DESSERT PARADISE Final Report

1. DESSERT PARADISE Final Report Master of Business Administration SCHOOL OF BUSINESS & MANAGEMENT Consulting Skills for Managers Fall 2009 24 October 2009 By: Suzanne So (0893 3851) Bryan Cheung (0893 3564) Chris Li (0893 4178) Eric So (0893 6229) Vincent Ng (0893 3409

2. Executive Summary Dessert Paradise…..

3. Overview

4. 1. 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

5. 1. 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

6. 1. 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 Stores by % Source: Survey of 100 in-district and out-district people

7. 1. 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 Stores by % Source: Survey of 50 out-district people

8. 2. 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 Flow by % Source: Physical count on site

9. 2. 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 Utilization by % Source: Owners’ Tallying

10. 2. 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 / residents by % Source: Survey of 50 local customers / residents during lunch time

11. 3. 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 shop by % Source: Survey of 50 out-district people

12. 3. 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. Dessert Paradise VS Source: Customer Comments @ Openrice.com

13. 3. Promotion & Publicity C1) Attractive merchandising (standee/POS) further attract customers. Observation: The shop outlook of DP is not as attractive as its competitors. VS Hui Lau Shan Shek Moh Fong Dessert Paradise Source: Mystery Patrons Honeymoon Dessert

14. 3. Promotion & Publicity C2) Attractive merchandising (leaflet, standee/POS) further attract customers. Observation: Takeaway leaflet of DP is dull and lack of photos. . VS Dessert Guy Dessert Paradise Honeymoon Dessert Source: Mystery Patrons Chung Kee

15. 3. Promotion & Publicity C3) Attractive in-store merchandising (standee/POS) further attract customers. Observation: DP does not have enough merchandising to attract customers. Display Board Dessert Story Magazine Clippings Large Poster Elegant Interior Design Source: Mystery Patrons

16. List of Appendices

17. Appendix 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?

18. 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.

19. Appendix 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.

20. Appendix 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

21. Appendix 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

22. Appendix 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

23. Appendix 1 – Expert Interview 4 • Interviewee: Mrs Lee (Manager of Lok LamDessert 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

24. Appendix 2 – Mystery Patron Checklist

25. Questions? Comments? Thoughts?