DECISION MAKING UNDER SCARCITY
This assignment will provide a brief introduction to economic theory. Using the article “Red Velvet Revolution: The Rise of the Cupcake Entrepreneur,” you will play the role of a small business
owner in charge of a cupcake store. You will have to make choices about location, inventory, equipment and sales. Throughout this exercise, you will have to think about economics as the study of choice under scarcity.
STEPS TO COMPLETE ASSIGNMENT:
1. Carefully read the introduction and steps to complete the assignment before you start completing it.
2. Read the guided reading article “Red Velvet Revolution: The Rise of the Cupcake Entrepreneur”. First Reading. Make sure you have a full understanding of what it takes to become a Cupcake Entrepreneur. You are free to use the web to conduct further research and get innovative ideas.
3. Provide answers to the questions 1 and 2 “the General Questions” and “the Critical Thinking Questions” Questions 3, 4 and 5 of the assignment.
4. Read the business analysis “Cost of Doing Business Section” Second Reading. Provide detailed information as of how you would spend the initial $80,000 investment. Provide a detailed budget for Location and Supplies, quantities, amounts and how much of the total initial investment you will spend. Question 6.
5. Provide details about your vision of this business and the strategy you will use to achieve long term sustainability. A paragraph (4 sentences) should suffice. Question 7.
FIRST READING
RED VELVET REVOLUTION: THE RISE OF THE CUPCAKE ENTREPRENEUR
For Lauren Ball, cupcakes bring to mind childhood memories of trips to the bakery and birthday parties topped off with frosted treats big enough to pack a punch for any sweet tooth — but small enough that she didn’t have to share with anyone else.
But the 17-year-old from Escondido, Calif., also knows that cupcakes represent a lot of hard work. A year ago, Ball and friend Sawyer Epp, also 17, started their own business baking and selling cupcakes for special orders and at local farmers markets. Thousands of chocolate, vanilla and red velvet cakes later, Ball advises any aspiring baker to “take the amount of work you think it’s going to be and double that — or triple that.”
When they started out, it took the teens about seven hours to make 100 cupcakes. With experience and the discovery of some time-saving tricks (such as measuring out the ingredients at home before heading to their rented baking space) they could churn out 300 or 400 cakes in about four hours. Ball and Epp had to get all the permits and licenses required of food vendors in their area. They tested different brands of cocoa and vanilla to determine which brands made the cupcakes taste best. “That’s what it really takes to be successful,” says Ball. “Anything worth doing is going to be hard.”
These days, cupcakes are playing a starring role at pastry shops across the country, and Ball and Epp’s City Cupcakes is just one of the businesses feeding the craze. Cupcakeries run the gamut from stores offering treats in classic flavors, like chocolate and vanilla, to those peddling more exotic tastes, including margarita and sweet potato (both of which have been on the menu at SAS Cupcakes, which has locations in Delaware and North Carolina.) Bakers are selling their cupcakes via blogs, Facebook and Twitter, and from traveling food trucks.
Some entrepreneurs are combining cupcakes with a cause. At City Girl Cupcake in Providence, R.I., any profits that don’t go back into the business are donated to local and national charities. Extra cupcakes — all of which are organic, nut-free and baked with locally sourced ingredients — are donated to the local Ronald McDonald House. Founders Catherine Corrente, 16, and Isabella Veader, 15, go to a school where community service is emphasized “and we both wanted to bring that into what we did when we sold,” Corrente says. “We’re both extremely fortunate, so we wanted to give back.”
In Teaneck, N.J., all of the profits from the cookies and cupcakes sold at Zoe’s Cupcake Cafe go to Zoe’s Place, a nonprofit organization that provides services and support to teen mothers or mothers to be. Clients of Zoe’s Place also work at the cafe, operating the cash registers and helping a professional pastry chef with the baking. “I think the colors are what attract everybody — all the different frosting colors and sprinkles and decorations,” says Christian Mims, 17, who works at Zoe’s. “Then you taste one and you want to keep going back.”
Cupcakes are even at the center of their own show on the Food Network. To win Cupcake Wars, bakers battle a ticking time clock to earn top scores from a panel of judges for taste, style and presentation. “I’d rather have dessert than dinner,” says Jasmine Frank, who competed for a chance to cater a vintage fashion event on an episode that aired last summer. The 19-year-old Woodland Hills, Calif., resident bakes cakes, cupcakes, cookies and cheesecakes to order through her online business, Jazzy Cakes. “When I started looking at culinary schools, people thought I was crazy. I had a 4.0 my whole high school career and people asked, ‘Why aren’t you getting a full ride to a university?’ but somehow I had a vision … that this was what I was meant to do.”
Many foodies trace the cupcake trend to a 2000 episode of Sex and the City where Carrie and Co. made a pilgrimage to Magnolia Bakery in New York City. Since then, however, the sweet treats have become more than just a passing fad, says Rick Bittner, executive director of the Retail Bakers of America in McLean, Va. When Bittner owned a bakery 15 years ago, he sold many full-sized cakes but very few cupcakes. Since then, however, consumers’ interest has shifted toward smaller, more inexpensive treats that can be eaten on the go. “[Cupcakes] are a trend, but there are trends that become staples,” he says.
With so many cupcake businesses popping up in both large cities and small towns, aspiring entrepreneurs need to carefully research potential markets, rely on mentors for both business and baking tips, and get creative when it comes to marketing and advertising, Bittner suggests. “The people who are successful create something more than just a product in a display case. Going to their stores becomes an experience.”
SECOND READING
BUSINESS ANALYSIS – COST OF DOING BUSINESS
Congratulations! You are now the owner of a wonderful, new cupcake store.
As owner, you have a lot of decisions to make. Where will you open up shop? What kind of supplies will you need? How much will you charge for your cupcakes?
Unfortunately, you have a limited budget. Currently, you have $80,000 to open up your store and buy everything you need to start making cupcakes. You’re going to have to make some tough choices!
Location:
Before you open your store, you need to decide where to put it. Your real estate agent has provided you with three options.
1. Shopping Mall Booth ($40,000) – This booth sits in the middle of a large shopping mall food court. There are several fast food restaurants in the vicinity, and one candy store a few doors down. The mall is usually crowded on weekends with family shoppers. During the weekdays, business is slower, although teenagers often walk the mall once school is out.
2. Downtown Corner Store ($60,000) – This is a prime location at the corner of one of the busiest intersections in the city. The store is actually the first floor of a 40 floor corporate office building, with 3,000 people coming in and out each day, often looking for a breakfast, lunch, or just a quick snack.
3. Neighborhood Shopping Center ($50,000) – A small, store with large windows opening onto a concrete sidewalk, a two-lane street, and a neighborhood park. This location sits between a family-owned Italian restaurant and a sporting goods store. This small shopping center is located in the middle of a quiet urban neighborhood, with several homes and apartments just across the park.
Supplies:
Once you have a location in mind, now you have to stock the kitchens. Think about which items you will need most. You can pick as many (or as few) as you would like. You can always buy two or more of the same item. Make sure you leave some money to buy ingredients!!!
1. Extra Large Industrial Refrigerator ($7,500) – The biggest refrigerator around. Stores over 3,000 cupcakes, with room left over for all your perishable ingredients.
2. Standard Industrial Refrigerator ($3,000) – No restaurant is complete without a way to cool ingredients. This unit stores over 1,200 cupcakes with some room left over for perishable ingredients.
3. Refrigerated Display Case ($2000) – This glass refrigerator holds around 200 cupcakes. The entire unit is made of glass, so customers can see into the refrigerator, and take a peek at your products.
4. Industrial Kitchen Mixer ($2,000) – With this mixer you can make super-sized batches of cupcakes in one sitting.
5. Regular Kitchen Mixer ($500) – Not quite as powerful or large as the industrial mixer. Still, if you don’t want your workers spending all day mixing by hand, this is a crucial piece of equipment.
6. Plastic Table with Four Chairs ($500) – These plastic chairs are perfect for indoor or outdoor use. The plastic is easy to clean, but will eventually break over time
7. Wooden Table with Three Chairs ($2,000) – These wooden pieces are extremely durable. Works best indoors. Higher quality, and longer lasting than plastic furniture.
8. Neon Sign ($1,000) – Advertise your store with bright neon lights. These signs are sure to grab your customers’ attention, but they will eventually burn out with use.
9. Wooden Sign ($3,000) – This durable, handmade sign is less flashy than other forms of advertisement, but it will give your store an upscale appeal.
10. Fliers ($600) – Advertise your new store by mailing out fliers to local residents. For a small fee, a local advertising agency will send fliers to every building/home/store within 1 mile of your new location.
1. What does it mean to make choices under scarcity?
2. What is your understanding of scarcity?
3. How does it affect the store owner?
*** THINK AND EXPLAIN AS IF YOU WERE THE OWNER***
4. How does scarcity affect customers?
*** ELABORATE BASED ON YOUR UNDERSTANDING OF SCARCITY***
5, What are the scarce resources involved in running a cupcake store?
*** PROVIDE DETAIL***
6. Provide details about your vision of this business and the strategy you will use to achieve long term sustainability. A paragraph (4 sentences) should suffice.
7. Read the business analysis “Cost of Doing Business Section” and provide detailed information as of how you would spend the initial $80,000 investment. Provide a detailed budget for Location and Supplies, quantities, amounts and how much of the total initial investment you will spend
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