Case study on Cuties Cupcakes Pty Ltd (Cuties)



Cuties Cupcakes Pty Ltd (Cuties) operates a business offering cupcakes, cakes and desserts for sale,fills custom orders for birthdays and other special events and hosts parties, baking and decoratingworkshops and classes. Established in 1999 as the original brainchild of Connie Candoo, it nowemploys a total of 30 fulltime and 30 part time workers in the main factories (one in each Australianstate), and another 30 or so in casual roles in some 15 dedicated retail outlets (shops) that aredecorated in accordance with the Cuties theme colours and layout. These Cuties outlets (all underlease arrangements) are located in suburban shopping centres, particularly those catering to youngfamilies. The 15 managers of these outlets (employed fulltime by Cuties) earn an agreed salary plusget a cut of the specific outlet profits over a certain figure.When Connie opened the first Cuties outlet (making the products in her home kitchen), it was aroaring success. With few competitors in the product or service market, Cuties had an easy ride foraround 5 years. Cuties has managed to be sufficiently innovative to keep ahead of the pack. It hashelped that Connie has a close group of friends, some of whom work for her competitors. They gettogether every month or so to exchange stories and gossip around work. After a few glasses of winethe boasts and secret-telling begin. Connie has picked up some very useful tips about what is beingplanned by the competition that she has been able to use for Cuties’ benefit.The cupcakes and other products are delivered by small truck from the factories to the outlets. Thisservice is provided by Trundle Trucking Pty Ltd because it offers remarkably reasonable freight rates.Although operating from Melbourne, Trundle has contractual arrangements with various light freightoperators around Australia. Connie does not concern herself with the details of Trundle’s contractswith these other companies, nor with the arrangements under which drivers are employed. Shemerely insists that the trucks bear the Cuties logo.It is time for Connie to decide on a future strategy or strategies if the company is to continue to growand thrive.She has employed Chani (a local small business advisor) to highlight issues she might need to takeinto account in determining such future direction. Drawing on information Connie gives her andwhat she finds out from interviewing others in the company, Chani has discovered the following.
• Reliance on a casual workforce means that there are high and ongoing costs involved inrecruitment, training and operational coverage. Over the last few months, the staff turnover inthe retail outlets has grown to the highest level since the company started. Connie has longsuspected that her competitors recruit her departing employees, not because they are goodworkers so much as because of the knowledge they bring with them of Cuties recipes, plans andpractices.• Employees in 5 of the outlets have come to Connie or have written to her complaining they havenot been paid or that the amount they were paid was well below the award (the prescribedminimum rates of pay for the roles they occupy). Connie does not investigate these complaintsbut forwards them and the names of the complainants to the manager concerned. The numberof complaints has fallen virtually to zero since August.• The fact that both factories and outlets are scattered across states and locations means that it is hard for Connie to oversee or even understand what is happening in those other locations.
She is constantly having to talk to managers of the retail outlets who complain that their stores are not profitable with only Cuties products and who want to supplement their turnover by stocking
a broader range of products than just Cuties. They also complain that the direct and indirect costs of holding classes and parties far outweigh the returns obtained.• Financially, the business is just too small in its present form. The profit and cash flow are not sufficiently large (and despite continued strong sales, appear to be declining) to allow
her to invest in new equipment, managerial personnel or buildings (and the factory in Melbourne needs either significant renovation or replacement). However, from a management perspective, the
business is too large for Connie to manage alone. Her three adult children assist occasionally but they have their own lives and interests and seemingly do not want to be part of the company into
the future. Benzo, Connie’s husband, works as an electrician for a local company and while he has always been supportive of Connie’s endeavours, does not seem to understand it is more than a hobby
for her.• There are two employees who have been with the company since the beginning. Ali is the creative genius behind the recipes and decorating ideas as well as the marketing strategies more
generally. She has been willing to work unsociable hours to ensure success of the enterprise but even she seems to be wearing a discontented expression of late and mutters about leaving. Connie
cannot afford to lose her. Then there is Cheng. He came to the company as a new graduate intern from a B.Com and has stayed on to do the financial work associated with the company’s activities.
Connie trusts him utterly and relies on him to send out the invoices, to keep track of all payments and bills, and to prepare the end of year statements. She does not understand the details of
these financials so relies on Cheng to explain them. These explanatory sessions are often conducted at the local up-market Italian restaurant. Connie confided in Chani that she really looks forward
to these sessions as they provide an opportunity for her to forget all her stresses and worries as she sinks into the luxurious interior of Cheng’s Mercedes on the way to the restaurant. As an
added bonus, Cheng always insists on paying. Again, Connie would be horrified to lose Cheng.• Cuties is heavily dependent for its public profile on the workshops and parties. Connie has seen reports (mainly in social media) that casual employees at some of the outlets have slapped
poorly behaved children attending parties, and that several attendees at classes have claimed to have suffered burns and scalds. Connie has tended to dismiss these allegations, particularly when
such allegations have been refuted by satisfied customers (Ali’s suggestions that these “satisfied customers” are actually the managers of the Cuties outlets is too worrying and Connie has tended
to ignore them).• Much of the innovation that has permitted Cuties to stay in front of the market has built on product associations employed in marketing campaigns: examples being cupcakes and fashion; cakes
and comedy; desserts and sports cars; sweets and sports. Although these have been hugely successful for Cuties, the owners of the brands with which the Cuties’ name has been linked are not always
so enthusiastic.• Cheng has raised questions about the viability of the first outlet (Connie’s particular favourite and the one that has been the most successful in the past) where the 10 year lease is up
for renewal. The owners of the shopping centre want to impart a healthy eating image, favouring food outlets that promote good eating and balanced lifestyles. Connie is sure this is a short-term
fad and is adamant that continuation of the shop is non-negotiable.



Issues:1. Advice on best expansion options or restructure2. Advice on how to manage legal risk in attention to previous issues

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