The case explores the decision to expand in a small business setting. In 2007, the Red Hen Baking Company (RHB) was deciding whether to move from its cramped and inefficient Duxbury, Vermont facility to a new facility in nearby Middlesex, Vermont. It had been in business about eight years at the Duxbury facility and realized a profit that was over $50,000 for the first time in 2006. Also, by 2006, it had repaid all of its start-up debt and had established its reputation for baking artisan organic bread.
The Duxbury bakery could not bake more than 2,200 loaves of bread per day, and while demand only exceeded that for a few days a year so far, as bread sales were growing at over 30% per year, George expected the number of those days would be increasing. The new facility was just a few miles away and would be more than twice as large and designed specifically for the bakery. Furthermore, the new location would have space for retail sales of bread and a café that could sell pastries and coffee. The added annual cost of the new location was substantial. The added rent alone was about $58,000, exceeding RHB’s 2006 profitability. The move would require a $300,000 build-out. The case focuses on the strategic and financial evaluation of the potential move and expansion.
The Duxbury bakery could not bake more than 2,200 loaves of bread per day, and while demand only exceeded that for a few days a year so far, as bread sales were growing at over 30% per year, George expected the number of those days would be increasing. The new facility was just a few miles away and would be more than twice as large and designed specifically for the bakery. Furthermore, the new location would have space for retail sales of bread and a café that could sell pastries and coffee. The added annual cost of the new location was substantial. The added rent alone was about $58,000, exceeding RHB’s 2006 profitability. The move would require a $300,000 build-out. The case focuses on the strategic and financial evaluation of the potential move and expansion.
Keywords: Entrepreneurship; Capital; Risk Management; Expansion;
Citation:
Ruback, Richard, Royce Yudkoff, and Lisa Paige. "Red Hen Baking Company." Harvard Business School Teaching Note 214-043, October 2013. (Revised February 2019.) View Details