Expanding a Business Practice Questions

Answer all parts of this question. You do not need to refer to a particular business.

Item A: Marrow Lane Bakery

Esme Carrick is a sole trader who owns Marrow Lane Bakery in Shrewsbury. She employs four part-time bakers. When the bakery opened in 2021 it supplied sourdough loaves to three local cafés. Esme has grown the business steadily and now supplies eleven cafés as well as selling from a shop counter.

To cope with the extra orders, Esme has bought a second, larger oven which bakes 60 loaves at a time rather than 25. She has also agreed a new contract with a flour mill: because she now orders at least two tonnes of flour a month, the mill has reduced the price per sack by 15%.

Esme has been offered the chance to supply a chain of 20 cafés across the West Midlands, but she would need to rent a second unit and recruit more staff.

Table 2 Marrow Lane Bakery's costs and output for March

	March
Fixed costs	£4 800
Variable cost per loaf	£0.90
Loaves produced	6 000

Item B: Dhillon Joinery

Harpreet Dhillon is a sole trader who makes solid oak dining tables in a small workshop in Dudley. She employs six joiners. The workshop produces 400 tables a month, which are sold direct to customers and to two furniture retailers at an average price of £119. Harpreet's average unit cost is currently £70.00 per table. Over the last year she has turned away orders from three retailers because the workshop cannot produce any more.

A larger unit on an industrial estate three miles away has become available. If Harpreet moves, she will install a computer-controlled cutting machine which would allow the business to make up to 1 500 tables a month, and her timber supplier has offered a 12% discount on orders large enough for that level of output. The move and the machine would be paid for with a £140 000 bank loan repaid over five years. Harpreet would need to recruit nine more joiners and would spend most of her week managing staff rather than making tables.

Table 3 Dhillon Joinery's forecast monthly costs at the larger unit

	Forecast
Fixed costs	£18 000
Variable cost per table	£46
Output (tables)	1 500

Item C: Northgate Coffee Ltd

Northgate Coffee Ltd was founded in 2016 by Liam Doyle. It is a private limited company running cafés in towns across the north of England. It employs 180 people and roasts all of its own coffee beans at a single roastery next to its head office in Leeds. Northgate has grown organically, opening new cafés from retained profit, and now holds 3% of the regional coffee shop market.

The number of Northgate cafés is shown in Figure 1.

Figure 1: Number of Northgate cafés, 2019–2025

Since the fourteenth café opened, Liam has noticed problems. He still makes every decision himself from Leeds. Café managers complain that they are told about new drink ranges only days before they are launched, and staff turnover has risen from 18% to 31%.

Item D: Northgate's options

Liam wants to increase Northgate's share of the regional coffee shop market. He is considering two options.

Option 1: Open 10 new Northgate cafés over the next three years at a total cost of £2.4 million, funded from retained profit and a bank loan. Each new café has taken about 18 months to become profitable.

Option 2: Take over Bean & Bloom, a chain of 8 cafés in the same region, for £3.1 million. Bean & Bloom holds 2% of the regional market, has its own loyal customers and uses a different coffee blend bought from an outside supplier.

Item A: Tamarind Cart, Sheffield

Dev Sharma opened a Tamarind Cart outlet in Sheffield city centre two years ago. Tamarind Cart is a chain of 46 Indian street-food outlets, 40 of which are run by franchisees.

Dev paid a franchise fee of £22 000 to buy the franchise and pays the franchisor 6% of his revenue every month. Before opening, he completed two weeks of training at the franchisor's head office, where he learned the recipes and how to control stock. The franchisor supplies branded packaging, uniforms and the shop signs, and runs a national social media campaign for all 46 outlets.

Dev had worked in kitchens since he was 18 but had never run a business. He employs six staff and last year the Sheffield outlet had revenue of £310 000.

In return, Dev must buy his curry sauces and spice blends from an approved supplier chosen by the franchisor, even though a wholesaler two miles away sells similar sauces for less. He is not allowed to add dishes to the menu. Several customers have asked for a vegan option, which the franchisor has so far refused to introduce.

Dev is considering opening a second Tamarind Cart outlet in Leeds. He would have to pay another franchise fee of £22 000 and the same 6% of the new outlet's revenue every month.

Item A: Harbour Greens Ltd

Harbour Greens Ltd runs 34 healthy-eating cafés across the UK. Elif Demir opened the first café in Bristol in 2015, selling salad bowls at £7.50 and soups at £4.20. The business now employs 410 people and made a profit of £1.9 million last year, most of which was kept as retained profit.

Harbour Greens has grown by opening its own new cafés in city centres, choosing sites close to office blocks and universities. Every café is fitted out by the same design team and all dishes are made from recipes written by Elif.

Elif has turned down two offers to buy smaller café chains. She says that opening its own sites keeps the brand consistent, although it has meant growth of only four or five cafés a year.

The board now wants to open 20 more cafés over the next three years, including the first five in Scotland. The expansion will be paid for using retained profit and a £3 million bank loan. City-centre rents have risen and two national sandwich chains have recently opened outlets close to Harbour Greens sites.

One director has suggested using franchising to open the 20 new cafés instead. Each franchisee would pay a fee to open a café under the Harbour Greens name, using Elif's recipes and the same café design, and would pay Harbour Greens a share of the café's sales.

Item A: Hartwell Pet Foods plc

Hartwell Pet Foods plc makes dry dog food at two factories in Staffordshire. It sells its own Hartwell brand and also makes own-label dog food for supermarkets in the UK, France and the Netherlands. Last year sales revenue was £146 million and net profit was £11 million. The business has £18 million of retained profit and owns a warehouse in Derby that it stopped using in 2023.

The pet food market is growing, especially for premium grain-free food. Hartwell makes no cat food at all, and one in four of the supermarkets it supplies has asked it to.

Hartwell is considering two options.

Option 1: develop its own range. Hartwell's research and development team would create its own premium cat food range. This would take two years and need a new production line costing £12 million.

Option 2: external growth. Hartwell would take over Pawsley Ltd, a family-owned business that already makes premium cat food, holds 6% of the UK cat food market and has one factory in Shropshire. Pawsley's owners would sell for £20 million. Pawsley made a loss last year because its factory runs at only 55% of capacity.

Item A: Rowan & Reed Ltd

Rowan & Reed Ltd makes natural haircare products. Megan Rowan started the business in 2016, making shampoo bars in a rented unit in Derby. The business now makes 40 different products, which are sold through UK supermarkets and its own website. Last year sales revenue was £14 million, 15% higher than the year before.

When Megan started the business her main objective was survival. Her objective now is to double the size of the business within five years and to begin selling in Europe. So far, Rowan & Reed has grown only organically.

Rowan & Reed holds £2.1 million of retained profit and has been offered a £3 million bank loan by its bank.

Rowan & Reed is considering two options:

• Option 1: take over Coastal Curls, a smaller haircare brand based in Ireland, which sells £4 million of products a year to European customers
• Option 2: use retained profit to launch a new range of men's haircare products, made at its own factory in Derby.