Rose Cupcake & Bakery OVERVIEW

Rose Cupcake and Bakery (Rose) was a three-store chain of cupcake shops located in Seksyen 7 Commercial Centre, Shah Alam, Selangor. In late-2015, the husband and wife owners of the shops reflected on their past successes but were highly concerned with the company's current cash flow situation. The company had maximised its line of credit and lacked sufficient cash to pay income taxes which would soon be due. Owners, Jeff and Ju, had recently asked their banker for an increase in the company's line of credit, however, the loan officer recommended against this idea; instead, he offered to float their cash flow shortages in the short term, explaining that increasing Rose's current revolving line could negatively impact their ultimate success in securing a much needed RM300,000 SME loan. Jeff and Ju had developed three strategic options for improving the company's cash position and growing the business.

Option 1: Maintaining Current Locations - Maintain current stores and small business model while improving operational issues and strengthening infrastructure. Further develop brand identity and own the local marketplace.

Option 2: Rapid Expansion with Retail-Only Stores/Commissary - Open a central baking commissary along the Federal Highway and New Pantai Expressway (NPE) corridor. This commissary would service four additional 500-600 square foot storefront locations in 2016 in affluent communities without existing specialty cupcake shops. Additional storefronts would be added at a rate of two storefronts per year. These storefronts will only decorate and sell cupcakes; all baking will be completed at the central commissary.

Option 3: Expansion with Retail/Baking Stores - Expand on current business model of baking, decorating and selling in each new 1,500-2,000 square foot store. Move into targeted locations as the opportunity arises with controlled growth based on the financial health of the business. The plan was based on three stores opening in 2016 followed by two additional stores opening each year following. In the back of her mind, Ju also wondered if now was the right time to establish a delivery division. Many of Rose's competitors had already diversified into similar operations. Developing this new channel could expand Rose's potential customer base well beyond the reach of its current stores.

Question How strong are the competitive forces confronting Rose Cupcake and Bakery and other specialty bakers? Which one of the five competitive forces is the strongest? Prepare five-forces analysis to support your answer.