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21 June 2021

Tasty Growth Potential

Cake Box is a UK-based retailer and manufacturer of high quality and customisable cakes that are made to order both online and in stores around the country. The business operates a franchise model which has accelerated its rate of expansion, most recently reporting to have 139 stores and 14 kiosks with the majority in the south of England. 50 stores are located within London within the M25, 33 stores in the South East and 20 in the West Midlands, and the rest further distributed around the country.

Looking at the current position of the company, Cake Box produces cakes that reportedly lose no quality in relation to traditional cakes even given their lack of eggs. The business has no direct competition in the UK for egg free, fresh cream personalised cakes. Out of the 139 stores, 32 franchises have more than one store, which offers strong financial benefits for the franchisees, who on average generate more than £87,000 (EBITDA) per year. It comes as no surprise that current franchisees are enquiring to gain more locations.

The outlook of the company is looking rather delicious, with the pipeline franchisees, new products, little competition, home delivery and franchise model. As mentioned previously it has become very lucrative for franchisees to run a Cake Box store, and at present the company has deposits held from 47 franchisees looking to meet the UKs sweet tooth demand. Because of the franchise model, the company itself is not put under much financial strain to fund expansion and therefore catalysing the growth. The company is repeatedly expanding its product range and customisability of its cake range, further accessing addition niche groups of the population. Initially, the company’s cakes exclude eggs, and now they have introduced gluten and vegan loaf cakes to their product line. As the company increasingly caters for specific demands, Cake Box will deepen their foundation as the dominant player in a monopolistic market.

Not even the custom cake market could ignore the impact of Coronavirus, with all stores closing in late March 2021 until the middle of May 2021, which resulted in six weeks of disrupted sales. The company’s response to this has been to recently launch its home delivery service, on top of its current delivery partnerships and click and collect arrangements. In addition, the new distribution facility and warehouse in Coventry is close to completion and intends on opening in the second half of 2021. With increasing franchise stores, delivery services and new distribution facilities, Cake Box will be able to service a larger geographical sphere of customer demands. The cherry on the cake really comes from the company’s flexibility and personalisation, which allows a level of margin expansion for the made to order products. For its popular cakes, a person can place a request online, and collect from a near Cake Box store within the hour and then receive the option for the cake to be personalised on the spot with the message. An extension of this, and a customer favourite comes from the option to have a sugar paper printed photograph on the cake, adding a further level of differentiation for the company.

As the reader is probably aware, lockdown restrictions have had another bump in the road but the limitations on weddings are still set to be lifted. Previously, weddings have been limited to 30 guests, but after 21st June loving couples can tie the knot with no set limit of attendees that can be invited to the ceremony. Obviously, some limitations are placed on the wedding but one thing that will not be limited is the amount of cake that will be consumed. Cake Box has a very wide product range of almost any combination of ingredients, catering for people who have certain religious, dietary and/or lifestyle choices. Cake Box is likely to benefit from the opening up of wedding venues, with more cakes needed, last minute requests after the best man forgets to place an order, and the company catering for serving sizes between 8 to 120 slices per cake.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Tasty Growth Potential

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