughts?