Tastykake is a snack favorite since 1914. It is a whole line of cakes cookies, pies and donuts. The products are available in supermarkets and retail outlets in the east, southeast, and southwest of the United States. Tastycakes are celebrated for their quality and fresh taste. They include Krimpets, Kandy cakes, and juniors. The new hit in the market is candy bar cakes. The varieties are so tasty that a single bite makes one realize why they are a favorite of many for over a century. The variations are krimpets, kandycakes, cupcakes, juniors, pies, bars, and donuts, Kandy bar kakes, chocolate bells, honey buns, Danish, snowballs, sweet rolls, and dreamies (Tastykake, 2017).
Philip Baur, the founder of Tasty baking company, had a passion for baking. His father was the proprietor of Bauer Brothers Bakery in Pittsburgh. At a young age, Philip learned the basics of making snacks. He desired to have great tasting cakes for a good value using fresh ingredients. His father sold the company but Baur joined forces with an egg salesman names Herbert Morris and came up with a new idea. They thought of individually wrapped snack cakes, baked and delivered on a daily basis while they are still fresh. In 1914, with a capital of $50,000 from family, they founded the Tasty Baking Company. When the dad sold the company, the deal required that no family member could open a bakery within 100 miles of Pittsburgh. Philip and Morris, therefore, invested in Philadelphia. There were challenges at the start because the town was humid and the icing could not thicken like in Pittsburgh. However they managed to start baking. Their first cakes were a hit, and therefore the two needed a brand name to help in its marketing. The issue of the name was solved by Phillips’s wife who after biting one of the cakes said ‘what a tasty cake.’ The two later sketched a logo for the new name choosing a K instead of a C for the cake is still a TASTY mystery. The design has remained pretty the same to date. In the first week, the company had made $222 from sales, and by the end of its first year, the total sales were $300,000. The company used a horse and a wagon to distribute its cakes. In 1922, the company moved to Hunting Park Avenue where it operated for ninety years. In the 1930s, the company invented a pie that is individually wrapped to fit into a lunch box. It was so unique and tasty that it soon became a staple in brown bags and lunchboxes. In 1931, the company introduced Tandy Kake which combined white cakes layered with a soft peanut butter and coated with delicious milk chocolate the name was later changed to Kandy Kakes and has remained the most popular Tastykake. In the Second World War, 203 of the company's employees served overseas, and Krimpets and Tandy Kakes were shipped to Asia and Europe giving soldiers from Philadelphia a sweet moment in the war zones. In the 1950s, the company used television personalities and sports stars to endorse Krimpets, Pies and Kandy Kakes (Tastykake, 2017).
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Tasty Baking became a public company in 1961and in four years its sales nearly doubled to $40 million. By 1980s, the company's secure distribution network enabled it to deliver fresh cakes from New England to Ohio and Florida. The independent owner-operators have also been helpful to the company and have helped to distribute the cakes to retail outlets and grocery stores. The company built its state of the art bakery in Navy Yard in southern Philadelphia. The company merged with Flower foods and is now a wholly owned subsidiary. The merger has enabled the company to sell the snack cakes in retail outlets in the entire country (Tastykake, 2017).
My favorite snack is Tastykake, Kandy Kakes Dark Chocolate Peanut Butter which is available for a family pack. The product can be bought in retail shops, grocery stores or can be shipped to the customers. The ingredients are sugar, peanut butter, hydrogenated and partially hydrogenated vegetable shortening, bleached enriched flour, skim milk, food starch-modified, soy lecithin, mono and diglyceride, salt, leavening, natural and artificial flavors, coconut oil, xanthan gum, corn flour, nutmeg, and cinnamon (Tastykake, 2017).
The retail price for the product is $17.57 when you buy a pack of twelve cakes in a box. Using the 50% mark up in the amount, the selling price to the merchandiser or distributor should be as follows (17.57 x 100)/150 = $11.7. The company overall gross margin = 33.41% computed by dividing 5.87 by the selling price 17.57. If the product is sold to the consumer directly using the gross margin, the selling price per box will be 11.7 + 11.7 X 33.41% =15.61(Lanen, et al., 2010).
| Cost Price | $11.7 |
| Mark up % | 50% |
| Mark up | $5.87 |
| Selling Price | $17.57 |
| Cost price | $11.7 |
| Margin % | 33.41 |
| Margin | 3.91 |
| Selling price | $15.61 |
(Lanen, et al., 2010).
A competing product is a Ding Dong cake by Hostess brand. It is produced and distributed throughout the United States. Hostess brand is currently owned by Apollo Global Management and Metropoulos. The product is round with a flat top and bottom. The cake has a creamy white filling at the center which is covered by a chocolate glaze. Initially, it was wrapped in a thin aluminum foil making it possible to transport it in lunches without damaging the chocolate glaze. The product was introduced to the market in 1967, but production was stopped in 2012 when hostess went out of business. A new production plant was opened in Kansas in 2013, and the output of Ding Dong resumed in July the same year (Hostess, 2017).
The product is manufactured from the following ingredients. Sugar, partly hydrogenated vegetable and animal shortening that include soybean, cottonseed, canola, palm, palm kernel, coconut or palm oil and beef fat. The other ingredients are enriched bleached wheat flour, soy proteins, soybean oil, whole egg, egg yolk, leavening, salt, sweet dairy, water, fructose, corn syrup, modified corn starch. Whey, cocoa, baking soda, corn starch, artificial flavors and sorbic acid (Hostess, 2017).
Ding Dong is available in the multipack for family or customers who like to stock them in their houses. Similarly, they are sold in single-serve for customers who desire to have a bite but do not want to buy the entire pack (Hostess, 2017).
The product can be bought in grocery stores and convenience outlets and online. A ten pack is available at $19.39. When you buy the pack at a markup price of 50%, the selling price to the distributor or merchandiser is (19.39 x 100/150) = $12.93. The company overall gross margin is 6.47/19.39 X 100 = 33.34%. If sales were made directly to the consumer, the sell.ing price would be 12.93 + 12.93 X 33.34% =17.24 (Lanen, et al., 2010).
| Cost Price | $12.93 |
| Mark up % | 50% |
| Mark up | $6.47 |
| Selling Price | $19.39 |
| Cost price | $12.93 |
| Margin % | 33.34% |
| Margin | $4.31 |
| Selling price | $17.24 |
(Lanen, et al., 2010).
TastyKake has specialized on differencing its products its products. The company competes on delivering fresh and tasty cakes and has managed to maintain a high customer base by ensuring that quality is not compromised. The company has continued to produce unique products that have received widespread acceptance. Hostess uses cost to compete in the market. Its products are priced at a lower price compared to other brands. The company's unit price is low, but since more cakes are packed in a box, the box becomes expensive. From 2013, the company has tried to regain its market share by selling at a discount prices to woe back its customers. This strategy has succeeded in capturing new customers and increasing the market share for the company (David & David, 2017).
TastyKake has competitively used its value chain to give it a competitive advantage over its competitors. It has eliminated unwanted activities in the value chain to ensure that it is only the essential activities that add value are carried out. It has engaged in the design, production, distribution, and marketing of its products. The company has partnered with strategic partners who deliver essential supplies where they are required therefore eliminating any costs that arise from stock-outs (David & David, 2017).
Its design department has been successful in designing product packaging and its website to make them appealing to the customers. The company uses a lean distribution network ensuring that the products reach their customers when they are still fresh. With a fleet of modern trucks and outlets in different parts of the country, the company had managed to enter a broader market which has been expanded further when the firm merged with Flower Foods becoming a subsidiary (David & David, 2017).
Hostess has also eliminated any unnecessary activities in its value chain especially after it was acquired in 2013. Before the acquisition, the company had managed its value chain well, but there were challenges with the marketing of the products as customers moved away from junk foods. The company was unable to adjust appropriately leading to an increase in the commodity prices and labor costs. The company failed to develop healthier products for the changing customer needs leading to losses and ultimate closure. For the two products, relevant costs for each segment include product design costs, direct material and labor cost, marketing and distribution costs (Lanen, et al., 2010).
Both products are made from enriched bleached wheat flour as a critical ingredient. The two companies obtain the flour from mills. The flour mills procure wheat from farmers and some import from other countries the sell surplus wheat. The flour is made explicitly for bakery use, and its preparation is done to meet the needs of the bakers who require the most delicate blend (Lanen, et al., 2010).
There are possibilities that the price will increase in future as the level of wheat production decline as farmers opt to plant other profitable crops. Similarly, the effect of climate change will also lead to a decrease in the volume of wheat harvested by farmers in their firms. With the increase in the population size and growth in the number of manufacturing firms, there is a likelihood that the demand will be higher than supply leading to a rise in the price (Lanen, et al., 2010).
The opportunities to offset price increase and maintain gross margin while offering the product to the consumer at the current price will depend on the ability of the companies to adjust their operations. The company should strive to improve their value chain to absorb some of the costs rather than passing them to the ultimate consumer without reducing their margin (Lanen, et al., 2010).
The companies can form strategic partnerships with the suppliers to ensure that they are guaranteed of adequate supplies when needed and at a favorable price. The company should integrate its operations with that of the critical suppliers to eliminate any avoidable costs that arise from poor coordination of activities. The companies can also employ technology in their manufacturing activities to reduce the variable costs of producing each unit. Similarly, they can strengthen their upstream operations by contracting efficient delivery firms that will ensure timely deliveries at a lower cost (David & David, 2017).
Direct sales to the customers will also eliminate intermediaries and enable the company to sell the products at a lower price. The two firms should enhance their internet capabilities and conduct aggressive online marketing with the premise of guaranteeing timely deliveries for customers who order their products on the internet (David & David, 2017).
Assuming that the price of the flour increase by 4% which is equivalent to double the average inflation rate in the US, the final product will also face an increase in its ultimate price. If other costs remain the same, the product will only realize a slight increase in its cost assuming that the flour constitutes a sizeable cost for each unit. If the cost increase by 4% and the companies desire to main the 50% mark up, then the total cost will change as follows (Lanen, et al., 2010).
|
TastyKake |
Hostess |
||
| Cost Price | $12.168 | Cost Price | $13.45 |
| Mark up % | 50% | Mark up % | 50% |
| Mark up | $6.084 | Mark up | $6.724 |
| Selling Price | $18.252 | Selling Price | $20.174 |
| Cost price | $12.168 | Cost price | $13.45 |
| Margin % | 33.33 | Margin % | 33.33% |
| Margin | 4.056 | Margin | $4.48 |
| Selling price | $16.224 | Selling price | $17.93 |
(Lanen, et al., 2010).
From the above table, it is evident that a slight increase in the cost of a critical ingredient will affect the final cost of the product. The management of the companies must, therefore, look for ways of absorbing the additional cost without affecting the final product price or the markup.
References
David, F. R., & David, F. R. (2017). Strategic management: concepts and cases ; a competitive advantage approach . Boston: Pearson.
Hostess Snack Cakes, (2017). Retrieved November 04, 2017, from http://hostesscakes.com/products
Lanen, W. N., Anderson, S. W., Maher, M., & Lanen, W. N. (2010). Cost accounting . New York: McGraw-Hill Higher Education.
Tastykake, (2017). History. Retrieved November 04, 2017, from http://www.tastykake.com/history
