Task 1: Dusty Knuckle The client is the CEO of Dusty Knuckle (DK), a bakery and caf located in Londons Dalston and Harringey neighborhoods. The Dusty Knuckle is one of London's leading sourdough bakeries, providing freshly baked bread and pastries to some of the city's best restaurants, cafes, and shops. Earlier, you had worked on optimising the firms cost structure. Your final recommendations related to this consultation were presented to the client in January 2022. The CEO DK has now asked you to help further improve the firms profitability. Additional Information: Customers DK has 2 types of customers: dinners and wholesale consumers. Whilst DKs dinner consumers are typically not very price sensitive, they are keener on luxury experiences. Increasing numbers of consumers are seeking to consume the dining experience (pizza and wine) in the cafe The typical DK customer is a 25 to 45-year-old professional, with an annual household income above 45,000. On average, customers spend 20 per transaction, with an average price for pizzas at 10 Company DK bakes high quality dough and has excellent reviews. DKs distribution channel: Dalston site is the original home and HQ of The Dusty Knuckle (Bakery); Harringey, Green Lanes site (Bakery and dining) Previously the client also sold pastries online. This channel was closed following a cost structure optimisation consultation in 2018, as its cost-to-revenue ratio was unsustainable. DK still maintains a website, where customers can preorder pasteries for store pickup but delivery to private customers is not currently offered. DK has a cost-efficient operating structure, with fixed and variable costs coming in below industry benchmarks. The Cost Revenue Ratio is 1:5 or 20% i.e. every Page 2 of 7 MN5070QA Practice of Consultancy | Assessment 20 spent generates 100 in revenue. DKs total annual revenue (net sales) for the year ending 31 December 2022 is 3,239,800. Revenue breakdown: Dalston bakery contributed 2,721,500; restaurant sales added 518,300. Average transaction values for Dalston bakery outlet and Harringey, Green Lanes site (Bakery and dinning) are 38 and 80 respectively. Return on Sales (margin) is 61% for the Dalston bakery outlet and 56% for Harringay, Green Lanes site (Bakery and dining) Combined RoS: 60.2%. DKs target gross profit for the next financial year is 2,400,000. Industry and Competition The industry growth rate is in line with the UK GDP growth rate. The market is intense, with the top 5 artificer bakeries controlling 78% of the luxury bread market. DK holds 42% of the freshly baked pastry market (North London). Its main rival has 28% market share. The third and fourth largest rivals hold 7% and 2% respectively. In addition, there are several small local bakeries serving the exclusive segment in different regions. The foremost competitor has four distribution channels. Data on the main competitors profitability is not available. NB: You may assume that DK is not immune to the impact of increases in inflation (e.g. higher energy and commodity prices) and lower economic growth caused by crises, such as the pandemic or BREXIT (growth rate: 0.1%, inflation: 6.2%) Required (Comments for task 1 should not exceed 800 words in total.) 1. To understand the underlying dynamics, use a relevant strategic framework, such as the 3Cs or Porters Five Forces, to inspect the problem and analyse the situation. 2. Estimate the DKs gross profit for the financial year ending 31 December 2022 and present recommendations aimed at improving profitability. 3. Comment on the feasibility of the profit target in the current environment. You are expected to analyse and discuss cost and revenue projections, as well as the impact of current political-legal, economic, social, technological and environmental factors on profit, if considered relevant* . 4. Present your analysis (for points 1 to 3 above), deliverables and recommendations in a 600 to 800-word report addressed to the CEO of Dusty Knuckle in a report addressed to the CEO of DK. Your report should follow a clear structure and contain an introduction and conclusion with recommendations. NB: Work for points (1) to (3) is completed behind the scenes. The resultant framework, analyses, calculations, and recommendations should be presented to the client in the report and / or in the appendix of the report