Saint Honore Cake Shop: Analysis

With increasing average income of Hong Kong population, people are having higher purchasing power on luxury products such as desserts and cakes. There are more competitors turned in the Japanese Style Cake Shops: Yamasaki Bakery, Panash Bakery and Arome Bakery. Existing competitors such as Maxim’s Cake Shop has also revitalized the brand and has larger threat on Saint Honore Cake Shop Ltd. (“Saint Honore”). Traditional Chinese cakes shop like Wing Wah and Kee Wah Bakery are also growing which may treat Saint Honore sales in the near future. To survive in the bakery industry, Saint Honore must find it way to improve, maintain and expend the market.

Company Background

Saint Honore Cake Shop established its first store in 1972 and is the one of the most successful cake shops in Hong Kong. Its created own retailing operations to manufacture, distribute and sell bakery products in their own brand and own experience.

In 1995, Saint Honore set up an ISO accredited factory with automatic machine in Shenzhen. In 2000, Saint Honore Holdings Limited successfully became the first listed company in Hong Kong’s bakery industry. In 2007, Saint Honore was acquired and privatized by the Convenience Retail Asia Limited and became a member of the Li & Fung Group.

Saint Honore set up the Saint Honore Cake Shop chains in Hong Kong, Guangzhou and Macau since 1972. Currently, there are over 100 stores and occupying a key position in these markets with annual sales turnover of HK$702 million in 2009. And Saint Honore was awarded Hong Kong Top Brand in 2010.

Saint Honore’s mission is to become the leadership in bakery industry, leading in product innovation and provide excellent food with good quality in reasonable price.

Objectives

In the past few years, Saint Honore has rebuild the brand image and started to build up their market share. An update and innovative image are built by the company and matched with the conceptech interior design of the shops and packages.

New product lines and services are selected to provide by Saint Honore to match with different market segments. New products like Baby Cakes, Supreme Cakes and Snowy Mooncakes etc.

The main objective is to extend the market share in East Asia by new product development and the enhanced services.

Targeting

The primary target customers are housewife who aged 35-50 with the greatest opportunity to purchase breads and cakes regularly for family consumption. New target customers are younger adults who aged 20-34 for their new products.

Marketing Strategy

Market-Penetration Strategy

Saint Honore selected high population areas to set up their cake shops to near the target customers of ages 20-50, who are regular bread and cake shopper for family purpose. Establish membership VIP club to maintain the relationship with the existing customers and get new customers through the referral programs. Saint Honore provided better benefits to the customers than the main competitors, Maxim’s Cake Shop.

Product Development and Diversification

New product lines launched and matched with the renovation project for the cake shops in 2008 to 2009. Saint Honore upgraded the brand image and turned to success by constantly improved sales in which the annual sales turnover surges to HKD703 million.

Focus on the younger generation who are willing to spend more money for better quality of cakes, so Baby Cakes and Supreme Cakes are launching since 2009. High tea habit increasing in Hong Kong and become a trend, so high end products result in rapid increase of sales.

Saint Honore notified that a rapid increase of owning pets, new type of cakes for pet’s birthday celebration are launching as the pet owners are willing to spend money on their pets rather than having children.

Marketing Mix

Product

Saint Honore introduced more than 200 new and improved products to market since 2008. Baby Cakes and Supreme Cakes with lovely and beautiful design, other products are assorted cakes, pound cakes, special collection of birthday cakes are keep in good qualities and results in increasing the sales.

Price

Saint Honore marked the cakes in low price. The price range starts for low end products; An assorted cake is HK$4.00, high end products; Supreme cake and Baby Cake is HK$13.00 and pounds cake starts from HK$138.00.

Cash discounts and VIP membership offer are used by Saint Honore.

Issuing cake coupons to let customers to redeem cakes are a common way in bakery industry. Customers can get more discounts if they are willing to purchase a large volume of cake coupons.

Place

Shop locations

There are 83 shops locate in shopping malls, residential and commercial areas in Hong Kong.

Channels

Customers can place an order on Saint honore’s website, hotlines and shops.

Transport

Under Lee Fung Groups,

Promotion

Saint Honore provides special discounts on new products to match with advertising.

Offering discounts on cash purchase and website ordering.

Join promotion with bank and promote VIP offer to loyal customer.

Cartoon characters free gift is offered when purchase related product.

Employ nice shop assistants to provide better service and also introduce products.

Price Competition

In the Bakery Industry, the competition is competitive. There are many small private stores provided low end products. All pricing are setting at very low price at HKD2.00-HKD12.00. And other type is Japanese Style Cake Shop like Yamasaki Bakery, Panash Bakery and Arome Bakery, they provided a high end products and set higher price at HKD12.00-HKD30.00. But the main competitor of Saint Honore is Maxim’s Cake Shop, they are having similar situations. They are owned by a large Company Group, having a large number of chain shops, same targeting, similar products lines and position.

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Saint Honore divided all products in two product lines, one is low end products and other is high end products. The low end products, like breads and assorted cakes, set at a relative low premium at HK$4.00 and breads in family package only at HK$12.00. Saint Honore uses this product line mainly against the individual cake shops. The high end products set at higher price at HK$13.00 and use for gain more market share at the competitive levels.

Pricing Strategy

Co-operative pricing occurs if prices persist above competitive levels. Saint Honore and her competitors Maxim’s always create some campaigns to fight each other. For example, the cake coupon, it cost HK$48.00 for one dozen of cake. But if customers purchase a large number of cake coupons, they will get the special discounts. At this time of periods, Saint Honore will gain more market share in this short period of time. If Maxim’s retaliates, the market share will back to the original level and the price is lower and this will make both firms getting worse.

Tit-for-tat strategy is selected to use by Saint Honore at the low end and high end products. Tit-for-tat strategy is prepared to match whatever change in strategy a competitor makes. Due to the past experience, Saint Honore stably to set the price at HK$4.00 for one piece of assorted cake and HK$13.00 for a supreme cake. As Saint Honore don’t want to be undersold and know that Maxim’s will follow the same price cut even there is no any profit to gain in the price cutting.

Positioning

Saint Honore is one of the larger cake shops in Hong Kong which has the ability to create value and enjoy a competitive advantage over other firms in the bakery industry.

The target market of Saint Honore is housewife in ages of 35 to 50 and need to develop a market offering. The offering is positioned in the minds of the target buyers as delivering more benefits and advantages.

Strategic Positioning

Cost leadership

Compared with the competitors Maxim’s and Arome Bakery, Saint Honore spends less capital in promotions. Due to lower advertising cost, Saint Honore keeps a conservative image of the brand. But Saint Honore offers delicious cake in high quality with a relatively low price. Saint Honore has understanding the housewife does not need fancy advertisements and promotions. So they keep using this positioning strategy and successfully gain the market share. Saint Honore positions the two product lines in the most cost-effective products that a consumer can buy and wants to buy.

Selection of the location, Saint Honore selects good locations which are readily available for target market but are in less expensive area. This can further reduce the cost and listing price to match the positioning strategy.

Maxim’s spends more capital in promotions. Maxim’s redesign the brand logo and the price of the products lines set higher than Saint Honore due to more crossovers with other brands in new products design. The location of Maxim’s always at MTR station, higher rents due to facing higher cost. The price of the low end products is the same with Saint Honore but the price of high end products is a little bit higher than Saint Honore.

Benefit Leadership

Saint Honore selected to use cost advantage in the low end products and use benefit advantage in the high end products due to some customers are price sensitive and will not pay more money for enhanced product quality and performances. Benefit Leadership is more suitable to use in high end products to attract new target customers and gain more market shares. Young generation is very important because they imply future revenue if brand-loyalty is built.

Conclusion

Saint Honore has a conservative and classic brand image, primary target customers as housewife and new target customers as young generation. To maintain the market position and increase target segments, Saint Honore needs to explore opportunities and reduce threats. With more competitors join in the market, re-build the brand image can help Saint Honore to be more outstanding.

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