Wholesale provides her steady demand because of lead time in making orders, while retail is essentially walk-in and uncertain.
The secondary problem is how Amy could improve her profit margin. Amy’s Bread’s competitive advantage lies in its manual baking process. This causes it to incur higher manpower costs and keeps profit margin low. Amy has not made any cost or price analysis, or comparison with competitors, but only charges what she feels is right.
Amy’s Bread was established in 1992 and is located in Manhattan. It serves 50 regular wholesale customers with waiting list of more than 30 wholesale customers, all quality hotels, gourmet food shops and restaurants.
As to competitiveness, Amy’s competitive advantage is in her hand-baking method, which produces excellent bread of high quality that could otherwise not be attained. She has also been given excellent press and the reviews have improved her track record and clientele. Furthermore, competitive advantage also resides in Amy’s dedicated and engaged baking staff who has been trained well, and who remain loyal to the business.
The solution to the main problem is to expand, since Amy’s Bread has already reached full capacity, and its potential wholesale market will assuredly bring sales to almost twice the former wholesale volume (additional 30 customers to the existing 50). Amy must expand to capture the large wholesale demand and to try to attain economies of scale.
It is recommended that Amy should acquire the building she could renovate for $300,000, then move all the wholesale production facilities there and operate the present location for retail. In that manner, Amy could expand both her wholesale and retail businesses. This way she assumes only the additional capital expenses she could afford ($300,000 versus $500,000), she does not acquire additional extra space she does not need (6,000 versus