Selection of Romania for Expansion
Analysis of the case study is illustrative of the fact that Marvin and Smith are seeking expansion of their coffee shop in different countries. It is required by the owner of shop to conduct a research on countries for the expansion of Hank and Patty coffee shop. The selected country for the expansion is Romania that has witnessed considerable growth in cafes in recent year resulting from improvement in income and advance economy. The main beneficiaries of economic growth are the consumers in large cities and Bucharest that is the sixth largest city in European Union. Although, Romania is one of the poor countries of European Union, in fiscal year 2017, economy of country is growing at an annual growth rate of 5% (Trading Economics, 2018). It is an economy that is pre-dominantly based on service sectors and considering this, Romania would be the suitable country for expansion. Research on Romania has been conducted in several aspects such as structural challenges, ethical considerations, supply chain management, information system and logistical factors.
Typical behavior of consumer of spending long time sitting into coffee shops has been strengthened due to change in life styles. Active social life in large cities of Romania along with Bucharest is translated by increasing optimism of consumers in future of economic condition of country. One of the excellent means of relaxation and socialization in Romania are cafes. Over the forecasted period, it is expected that coffee shops will witness growth. There is an increased likelihood of consumers targeting coffee shops resulting from increased propensity of consumers to spend more on entertainment and leisure. The main supporters of such shops will be from consumers enjoying higher income whilst the consumers in countryside and small cities (Van Haeringen and Hai, 2016). According to Euromonitor International (2017), in Romania, the GDP forecast is bringing an improvement of incomes, beginning with the increased minimum wage leading to a better average income. If people will have move more money to spend for their leisure, customers will target specially the coffee shops and bars. People living and working in bigger cities, like Bucharest, are more likely to have a better salary and to be more interested in coffee shops.
Logistics market of Romania has been put forward by their extremely strong macro performance, higher sales growth and excellent gross domestic product in recent years. Growth of business need is supported by building of logistics facilities. Developed logistic system of country can help business in turning their supply chain system into a strategic advantage that would ensure excellent operational performance. The developed logistic system will help Marvin and Smith coffee shop to well structure their supply system and curtailing their operational expenses across different outlets in different countries (Solaiman et al., 2015). It will assist coffee shop in optimizing their product scheduling, order placement and quality of logistics.
Logistical Considerations
Coffee shops to be started in Romania should have ethical policy of sourcing the coffee ingredients. Customer sourcing policy should also be ethical. Coffee should be made the world agricultural sustainable product. Coffee organization seeking to establish coffee shops in should buy coffees that are sourced in partnership with conservation International. While the establishment, coffee company should also make investment in supporting coffee communities. For ensuring that long-term supply of high coffee quality, company should initiate programs that are aimed at improving the livelihood of farmers (Chiang and Wang 2016). On other hand, the enjoyment of coffee shops in London is supported by ethical schemes such as fair trade.
Making investment in Romania is becoming less challenging regarding business environment predictability. Economy is supported by relaxed monetary policy of government along with low fiscal deficit and structural fiscal position of 1% approximately. There has been a rapid rise in number of coffee shops in London due to increased demand of premium coffee. Compared to London that has demand of premium coffee, Eastern Europe has witnessing demand of hot coffee. Due to coffee becoming more affordable among different class of society and changing customers taste, hot coffee has witnessed a robust growth in sales. Increased affordability of different segments of society has resulted in alteration of categorization of coffee to essential good compared to luxury goods. Expanding into Romania is justified due to their developed logistical system and process, growing economy and changing lifestyles that are driving increased demand for coffee (Gaman et al., 2015).
Tailored marketing mix of coffee expansion plan:
The expansion plan of coffee shop of Marvin and Smith can be strengthened by the application of marketing mix that will assist in determining customer needs and buying willingness.
.Marketing mix will be used by company for building brand popularity and image and should support the growth and development of business (Greene, 2014).
Products- The products offered by Marvin and Smith coffee shop will have ingredient such as herbal tea and high-quality tea that will be sourced from fair-trade registered foundation. Other product lines that will be offered by coffee shop to Romanian customers involve cold drinks, pastries and snacks. The eatables will adopt taste of coffee of Eastern Europe and will offered concentrated and ready to use drinks. Coffee market in Romania is marked by fierce competition like London among various domestic and international producers of coffee that will lead to price war. It will be required by Marvin and Smith to apply strategic marketing techniques for increasing their customer base and increasing product volume (Aras et al., 2017). Furthermore, comprehensive coffee options will be offered by coffee shop along with small menu of desserts and breakfast items. The coffee shop will provide base products as in London like espresso, americano, cappuccino, latte although will add different style of the drinks such as coffee latte in three layers or mocha. All the coffee based drinks will include the Uganda coffee as the company is focused to promote the Fairtrade coffee and to create a brand from it.
Ethical Considerations
Price – The future of market outcome of coffee is driven by increased coffee demand due to several demanding factors along with increasing heath awareness. Pricing strategy of coffee shop is designed in such a way that it takes the advantage of behavioral tendency people for purchasing products based on correlation between value and price (Barrett & Weinstein, 2015). Coffee products of company will be priced reasonably according to the fair-trade costs. In order to maintain the brand, the price may be higher in addition to competitors due to Fairtrade reasons.
Place- Marvin and Smith coffee shop will be placed in largest city of Romania that is Bucharest. Consumers in this region demanded high quality of Eastern European coffee. However, the conditions of market are not familiar but opening of trade barriers would help in expansion of coffee shop. The design of the store will maintain the London standards, as the customers will be able to enjoy both of a relaxing environment with an Eastern African feel and to have a practical space for leisure and work. Wireless internet will be provided for the customers, sockets near to all tables and also baby chairs, as families are welcome. With the implementation of technology, coffee shop will also be distributing its product using online platform (Gr?dinaru et al., 2016). An app will be also available for download, so customers will be able to reserve a table and even to make an advance food and drinks order.
Promotion- Promotion of Marvin and Smith coffee shop product will be promoted through advertising, sales promotion and public relations that helps in dissemination of information and the promotional mix (Hanssens et al. , 2014). However, company will use public relations infrequently in the initial stage. The coffee shop will be promoted by banners displayed in key points of the city like metro stations and around busy areas. Also, will have a Facebook and Instagram account, so customers can link with the place and the events such as board game nights or chat with Nanna. On the first weeks after opening, baristas will offers free samples for the coffee, promoting the fair-trade coffee and the customers will have a money back or exchange guarantee in the products are not making them happy.
Implications of covering wide range of geographical areas of chosen countries:
This section deals with the explanation of covering wider geographical areas in terms of information system and supply chain.
Supply Chain Management
Information system- Internet service is one of the important factors for expansion of business in different countries, as it requires centralization of coffee shop service and creating coordination. The information system should be structured in such a way that helps in managing the information of all the coffee shops that are in different region of different countries of operations. For efficient management of shops in different regions, a profound decision should be made on information system (Yuan et al., 2015). The expansion of business requires employing updated information technology system that will helps in addressing the growing needs of business. Along with the required hardware, there should be implementation of transaction processing system. Coffee shop to be established in Bucharest will be facilitated by their fastest internet connections in the world. Internet in this region is fastest available, cheap and available readily (Patil & Bach, 2017). If there is no proper and appropriate information system suitable to needs of business and the implemented information system is such that it helps in standardizing the communication and products quality. Regardless of the base of coffee shops by Marvin and Smith, the structured system will help in clearing responsibilities of employees so that they are held accountable for delivering them accordingly and have a clear organizational structure (Hisrich & Ramadani, 2017).
Supply chain- The supply chain of coffee shop is required to be transformed according to their expansion plan in different countries. Manufacturers and coffee roasters are regarded as focal players in supply chain management of coffee shops. Coffee bean journey to cup is complicated process and company can source coffee merchandize across globe that helps in serving millions of customers. Even through the sales of company will be rising, in the absence of efficient supply chain management, there will be rising cost of operations. It is required by Marvin and Smith coffee shop to focus and concentrate on their supply chain systems in face of their rapid expansion (Constantin et al., 2016). However, there might be difficulties in accessing the fundamentals of supply chain process. At the beginning a forecast sale will be set up, and upon that, an order will be placed from the London main stock. To reduce the costs, might be cheaper to bring the goods from London, as they already established connections from there. Orders will be made weekly in order for the products to maintain their freshness. Goods that are having a short period of expiring date, as milk and cream, will be provided from local shops.
Financial Analysis
Effective and efficient supply chain will help in creating balance between performance and cost of performance of coffee shops located at different regions. Expansion of coffee shops overseas might require business to outsource some of the agreements relating to supply chain management such as third-party logistics, transportation and contract manufacturing and thereby tying operating expenses (Neac?u & B?rbulescu, 2015). This will help is expansion of supply chain that will be aligned with opening and expansion of coffee shops globally.
Evaluation of profitability and liquidity
To expand a business in a different country, the company needs to analyse if the business is profitable and if they have enough liquidity to invest. To evaluate, how Marvin and Smith profitability and liquidity may impact on the decision to extend the business, based on the reports for previous years and on the financial ratios (see Appendix 1), we will present the company performance. In the following paragraphs we will identify and analyze what is gross profit and net profit, followed by Return Of Capital Employee and conclude with current and acid test ratio.
According to Wolinsky & Coates (2015), the difference between gross profit and net profit, is that the gross profit comes after the cost of producing the product is deducted from the revenue of sales, and to calculate the net profit, from the gross profit are deducted administrative expenses. Marvin and Smith had in 2016 a gross profit of 208,000 from where are deducted the expenses and they had a net profit of 26,800. With this dates we calculate sales profit margin that is 57.78% and net profit margin that is 7.44%( Appendix 1). As the percentages are positive high, is better for the business as it has more profit, and can resolve many economic issues that can happen. (Dyson & Franklin,(2017).
As Dyson and Franklin says, the return on the capital employed ratio may show to possible investors, how good the business is using its resources to make profit, and is better for its development. As the percentage for ROCE is 25.09% (Appendix 1), shows that the company is growing, making profit although they have a bigger debt founding than equity founding.
To identify liquidity of Marvin and Smith we calculated current ratio and acid test ratio. Current ration involve all the assets and shows if the company can pay its liabilities in time, or the company will need to sell assets to have cash (Dyson &Franklin). As the factor of Marvin and Smith is 5:1 (Appendix 1), means that the company has liquidity to complete cash transactions. The acid test ratio shows if the firm can cover short term cash debts as suppliers or utilities (Accounting Tools, 2017). As can be seen in the Appendix 1, Marvin and Smith has a 4:1 factor, meaning that the company can cover cash payments.
Viability of Overseas Expansion
In conclusion, the coffee shop Marvin and Smith report and rations are looking positive for further development of the company.
This particular section provides with a concluding remarks on the overall viability of overseas expansion of Marvin and Smith coffee shop into country of Romania. Currently, Romania is the most attractive destinations of foreign direct investment. This is mainly because of improved transparency, changing reforms and ease of carrying out business. Conducting research on Romania depicts that country continues to be an attractive destination for business expansion. Main driver of growth in economy is attributable to increased domestic demand, formation of new labor code and market liberalization. Business expansion of Marvin and Smith will be supported by the development of country on several platforms. Nonetheless, there are some pitfalls that will be faced by coffee shop when expanding into Romania and such challenges are associated with rapidly changing legislation and infrastructure. On other hand, London does not have any legislative issue and employ higher tax and accounting standards. Apart from complexities related to tax and accounting regulations, the business environment and customers segmentation in terms of their lifestyle and preferences is quite supporting for the expansion of coffee shop.
Furthermore, coffee shop needs to comply with legislations of Romania and understand and adherence to such rules and regulations is the challenging factor. The biggest challenge, faced by business, is navigation of local regulation, process and rules along with negative views on collaboration with authorities and tax levels. Investment will also be supported by contractions, in fiscal and current account deficits. From the analysis of all the macro and micro environmental factors, it would be feasible for Marvin and Smith, to expand their coffee shops in Romania.
References list:
Website Reference
Van Haeringen, R., & Hai, S. (2016) Boosting specialty coffee supply by including small farmers. Available at: https://www.smallfarmersbigbusiness.org/system/files/editor/small_farmers_snv_peru_coffee.pdf (Accessed: 02/04/18).
Journal Reference
Solaiman, M., Osman, A. & Halim, M.S.B.A. (2015). Green Marketing: A Marketing Mix Point of View. International Journal of Business and Technopreneurship, 5(1), pp. 87-98. Available at: https://dspace.unimap.edu.my/dspace/bitstream/123456789/40027/1/IJBT_Vol_5_Feb_2015_7_87-98.pdf (Accessed: 03/04/18).
Journal Reference
Patil, D.D., & Bach, C. (2017). Marketing-Mix For Strategy Building. Marketing. Journal of Multidisciplinary Engineering Science and Technology (JMEST) 4(4). pp. 7146-7149. Available at: https://www.jmest.org/wp-content/uploads/JMESTN42352175.pdf (Accessed: 02/04/18).
Journal Reference
Reed, D. (2016). Customer first is the only way to resolve the marketing mix. Journal of Direct, Data and Digital Marketing Practice. 17(3), p. 155. Available at: https://link.springer.com/article/10.1057/dddmp.2016.2 (Accessed: 04/04/18).
Online Reference
Haynes, P. (2016). The Critical & Cultural Marketing Mix. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2726726 (Accessed: 02/04/18).
Book Reference
Hisrich, R.D., & Ramadani, V. (2017). Entrepreneurial Marketing Mix. In Effective Entrepreneurial Management. (1st ed.). Cham: Springer International Publishing.
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