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FEASIBILITY OF OPENING A DELIVERY BASED BAKERY IN DENVER: EDESIA BAKERY

By Emily Beck

May 5, 2010

Prepared for John Craig Prospective Business Partner


TABLE OF CONTENTS Abstract………………………...…………………………………………………………....……1 Introduction…………………………………………………………………………………...…..1 Discussion…….…………………………………………………………………………....……..2 Capital Required……….…………………………………………………………....…....2 Loan Options and Requirements……………………………………..…………..….......3 Estimated Expense..…………………………………...…………………………..…......4 Estimated Profits…………………………………………………………………..….…..4 Store Front vs. Delivery………………………...………………………………...…...…5 Location……….…………………………………………………..………………………5 Similar Businesses…………………………………………………………...……………5 List of Tables Start Up Costs (Figure 1.1)……………………………………………..………..………2 Loan Options (Figure 1.2)………………………………………..…………..…………..3 Estimated Monthly Expenses (Figure 1.3)…………………………………….………...4 Estimated Monthly Profits (Figure 1.4)……………………………………..…………...4


ABSTRACT This report discusses the feasibility of opening a delivery based bakery in Denver. After significant research into: the financial requirements, loan options, estimated profits, benefits of opening a delivery bakery, location and similar businesses in the area it has been concluded that opening a delivery-based bakery in Denver is feasible. It is the goal of this report to convince you to join me in starting this exciting opportunity. INTRODUCTION Background Edesia Bakery Edesia Bakery is an internet-based delivery bakery based in Denver, Colorado. Fueled by its whimsical branding, unique flavors, and top notch customer service, Edesia Bakery will quickly become iconic in the Denver community. The bakery will focus on the production of popular baked goods such as: cupcakes, macaroons, whoopie pies, cakes and pies. Edesia is customer orientated and motivated to create a fun experience when ordering from us. Starting from the website, to the packaging, to the delivery and the product itself the customer will receive not only a product but an experience. Goal The goal of this report is to first determine the feasibility of opening a delivery based concept bakery in Denver, Colorado and then, if feasible, convince you to become a business partner of Edesia Bakery. Rationale The rationale opening a bakery in Denver has steamed from a lifelong interest in the culinary arts and a passion for baking. This desire was further fueled by a strong entrepreneurial instinct. Opening a traditional store-front bakery would involve significant personal and finance risk. This risk is far too great to be considered feasible without first having a market base. It was decided that a much more feasible option for a bakery would be one which rents a commercial kitchen and then operates a internet-based delivery service. Denver was chosen as the base of operation for its high population density, ease of commute, and demographics. Method Choosing Topics This topic is the feasibility of opening an internet based delivery service. Topics within this report include; determining start-up capital needed, loan options, comparison of similar business, and demographics of Denver.

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Determining Feasibility To determine feasibility research was done via phone and via internet on the topics described above. Explanation of Criteria The following criteria was used to determine feasibility: 1. Financial Requirements. The needed capital to start-up the bakery and to keep it in production. 2. Loan Requirements. Typical loan options and the feasibility of obtaining them. 3. Information on Similar Businesses. A comparison of similar businesses in Denver 4. Location. The rationale behind choosing Denver, Colorado for the bakery Conclusion After researching the criteria given above it has been concluded that a delivery based concept bakery in Denver is feasible. DISCUSSION In this section, I will discuss the capital needed to fund Edesia Bakery, the various loan options available to start-up business, as well what information we’ll need to bring to a lender in order to obtain a loan. Also discussed will be estimated monthly expenses, estimated monthly profits, and the benefits of having a delivery service versus a store front Bakery. Capital Required The total amount of capital needed to start the venture is $10,000. This is a very generous figure, which would give the new start-up enough leeway to set up operations and begin to build a substantial customer base within the Denver area. The table below in figure 1.1 itemizes the start-up capital needed: Figure 1.1 Start Up Costs Delivery Car Rented Commercial Kitchen Ingredients Packing Supplies Advertising Office Supplies Misc. Start-up Costs Total

$5,000 $500 $1,000 $500 $250 $2,000 $750 $10,000

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Since this is a delivery-based service, having a reliable car is paramount to the bakery's success. This is why half of the startup capital is dedicate to the purchase of a reliable delivery vehicle. The next highest start-up expense will be the cost of the ingredients. The quality of the ingredients will be the cornerstone Edesia Bakery's business plan and advertising model and therefore it is important to invest in the best quality ingredients available. The most advantageous aspect of the business model is that we will be renting time in a fully functional, full equipped commercial kitchen. This allows us to keep overhead low, and the total startup capital required at a minimum. Loan Options and Requirements After doing research on the loan options available to entrepreneurs, I have come to the conclusion that obtaining financing from friends and family as well as a Small Business Loan will be the best option. Other loan options which were considered were angel investors and credit cards. Finding an Angel Investor is still feasible but not the best option at this point in time. Credit cards are an attractive alternative for their liquidity and availability, although the repayment terms make credit card financing the least feasible of the four options for financing. The table below in figure 1.2 details the various options for financing. Figure 1.2

Types of Financing

Angel Investor Friends and Family Credit Cards Bank SBA Loan

Typical Repayment Terms Capital in Exchange for Shares, flexible repayment terms Flexible Repayment Ridged Terms, High interest Low rates, long repayment

Difficulty of Obtaining

Amount feasible

Difficult Easy/Moderate

$10000. $1000.

Easy/Moderate

$5000.

Moderate

$10000.

As you can see, a combination of family/friend backing in combination with a small business loan is the most feasible option for financing this new venture. Information Required for Financing Preparation is the key when starting a small business loan application. First and foremost a solid business plan is needed to outline the business strategy and to prove feasibility. This will give the lender confidence in your business’s ability to repay the loan amount. The lender will also require a credit history and credit score. A good credit history and score will help to obtain the loan at a low APR. A statement of collateral and the financial projections of the new venture will also provide the lender with valuable information about the new business and reassurances about your ability to succeed. 3.


Estimated Expense The business model of Edesia bakery is designed to keep overhead costs low. By not having a store front, we will pay for only the time that we use in the actual production of baked goods. This not only saves on the monthly rent but also in purchasing the kitchen equipment needed for production. Our estimated monthly Budget is listed below in figure 1.3. Figure 1.3 Monthly Expenses Ingredients Gas Insurance Packaging Rent Advertising Loan Repayment Total:

$250. $150. $50. $200. $500. $100. $111. $1361.

Estimated Profits Edesia’s monthly profits are based upon similar business models in the Denver area. Below is a detailed tabled (figure 1.4) on the monthly production and profits of Edesia Bakery. Figure 1.4 Product Large Cakes Medium Cakes Small Cakes Dozen Macaroons Dozen Woopie Pies Pies Delivery Charge

Cost

Output Per Month $60 $40 $20 $18 $15 $20 $20

10 15 15 40 25 25 130 Total Income

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Total Income $600. $600. $300. $720. $375. $500. $2600. $5695.


Store Front vs. Delivery Starting a new company is always risky. Starting a company from scratch without a known name is even more so. By starting Edesia small, it will give us the chance to grow the business without the massive risk of opening a store-front. By starting a Bakery delivery service versus a storefront we are able to cultivate a strong customer base. Once a loyal customer base is put in to place, we would then be in a much better position to open a profitable store-front bakery in Denver.

Location Denver is a perfect city to start a delivery-based bakery. It is the 10th largest city in the US with a local population of 554,636 and receives over 300 days of sunshine a year. The average age of person in Denver is 31 years old with a medium income of $39,000 per year. (hometoDenver.com) Although it is not as big a city as Los Angeles or New York, it is the perfect size to start a new business. The city is friendly and easy to navigate. The good weather is a distinct advantage for a delivery service. Denver is brimming with a young professional population who are very health conscious. This is a perfect demographic for a Bakery which prides itself on using real, local and healthy ingredients in their baked goods. Also being born and raised in Denver, I personally have a unique insight of the local cultural, the people and the economy. In short, I know what works, who to market to and how.

Similar Businesses There are several bakeries in Denver which offer a delivery service. These businesses usually offer the delivery service in conjunction to their store-front business, and not as their sole business model. Below is a brief discussion of three bakeries in Denver which offer a delivery service. Maggie and Molly's Bakery http://stores.maggieandmollys.com/StoreFront.bok Maggie and Molly's Bakery is a very similar concept to what Edesia Bakery is looking to do in Denver. Until recently, Maggie and Molly's have been an internet based delivery-only bakery service. As of March 6th, they announced that they will be opening a store front. More than anything else, I believe that this demonstrates the feasibility of opening a delivery bakery service in Denver and also a testament to the opportunity for growth within the industry. As a competitor, Maggie and Molly's is targeting a different audience than Edesia would. Also because they are opening a store-front their focus will be shifting from the delivery niche to serving their walk-in customer base. This will be a great opportunity to fill the gap left by their shift in business. 5.


Gauteaux Pastries http://www.gateauxpastries.com Gauteaux's Pastries is an upscale store-front bakery in Denver which specializes in high-end cakes. They do also have a delivery service, but it is by no means their primary market. Gauteaux is a very successful bakery in Denver but would not be catering to the same target market as Edesia, and therefore is not serious competition. Blue Point Bakery Blue Point Bakery is another very profitable delivery-based bakery in Denver. They are a commercial bakery and only sell to other companies such as cafes and restaurants. As such, they serve as a good model for price points and delivery mechanics but do not pose any threat to Edesia's market share.

Conclusion Edesia Bakery is a feasible business endeavor. Through research of financial requirements, loan options and feasibility, location, and other benefits I believe that Edesia has a high probability of being profitable and competitive in the Denver bakery market. It is my hope that you will agree with my conclusions and elect to join me in me in this very exciting business endeavor.

Resources http://www.hometodenver.com/Stats_Denver.htm#pop


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