Why have small businesses like Bonnets the Bakers survived despite competition from Bakers Oven, which is a large local business.

Introduction

There is a general decline in small businesses in St. Ives and throughout the country, this is due to things like the power of branding, improved transport, modern shopping habits and cheaper prices due to economies of scale (See explanation later on). Bonnets the Bakers has continued to survive but why? Is it because customers have other reasons to visit each shop, for example better customer service other than price? Could it be because larger businesses suffer from diseconomies of scale (See later explanation) more then we assume? I will try to find evidence to prove or disprove these questions or alternatively find another explanation.

It is difficult to define what a small business is, it can be measured by a lot of things such as number of workers, size of premise and number of customers. Bonnets the Bakers is a SME (Small to Medium Enterprise). This means they have less than 200 workers. They produce bakery goods such as sausage rolls and loaves of bread they also have a takeaway facility and a restaurant aswell as the retailing facility, this means they are in the secondary and tertiary industry, the secondary industry is manufacturing, using raw materials to manufacture bakery goods. Tertiary sector is services such as its restaurant and its take away facilities. Bonnets is situated in the centre of St. Ives, about 20 metres from Bakers Oven. Bonnets is situated near a Butchers, another traditional shop. Could this be an important factor for customers who shop at more traditional shops? Bonnets is a private limited company, its shareholders are family and friends of the company. There are about 8 branches around the Huntingdon area this could classify as a small business. Bonnets the Bakers were first set up in 1803 the business has passed through many generations, so it is very familiar to the people of St Ives.

Baker’s Oven also produces bakery product and has restaurant and take away facilities. It is a part of a business called Gregg’s plc. A public limited company allows its shares to be traded freely on the stock market. There is hundreds of outlets nation wide and Bakers Oven has been set up for 30 years.

I am trying to find out why Bonnet the Bakers still manages to survive when there is a Bakers oven located near the outlet.

Methodology

I used primary data in my investigation, which included observations of the two shops, questionnaires for the customers of the shops and interviews with Mr Bonnet and a manager from The Bakers Oven. This was a good way of collecting data because I would not have found out this information about these outlets in textbooks because it’s specific to the business.

Questionnaire

I used a questionnaire to collect the views of the customers whether they think prices are cheaper in a particular shop and whether they are might be two different things. I could also find out what type of customer’s use the shops. We know that for any business to survive they must have customers so we need to find out what they think. Here is my questionnaire I used.

1. Gender? Male Female

I didn’t really need to ask this question because I could fill this in myself and it might not have an impact on my results.

2. Age range? 0-20 21-45 46+

This question was important. It would show what type of people use each shop, each age group preference and which shops are exploiting each market.

3. Which shop do you use? Bonnets Bakers Oven

This shows how many customers each shop has, this is important because for example if half the people where over 46 and half the people used Bonnets this could suggest that older people use Bonnets rather than Bakers ...

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1. Gender? Male Female

I didn’t really need to ask this question because I could fill this in myself and it might not have an impact on my results.

2. Age range? 0-20 21-45 46+

This question was important. It would show what type of people use each shop, each age group preference and which shops are exploiting each market.

3. Which shop do you use? Bonnets Bakers Oven

Which one do you prefer, why?

I should have just asked why they use the shop, this would show what the customers like about the shop or shops they use.

What do you like about them/it?

There was no need to ask this question because people have already answered it in question number 4.

Observation of the shops

I would do this to see the layout of the shops, the image of the shop and if they present their goods effectively. We could observe they way they serve customers for example how friendly they are towards there customers.

Interview with Mr. Bonnet

This would give me some valuable information that I wouldn’t be able to find out any other way, for example staff turn over or average customer exspenditure. I asked Mr. Bonnet several questions and they fitted into these categories.

His employees involved with the business

The history and the future of the business

The products and services available at Bonnets

The market and competition effecting bonnet the Bakers

Interview with Miss Miles

We sent off a letter to Miss Miles, as we would have not been able to ask her questions in person. Again this is a good way of finding out particular information, but we could not find out some information about our particular branch such as profits and costs. These are the general topics we asked her about.

The Bakers Oven customer expenditure

The legal identity of the business

Products and services the business has available

Taste testing

I am going to taste the same type of product from each shop, and judge them on factors such as warmth, moistness, amount of meat and pastry and the texture of the product. This would show me which outlets had the higher quality of produce.

Price comparison

I will take five similar products from each shop and compare their prices. I could use this information with my results to my questionnaire to find out if customers think the price is higher in a certain shop, but in fact it actually could be lower.

Investigation results

Questionnaire

Observation of Shops

The Bakers Oven has its own unique logo and style customers can recognise. Its style is not particularly aimed at any age group. The outlet has the takeaway facility at the front of the shop to decrease the amount of congestion in the shop the restaurant section was towards the back of the shop so customers could have space as they eat. Bonnets the baker has an old fashioned look to the front of the shop, it seams like this was not intentional. It has a more traditional style of a tea room. As you enter the shop the restaurant section is on the left of the shop, this consists of a few tables and chairs, on the right there is the counter and this is where the produce is displayed. Bonnets has an overall traditional look to it.

Interview with Mr. Bonnet

These are the main points of the interview.

~ Bonnets staff turnover is negligible

~ Mr. Bonnet believes there will always be an opening for small businesses.

~ He believes his U.S.P is the personal relationship between his customers and staff.

~ The big competitors for him are the big supermarkets.

~ Some of his prices are competitive, some are not.

~ His shop windows are his advertising

~ Customers spend on average £2.50

Interview with Bakers Oven

Here are the main points of the interview.

~ Our prices aren’t the lowest but people will pay out for top quality produce.

~ Staff turnover is around 20%

~ The average customer spends about £3.25

~ “Our products are our advertising”

~ The outlet has been there for over thirty years.

Taste testing

I tested a small sausage roll from each shop, I concluded that I preferred the Bakers Ovens produce because it had a better texture and overall taste to it.

Price comparison

Analysis

Price

From the price comparison I found that not all of the prices for Bonnets the Bakers where higher than the prices for Bakers Oven. This could be because of cost plus pricing this means the company aims to make for example an extra ten percent of the production costs as profit. For example if a product costs ten pence to make the company would sell it at eleven pence. So if the two shops had different costs of making the product this means the selling price would be different. Typically in big companies the directors of that company have to aim to make the most money possible to please the shareholders this is called being a profit maximiser this could also be a reason why some prices are cheaper in Bonnets that Bakers Oven. Because Bakers Oven is a large company you would expect there production costs to be lower because they can exploit economies of scale this means the advantages of being big, for Bakers Oven this could include things like lower average costs due to things like increased investment in capital. But Bakers Oven could also suffer from Diseconomies of scale, which means the disadvantages of being big, these are usually things like bad relationships with staff and not being able to be flexible with things like products. This could be why Bonnets continues to survive. The Bakers Oven’s directors would put more profit onto there goods because they have to make money to please the shareholders this could be why some prices are more expensive in the Bakers Oven

Market

I found out from the age part of my questionnaires that people of all ages shop at bakery stores, this means there is quite a wide market, the questions show that generally older people shop at Bonnets and younger people shop at Bakers Oven, this would mean that both of the shops have customers so they should both survive. Their unique selling points attract different types of customers.

Quality

The quality of the product is always important people are not going to demand as much of something if they don’t enjoy the product. Quality is a demand factor. I though that Bonnets the Bakers quality was superior, so this is another factor to explain why Bonnets survives. The workers could of made the products by hand therefore not getting the same factory made “standard” every time they make the product.

Customer service

I found that some of the people I interviewed went to Bonnets because they where served by friendlier staff. This could be because Bonnets has a negligible staff turnover, I found out this information from my questions to Miss Miles. This means that customers can get to know who’s serving them therefore becoming for comfortable to go there. If the customers were de-motivated and couldn’t be bothered to serve the customers properly then customers would visit other shops. This is another reason why Bonnets survives because it has a smaller staff turnover than the Bakers Oven.

Location

Location is an important factor because some customers go to the shops because it is easy to get to. Bakers Oven has a prime location on the high street, therefore more customers will see it so you would expect more people to visit the shop. But from my questionnaire no one said that location of the shops was important. Bonnets would have to pay less rent on there property compared to Bakers Oven which means there average fixed costs would decrease. Bonnets is near another traditional shop, a butcher’s. They would possibly have to raise prices if they had a shop nearer to Bakers Oven. Bonnets is near another traditional shop, a butcher’s. This would be an advantage to Bonnets because each shop would attract customers who like traditional shops from the butcher’s

Conclusion

I think the most important reason Bonnets survives is because it appeals to a different market, the older people of St. Ives. I conclude this because from my questionnaire I have found a different set of people go to each shop Bonnets customers are generally older, less interested in things like price and speed of service and more interested in things like customer service and quality. Bakers Oven customers are interested in speed of service and price and not as bothered about quality and customer service. There are other things to explain why Bonnets continues to survive. The price for bakery products seems to be quite inelastic this means people will buy the same amount of products even if the prices change. This would explain why price is not important possibly Bakery products are a necessity and have no alternatives. Bonnets might not survive if the prices of its products where important but they are not.

I think that if Bonnets wants to survive in the future it could do a few things, more people are buying organic products. If Bonnets could produce some organic products then this would open up another market for them. Within St. Ives they could be the only organic Bakery therefore they would become a local monopoly in organic sales. Bonnets could increase their opening times to make themselves more accessible to people, especially people that go to work in the town centre early in the morning.

Evaluation

In my questionnaire I had nine people as my sample size. I don’t think this was a good idea because it did not represent the market in St. Ives. It would have been better if I had asked one hundred or more people, this would of given me a more realistic and accurate result. The interview with Mr. Bonnet and Mrs. Miles was useful because this was a good source of information, we would not of been able to find out the things in a text book. Although we couldn’t find out some things because it was commercially sensitive information. I don’t think Mrs. Miles interpreted some of the questions in the way I hoped. My observations of the shops went well, from this I could find out about the situation and the style of the shops. If I would have done this again I would of drawn a plan of the two shops to show there layout more effectively. I could of improved on the taste testing by tasting a wider range of products and testing them on other people, because I would of not shown the views of the whole market. I though my price comparison was good I compared a wide range of products and it proved that the price of products from one shop was not always higher then the price of the other shop.