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Alternative Funding Sources for Businesses

Cupcake Business in Malaysia

Cupcake Business in Malaysia

Business Description

Cupcake xxx is the first cupcake retail bakery and café of its kind in Malaysia. Cupcake xxx has a retail business unit and also a catering unit known as Cupcake xxx.

Cupcake xxx’s retail store consists of a wide range of 24 different cupcake flavours with an extended beverage menu that mirrors the cupcake flavours. Cupcake xxx also offers a limited lunch & dinner menu of pies and savoury pastries.

Cupcake xxx Occasions provides personalized service for customized cupcakes to suit one’s special occasion be it a wedding event, full moon/baby shower, or corporate event.

Cupcake xxx core product is in the service execution of our great tasting and highly acclaimed quality cupcakes. We combine great personalized service and great cupcakes to “WOW” consumers.

Cupcake xxx is a proven business with over 3 years of operations, growing at +22% in the 1st year & +23% in the 2nd year.

We have 35,500 fans on Facebook with 100,000 hits per month on the website. 46% out of 100 people said our cupcakes are the best they have ever tasted & another 31% saying it is very good in a recent survey.

Market Opportunity Overview

Cupcakes fall within the Bakery and Cereals market, valued at RM1.3 billion in 2009 (Malaysia). Cupcake xxx serves both a consumer need and addresses a market opportunity.

Consumer Need:

Working parents & Young Families in Malaysia constitutes 53% of the active eating out consumer population and contributes close to 80% of value sales in the F&B industry. This is a growing consumer segment as the young single adults mature into marriage and young families. The problem is there are very few F&B establishments that really cater to busy working parents and young families i.e. provide a place for parents to socialize while having the comfort of their children nearby and security that they are safe. There are many large café chains that cater to the young working adult like Starbucks and Coffee Bean & Tea Leaf but there aren’t many food retail chains that is a destination for working parents and young families.

Consumers of all age groups find reasons to celebrate life be it birthdays, weddings, etc. There isn’t any one product that can be as versatile in eliciting an emotional response as a cupcake. Ice Cream, traditional cakes, pastry, and donuts cannot because they lack the personalization & versatility found in cupcakes.

Market Gap/Opportunity:

There isn’t one strong retail cupcake brand in Singapore, China, Taiwan, Hong Kong, India, the GCC countries, Japan, Indonesia, Thailand, etc.

Cupcake xxx is the first retail cupcake brand in Malaysia that caters to consumers with an impulsive need for a cupcake. We have plans to penetrate the Asian; Middle East & Australasia markets much like how Starbucks, Baskin Robbins & Tutti Frutti have done.

Our opportunities include:

Target Market: Mass appeal to consumers aged from 2 years – 90 years.
Product: Product role is linked to impulsive treats AND lifestyle celebrations & gatherings which increases the product usage many times over coffee, ice cream & frozen yogurt.
Place: Emphasis on menu and store design that encourages easy take-away and dine-in experience that caters to families.
Distribution: Distribution into other eat-out establishments i.e. café chains, restaurants, etc.
Distribution: Potential for distribution into grocery chains such as Tesco
Product: Cross product innovation between cupcakes and other product categories and pioneer the development of healthier cupcake menu, thereby addressing another market need for guiltless indulgence.
Cupcake xxx immediate focus is in franchising the brand into Asia, the Middle East and Australasia markets. Medium to Long-term expansion will include the European markets.
Background of key managers/founders and shareholding;

xxx – Co Founder & Managing Partner

Has 13 years of solid brand management experience in FMCG companies such as Sara Lee and F&N Coca Cola. Most recently the Marketing Director of McDonald’s Malaysia.
Has a proven track record in leading companies to achieve strong growth in sales and brand penetration. Most notably, at McDonald’s where xxx was responsible for implementing various strategies to drive growth during the recession.
xxxx responsibilities at Cupcake xxx include new business development, marketing, franchise development & sales operations.
xxx – Co Founder & Managing Partner

Has 8 years of banking experience in both Malaysia and Australia
xxx is the brainchild behind Cupcake xxx and was responsible for launching and managing the business in all disciplines including concept and menu development, store design, operations as well as the finances.
xxx responsibilities at Cupcake xxx include product innovation, business operations and finance.
xxx and xxx have a small team of HQ staff that supports them in customer service, admin, kitchen & product operations and new business development. Cupcake xxx Sdn. Bhd. is wholly owned by 2 directors, xxx and xxx.
Current status

Cupcake xxx reported sales of RM758,063 in 2008; RM928,251 in 2009 and RM1,142,343 in 2010.
Both directors have invested an approximate total of RM500,000 into the business since its inception.

Funding required – RM1.3 mil for the following purposes:

IT Infrastructure
Logistic Infrastructure
Remodeling & Equipment
Human Resources
Marketing
Overseas Franchise Expansion
Working Capital (3 months)
Equity allocate to the Investors for the funding amount

Proposed equity at 30% for the total investment amount requested. At the end of 5 years, the exit strategy is to sell the company to a regional or global corporation that has the intention of penetrating the Asian, Middle East and Australasia market.

The investment will provide a solid infrastructure for Cupcake xxx to aggressively grow sales per store and number of stores in Malaysia and the region. Should the 5 year plan be realized, we project EBIT to be in the range of RM6 – 8 million by the end of the period with a possible company valuation of RM50 million and above.

With a network of retail chains into key markets within Asia, the Middle East and Australasia, we believe Cupcake xxx would be an attractive company for global companies from China, USA or Europe to acquire to increase their presence in those regions.

Company Valuation

We apply the Multiple of Earnings model to the valuation of the company with an estimated multiple of 7 – 9, based on industry standards.

Expected rate of return or IRR

A rough estimation of the investor’s rate of return based on a 30% equity share would be in the range of 6 – 10 times their initial investment, should the company be acquired at the desired value.

Investment risks and mitigating factors

We are asking that the investor be willing to collect their return of investment only upon the complete sale of the business. Should the sale of the business be delayed or become an impossibility, then a separate arrangement to pay out the investor will be agreed at a later time.

Exit opportunity

As mentioned, the Exit Strategy is a pay out to the investor upon the completed sale of the business. Should the sale not happen, then the remaining shareholders of the company may make arrangements to buy out the investor at a sum or rate of return that is agreeable by all parties at a later date.