SIFT CUPCAKE

AND

DESSERT BAR

Brandon Wilson 1

The company that will be analyzed throughout this paper is, Sift Cupcake and Dessert

Bar. Sift is a retail specialty baking company that was founded by Andrea Ballaus in 2008.

Andrea profession prior to being the owner of Sift was as a sales rep for Nestle Water. Her love

for cupcake came as a tool she used to get in the door of perspective clients in her former

profession. She realized quickly that peoples love of cupcakes provide that “Wow” factor. From

that point forward she discovered her true passion as an entrepreneurial business woman. Sift

was a company that started from very limited capital, resources, or experience other than a love

of cupcakes.

Sift began with the purchase of 1,000 square foot former coffee shop in northern

California. Ballus purchased this initial property for $9k and she used a $15k job bonus, a $14k

401k loan from her husband, and a $20k investment from her mother as the initial startup money.

As a result of their initial investment her mother, husband, and her became the sole shareholders

of Sift a Cupcakery, LLC. In the early stage of this company Andrea and her husband held many

of the critical and management position and labor position due to necessity. Both Jeff and

Andrea taught themselves everything it took to run a company. Within the first year they hired

their first manager a family friend named Corey. Andrea initial goal was to be the premier

specialty cupcake business in the Northern California area. Over the first three years Sift grew to

three total locations with a combination of retail and wholesale capabilities.

At the time Sift was organized there where many factors that foster an environment

primed for success. The specialty bakery market was project to see sales growth of 8.1% through

the year 2014. The popularity of specialized cupcakes was trending high because of many

popular TV show marketing that segment of business. Additionally, the NASFT reported this

industry to be the next big food trend even with the push for healthier living. Their where even

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Department of Labor statistic that reflected a demographic that was prime for exposure to the

specialty retail bakery industry. That demographic was the 35-50 age group of women making

between $50-100k salary range in household with children 10 or younger.

Sift in 2010 rebranded themselves as Sift Cupcake and Dessert Bar. As a part of this

rebranding Sift realize that their ability to maximize aggressively with a detailed marketing

strategy would pay great dividend and provide a competitive advantage. Additionally, Sift

established a set of core values that focused on above mentioned demographic. Sift market

strategy utilized radio with an extensive focus on social media outlets to promote their business.

This strategy allowed Sift to advertise and promote directly this demographic that utilize

computers more frequently than any other group. The results of Sift’s aggressive strategy helped

them established a 5,000 person Facebook fan base at a extremely affordable price with

maximum impact. Sift further expanded their marketing strategy by becoming actively involved

in the community. As a company Sift participated in many large community events which enable

them to be view as a community partner and not just a business. This is an effective strategy that

appealed to their focus demographic.

Sift management determined it necessary to hire a professional marketing firm for the

sole purpose to revamp and updating their existing website. The expectation was to assist in

branding and promotional development. The effort again was to put Sift at a competitive

advantage over in their market segment of choice. Andrea and Jeff viewed Kara’s cupcakes as

their most viable local competitor due to the amount of business locations and their market

penetration in the Bay area and conversely the identified the Sprinkles company as their sole

national competitor if they had plan to expand nationally. Going nation-wide is a decision

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currently facing Sift therefore identifying your competition now is essential part of the decision

making process.

Another aspect of Sift’s competitive advantage is their Core Values. Sift has establish 10

specific core values focused on furthering their goals and expectations in customer experience,

employee development, management growth, and community outreach.

1. Deliver the OMG factor every day.

2. Smile and be kind to everyone….. Always!

3. Quality products, a clean environment, and OVER THE TOP customer

service rule!

4. Create a fun place to work, learn, and grow.

5. Be innovative, creative, and passionate.

6. Build team spirit through open and honest communication.

7. Be accountable and learn from mistakes

8. Be empowered. YOU have the power to create loyal Sift customers.

9. Challenge yourself to get 1 percent better each day.

10. Support our community.

These values are a definite strength for the firm and if they are able to maintain these values to a

high standard they will be critical part of their success if they go national or maintain at the local

level.

Though Sift has been relatively successful thus far there are two areas that may threaten

their ability to maintain long term success if not properly address. These two areas are employee

training and better financial controls and management. Sift management must implement a

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detailed training program that focuses on developing store management ability to effectively

manage operating cost. Furthering analyzing the company financials it is easy to see that Sift’s

COS has consistently increase over the first three years of business climaxing to a high of 63.2%

in 2010. This is a financial flaw that if not controlled can cripple a company especially

companies like Sift that has very limited cash flow according to their 2010 balance sheet. The

other area of their financials that concerns me as potential weakness is their lack of accumulated

depreciation. In a business such as Sift they obviously have large amounts of equipment with a

measurable useful serviceable life. Since they are in the third year of business it should be

expected that some point in the near future new equipment will be needed in existing stores as

well as any future location they open. Due to their low cash flow this endeavor could prove to be

difficult to accomplish. There are a few positives that are reflected in their financials which Sift

should work hard to maintain. Sifts has shown the ability to continually grow their net sales year

over year. Their ability to maintain this strength shows that their brand and marketing strategy

and customer base are successful and strong. Sifts’ other strength is their relatively low long term

debt. This strength presents well when a company is looking to obtain additional financing and

investors.

In this case Sift is presented with three distinctly different options to decide a path

towards their future. Option one is maintaining their current location and strengthening their

internal controls and solidify this presence in the local market. Option two is rapid expansion

with retail stores only and commissary with focus being on opening a central commissary in a

central location capable of supporting multiple locations. Option three is expansion with retail

and baking stores between 1,500 to 2,000 square foot stores for targeted and well define

locations. Each option holds a bit of risks for different reason. However it is of my opinion that

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options two and three carry too much risk to be successful options of Sift. Both options two and

three will require a great deal of capital investment and cash flow that Sift currently is short in

availability. Additionally, with the poor internal financial control at the unit level Sift would be

exposed to a high risk of failure. It is of my opinion that Sift should move forward with option

one. This option would allow Sift to fortify their weakness in controlling cost. Furthermore, Sift

will be in a better position to receive the SBA loan they are seeking. This loan would greatly

improve their cash flow and depreciation issues. Focusing on differentiating themselves and

capturing the bulk of the local market share from their local competitors will prove to be critical

asset when they are ready to expand nationwide. I am optimistic off the future for Sift because of

their focus on customer and community. These two pillars are the foundation that has made Sift

relatively successful thus far. In conclusion, Sift has established a strong foundation and have the

essential building blocks necessary to ensure long term success as an organizations. Sift

leadership realizes that in order to grow the business they must hire senior quality executive and

infused experts in their areas where they are weak. A smart decision was shown by Sift to hire

and external consulting firm to advise them on which course of action to take to secure a better

and more success future for both Sift leadership, employees, and their loyal customer base.

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