Marvin and Smith’s Coffee Shops’ Global Expansion
Marvin and Smith’s coffee shop should expand to Italy due to strategic reasons that make it a perfect international destination. These strategic reasons include a competitive landscape, culture, and lifestyle that drives the coffee market, as well as the arrival of international players who have disrupted the traditional coffee chain. The Italian coffee market is highly competitive due to the presence of key international players like Starbucks and Nestle that operate in the market. Different brands continue to introduce innovative products in terms of packaging and pricing due to high levels of competition in the market. According to Businesswire.com (2020), the Italian coffee market is projected to grow by 2.8% between 2020 and 2025, which makes it a perfect destination to establish operations. In addition, Italy is ranked the second-largest importer of coffee beans in Europe. On average, it accounts for 15% of the total amount of coffee consumed in the European Union. Coffee accounts for over 70% of the Italian market for hot drinks, which justifies the importation of an average of 8 million bags of coffee every year (Businesswire.com, 2020). Coffee is an important part of Italian culture, so Italians love high-quality coffee. More importantly, Italians tend to be loyal to certain flavours such as the East African-inspired coffee offered at Marvin and Smith’s coffee shops. Due to their love for coffee, it is consumed at different moments of the day, mainly without milk. Cappuccino and macchiato are some of the most popular coffee drinks available in almost all coffee shops in Italy. The availability of a variety of flavours coupled with a wide range of brewing styles fuels the growth of the coffee market in Italy. The increasing number of retail stores and food outlets continue to expand the market for coffee in Italy. More than ever before, Italians are welcoming international and specialized coffee brands. For example, Starbucks entered the Italian market in 2018 to tap into the growing market for coffee. The entry of international brands is further exacerbated by the changing consumer preferences. In addition to changing tastes and preferences, the growing need for healthier eating habits coupled with convenience continues to disrupt the traditional coffee chain in Italy. Today, quality is considered the number-one success factor for coffee shops in Italy. Furthermore, Italy is the leading country in terms of out-of-home coffee shops in Europe. The growing out-of-home consumption continues to expand the market for coffee, paving way for international brands to expand operations in the country (Businesswire.com, 2020). Due to its high growth potential, more coffee brands are establishing operations in Italy to serve the expanding market. Robust marketing for coffee by the existing brands further contributes to the growing popularity of coffee in Italy and Europe at large. The combination of these factors makes Italy the right destination for Marvin and Smith to set up a coffee shop. Based on the above facts about the Italian coffee market, Italy remains the right destination for Marvin and Smith to expand their coffee shop.
Marvin and Smith’s Coffee Shops’ Marketing Mix
A marketing plan is a strategy that brings together all marketing tactics to create customer loyalty and ensure that as many customers as possible visit Marvin and Smith’s coffee shops. The marketing mix consists of seven components, including product, price, promotion, place, people, processes, and physical evidence (Goi, 2009). If each of these elements works together effectively, the newly established Marvin and Smith’s coffee shops in Italy will attract new customers and create loyalty for the existing ones.
Product: The success of any business lies in its ability to provide customers with high-quality product offerings (Singh, 2012). Marvin and Smith’s coffee shops sell high-quality coffee because quality is the number-one success factor in the Italian market. The company believes in using the finest coffee beans imported from Uganda. Besides offering high-quality coffee, the company provides a relaxing environment for customers with an East African feel, which is unique from other brands. Enhancing customer moments by providing access to power points for phone charging further enhances customers’ experience at Marvin and Smith’s coffee shops. High-quality coffee with herbal infusions, for example, will set Marvin and Smith’s coffee shops apart from other competitors in the Italian market. Marvin and Smith also ensure that popular coffee flavours like cappuccino, flat white, Latte, Espresso, and Mocha are readily available. In addition to these popular brands, the company will sell blended products including cream and lemonade to enhance customers’ experience.
Price: Marvin and Smith’s coffee shops have diverse price offerings that are influenced by competition and partly by the premium (Doyle, 2012). All the products offered by Marvin and Smith’s shops are priced at a premium range due to their high-quality and brand value. The company believes that price comes second to quality, so it mainly focuses on delivering quality products. The prices offered are directly proportional to the quality provided. Marvin and Smith’s shops sell its coffee under its brand name because the company is committed to building a reputable brand across Europe. The prices of its wide variety of coffee also vary based on the supplements asses to coffee such as chocolate, cream, etc. On average, Marvin and Smith’s coffee will cost between 1.5 euros and 2.0 euros depending on supplements added, flavour, and other customer needs.
Place and distribution: Marvin and Smith operate two shops in Wandsworth in South London. The company wishes to expand internationally to Italy to take advantage of the growing market. It targets the middle class and the rich who are the main consumers of coffee. Marvin and Smith plan to establish shops near food outlets, shopping malls, retail outlets, and areas where there are sporting activities. The reason behind choosing these areas is due to the high volume of people who are the potential customers for coffee. Marvin and Smith’s coffee shop further modifies its menu based on the country of operation to attract as many customers as possible. The company also aspires to develop a website where customers can place online orders. The orders will be delivered through a delivery partner based on the region.
Promotion: Being a relatively new brand in the market, Marvin and Smith’s coffee shop relies on digital marketing platforms including social media, email marketing, and word of mouth. In addition to these advertisement channels, Marvin and Smith’s coffee shop issues free samples to customers to promote new coffee products. The company further has a loyalty program that allows regular customers to earn points and get unlimited discounts on any product they purchase from any of its coffee shops (Singh, 2012). One of the promotional campaigns run by the company is themed evenings that involve playing short board games. Besides helping the company to understand why products it should offer, themed evenings enhance customer interactions and experience.
People: Marvin and Smith’s coffee shops focus on their employees. The company adopts a strong ethos of promoting equality and Fairtrade, so it expects its staff to demonstrate such behaviour in the workplace. All its workers are highly trained to observe the highest standards and are even offered higher wages and development opportunities that go beyond those of their competitors.
Processes: Marvin and Smith’s coffee shop has a standard operating procedure like other well-established coffee brands in the world. For example, employees are trained to help out with themed evenings as much as possible, including playing short board games with customers if a customer has no one to play with. In addition, employees are trained to handle customers politely and always wear a smile when serving customers.
Physical Evidence: Marvin and Smith’s coffee outlets are the physical evidence of the company. The company already runs two shops in Wandsworth in South London and plans are underway to establish more shops in Italy. According to Doyle (2012), branded products and services also represent a company’s physical evidence.
Human Resource Management Considerations
Expansion to international markets can help Marvin and Smith’s coffee shops to diversify and strengthen their team. However, global expansion requires some HR considerations because it comes with some HR-related challenges. The first consideration the company should make is the recruitment and hiring of staff (Sparrow, 2007). Prior to establishing operations in Italy, the HR team must research Italy’s labour force. For example, a pool of talented labour force is a motivation for expansion, while the absence of a skillful and qualified labour force presents a great challenge. The HR team must also familiarize themselves with recruitment methods, labour markets, and labour laws of the host country. They need to understand whether the labour market is slack or tight and whether hiring and recruitment processes must comply with certain laws. Some countries mainly rely on networking for recruitment while others use formal methods. The HR team needs to understand the best avenues to advertise jobs in order to attract the best talents. Other HR-related considerations to be made include compliance with employment regulations, running a payroll, managing compensations, cultural differences, training, and supporting staff (Schuler et al., 2002). For example, failure to adhere to certain aspects of employment law can lead to penalties from the government. Marvin and Smith’s coffee HR team must also familiarize themselves with Italy’s PAYE system in order to remit the correct amount to the government. In addition to creating competitive and fair benefits packages, Marvin and Smith’s coffee HR team must carry out research about legal requirements, cost of living, customary benefits, and industry norms prior to establishing operations in Italy. Most importantly, the HR team must take into account cultural concerns right from hiring to conflict management in the organization. Once Marvin and Smith’s coffee acquires the right personnel, they need to train them on the technical skills required to carry out their duties. The company may need to outsource a training firm to help the employees to develop the required technical skills.
Finance and Accounting Considerations
Global expansion has never been easy no matter the size of a business. From a finance and accounting perspective, there are a number of considerations to be made including initial capital, taxes, exchange rate volatility, importation, and exportation costs (Barth, 2008). To begin with, Marvin and Smith’s coffee requires capital to expand to the Italian market. If the company does not have sufficient money to establish operations in Italy, it may have to look for funds elsewhere. Importation and exportation business comes with a new set of challenges for small businesses like Marvin and Smith’s coffee shop. For example, it may face obstacles such as handling international payments, developing powerful relationships, and gaining foreign partners. As far as taxes are concerned, Marvin and Smith’s coffee finance and accounting team must understand various taxes in Italy including VAT, federal or county taxes, city, and provincial taxes applicable in Italy prior to establishing operations there. If the company expands with foreign employees, the accounting and finance team must be conversant with foreign income tax computation in order to remit the right amount of taxes to the government. Further to this, the finance and accounting team must carry out research about the international currencies prior to entering the Italian market. Dealing with more than one currency causes uncertainty risk and adds to complexities in preparing financial statements since exchange rates keep on rising and falling all the time (Hossain et al., 2015). For example, due to fluctuations in the exchange rate, the company’s international sales will keep on changing depending on the base currency. Thus, Marvin and Smith’s coffee finance and accounting team must keep into account the exchange rate risk caused by fluctuating exchange rates.
Marvin and Smith’s Coffee Shops’ Profitability and Liquidity Ratios
The two profitability ratios to be considered are gross profit ratio and net profit ratio, while the two liquidity ratios to be considered are the current ratio and acid-test ratio. According to Sari et al. (2020), the gross profit margin measures the proportion of profits that a company generates before deducting general, selling, and administrative costs. Net profit margin measures the amount of profits a company generates as a percentage of total sales revenues. According to ( Russell et al., 2013) current ratio is a liquidity ratio that evaluates a company’s ability to pay off short-term debts falling due within one year, while the acid-test ratio is a liquidity ratio that measures a company’s ability to pay off short-term debts without having to sell its inventory.
Profitability Ratios
Marvin and Smith’s coffee shops’ gross profit ratio= (Gross profit/Net sales)*100
Marvin and Smith’s coffee shops’ gross profit ratio= (£208,000/£360,000)*100=57.78%
Marvin and Smith’s coffee shops’ net profit ratio= (Net income/Net sales)*100
Marvin and Smith’s coffee shops’ net profit ratio= (£26,800/£360,000)*100=7.44%
Liquidity Ratios
Marvin and Smith’s coffee shops’ current ratio=current assets / current liabilities
Marvin and Smith’s coffee shops’ current ratio=£35,400/£6200=5.71
Marvin and Smith’s coffee shops’ acid-test ratio= (current assets-inventory)/current liabilities
Marvin and Smith’s coffee shops’ acid-test ratio= (£35,400-£8,000)/ £6,200=4.42
Marvin and Smith’s coffee shops’ profitability ratios calculated above show that the business is generating sufficient profits. For example, in 2019, the company’s gross profit ratio stood at 57.78%, while the net profit ratio stood at 7.44%. According to Sari et al. (2020), these ratios indicate that the business is financially healthy because it is generating sufficient profits to enable it to expand to international markets.
Marvin and Smith’s coffee shops’ liquidity ratios also show that the company has sufficient cash flow to pay off short-term debts (Russell et al., 2013). For example, according to 2019 financial statements, the company’s current ratio stood at 5.71 while the acid test ratio stood at 4.42. Higher liquidity ratios are preferred because they are an indication that a company has enough cash flow to meet all its short-term obligations.
These calculated ratios show that the company is financially healthy and due for global expansion. The liquidity ratios show that the company will be in a position to pay short-term debts, while the profitability ratios show that the company is profitable enough to expand to global markets. Thus, Marvin and Smith’s coffee shops’ are viable to expand to the proposed Italian market.
Conclusion
Conclusively, Marvin and Smith’s coffee shops’ are due for global expansion. As mentioned above, Italy is one of the preferred European destinations due to its high potential for growth. Besides being avid lovers of coffee, Italy’s lifestyle and culture drive the growth of the coffee market. It is further ranked as the second importer of coffee beans. The entry of renowned coffee brands into the Italian markets has influenced consumers’ tastes and preferences, further paving way for more international brands. However, Marvin and Smith’s coffee shops’ HR and accounting teams must carry out thorough research to understand human resource management considerations as well as finance and accounting factors that must be considered prior to establishing operations in Italy. A review of the company’s 2019 financial statements shows that the company is profitable enough and has sufficient cash flow to enter into the Italian market. The liquidity ratios computed show that the business has enough cash flow to pay off short-term debts while the profitability ratio indicates that the company is generating sufficient profits to enable it to expand. Based on the liquidity and profitability ratios, the company is currently viable for global expansion. Thus, Marvin and Smith’s coffee shops’ management should execute the proposed expansion to the Italian market because the company has everything required to expand internationally.
References
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