IBDP TERM 1 EXAMINATION (October 2022)

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IBDP TERM 1 EXAMINATION (October 2022)

 DESSERTS AND MORE (DAM)

Desserts and More (DAM) company, was founded by Mrs. Sneha Dalmia in 2008 in
Surat with an objective to “Serve fresh and the best”. It offers a wide range of
products for retail sale including cakes, pastries, cookies, savories like khari, lavash,
snacks, mocktails, cold coffee, hot coffee and the like. Their most selling, signature
products are brownie, chocolate cake and garlic toast.
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There are two directors in the company - Mrs. Sneha Dalmia and her husband, Mr.
Amber Dalmia, each of whom has a significant ownership stake in the business.
The company can only sell shares within themselves to people known to the
directors, say friends, family and associates. Their Articles of Association restricts
the right to transfer shares. DAM has taken FSSAI license and abides by the
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Companies Act, 2013 and the Factories Act, 1948.

The bakery industry, usually referred to as the grain-based food industry, is

increasingly competitive with a lot of home - based start ups entering the market.
DAM’s customers have responded to this by demanding lower prices and better
quality products. As this industry is quite innovative, there is also a requirement to
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continually develop new products or enhance existing ones.

As the food industry is innovative and fast changing, the external environment has
contributed further to the volatility. The heat of the Russia-Ukraine war is now reaching
commoners in India and around the world. The annual inflation rate in 20
India rose to 7.8 per cent in April 2022, the highest since May 2014, as food
inflation accelerated for the seventh straight month to 8.4 per cent. Vanaspati oil
price on May 31 was 26.6 percent higher than the same day last year, wheat was
14.3 percent higher, and mustard oil and sugar were 5.1 and 4.1 percent higher
than the corresponding day of the previous year. All these input factors drastically
affected DAM and its decision making process of costing its products as well as
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margins on the same.

DAM currently has 80 employees primarily titled as chefs, cake designers, office
handling staff, marketing and distribution staff. Although employees are normally

IBDP TERM 1 EXAMINATION (October 2022)

 allocated to one role, they are required to work anywhere in the store as per the
emergency of the situation. One of them put up a concern that they are also
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expected to help the directors in personal tasks, such as booking holidays for
family, organising social events, booking cab or movie tickets and the like.

One of their trained and 2 years old employees wants to pursue a graduation
course and he is unsure of managing his studies with work. He is intending to leave
DAM. However, on the basis of his 2 years performance evaluation, the HR
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manager of DAM reported that he is a valuable asset and his performance has
been commendable. The HR Manager is interested in holding him further in this
role. He is keen on bringing a change to the working style or shift timing, which was
never considered earlier as traditional processes were followed.

DAM acknowledges the importance of sustainability and social responsibility in

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relation to two key heads:

1. People - promoting a culture that encourages employees to develop their

talents and skills
2. Health and Safety - protecting employees, contractors and all other
stakeholders affected by its activities.
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On that note, DAM is aggressively into brand creation. Mrs. Sneha Dalmia has
always expressed her need to stay unique and how customers can be attracted to
DAM rather than other cakery shops. After a lot of research and being product-
centric, DAM made an amendment in their existing business process. The paper
used for packaging and boxing of its products are ITC paper which are
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purchased from local suppliers. Hence now, when a customer opens the box, there
is no pungent smell of the food. Also, the cake boards are not cardboards rather
MDF boards are used. This is because the MDF Boards don’t get soggy if any food
item stays on it for a longer term.

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DAM and their software developers team are under a constant pressure to bring in
the change in strategy and to actively look after the online sales, website creation,
home - delivery of products. A lot of questions are under consideration for online
ordering, launch of a website, its maintenance, customization feature to every
customer, load balancing and the like.

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Knowing all the customer reviews and reputation of DAM, Mr. Kailash ordered a 3
kgs Chocolate cake for his daughter’s birthday. As DAM invoicing policy states that 100%
payment is to be done on delivery of product and no credit is given to customers, Mr.
Kailash paid part - advance of Rs. 2,500, 7 days prior to the party. However, on the
booked date and time, no one came to collect the cake. DAM 65
called the registered number but it went unanswered. Repeated calls were made by
 IBDP TERM 1 EXAMINATION (October 2022)

the store manager but all efforts went in vain. Next day, Mr. Kailash asked DAM to
refund the advance paid. However, the store manager clearly refused him for the
refund of its advance. A lot of arguments also happened. But the store manager
abided by the company’s policy. Finally, no refund was made.

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Last year's financial report reported that 8 % of the pre-ordered sales were either
canceled or revised at the last minute. Mrs. Sneha is now perplexed that in line of
CSR Activities, whether DAM should join hands to give away such undelivered
cakes to Naari Sanrakshan Gruh Ashram, an NGO where she frequently donates
cake.

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With respect to acquisition of market share in conformity with the increase in rate of
growth in the economy, DAM adopted a growth strategy by offering Franchisees so
as to capture the market quickly and establish a brand image. Henceforth, it gave
Franchisees to parties who were interested in this line of business. A Contract of
Franchise needs to be signed between both the parties. In a meeting of the board of
DAM, the founder, Sneha Dalmia, advised the board that DAM must close down
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all of its franchises. She reasoned that the franchisees are unable to meet its
objective statement. The quality of product and the standard of service is not met
which in turn also affects the brand image as well. Henceforth, the board of DAM
made a decision and closed down all of its 10 franchisees in Surat.

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In order to counter the failure of the above mentioned strategy, DAM intends to
introduce ‘Cake Premixes’ in the market with the prospect of attracting new buyers
and targeting the ‘fast moving consumers’ segment in the market. The cost needed
to manufacture the so-called premixes requires a huge investment and the owners
are unable to decide whether to take up this venture on their own under their own
brand name or to go for a joint venture with a firm named ‘More or Less Desserts’
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(MOLD), operating in the same industry with a significant market footprint.

If DAM chooses to implement the above idea on its own, the initial investment shall
amount to a humongous Rs. 150 lacs having a success probability of 40% with returns
amounting to Rs. 250 lacs, whereas the probability of failure of the same is 95
60% with returns amounting to Rs. 200 lacs.

On the other hand, if DAM chooses to go for a joint venture with MOLD, the cost
shall remain the same. The success probability of the JV is 45% wherein the return
shall be Rs. 320 lacs, whereas the probability of failure is 55% with a return of Rs.
200 lacs.
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