Business Expansion Case Study Assessment
Business expansion can be regarded as a strategy by which growth can be obtained through bringing an increase in the store operations in the same or different city or nation. The process of business expansion is not an easy one as it requires careful assessmment as well as planning of new business areas so as to find out whether the strategy will be a profitable one or not(Muller and Muller, 2016). In this regard, the present study has made an attempt to expand London based coffee shop namedMarvin and Smith’s to expand in Sweden. Focus of the report has thus been made on carrying out a careful analysis of the Swedish market followed by analysis the overall financial information of the company in terms of its profitability. Implications of business expansion on information system and management structure have also been discussed along with marketing mix in the Sweden market. Finally a concluding paragraph will be discussed so as to assess about the overall viability of the plan in terms of expansion to Sweden.
1. Research and decide on a country (within the European Union) that Marvin and Smith’s coffee shop could expand into
The chosen country for business expansion by Marvin and Smith’s coffee shop is Sweden. This is as Sweden has the presence of top three amongst the world’s biggest coffee drinkers. The tradition of coffee drinking in Sweden is not just in their culture but also a part of their lifestyle (Brines, 2014). Moreover, Sweden attracts a lot of international tourists form all over the world including Africa hence the East African inspired coffee shop is likely to be successful in Sweden. Themed evenings that is a part of this coffee shop will also be successful due to good night life present in the nation. Moreoverresearch studies also showcase that coffee sale has seen a constant increase in Sweden (Per capita consumption of roasted coffee in Sweden from 2005 to 2015, 2016).
The culture further allows for consumption of warm drinks and coffee is one of them. Coffee is thus a well-established product in Swedish culture. Life without drinking coffee at least once a day is quit unthinkable in Sweden be it during work schedules or while having rest at home (Spiegel, 2015). In terms of ethical considerations, Sweden is a nation that is high on ethics and the public has a high awareness of labelling issues and there has been a general public interest of nation for buyingfair-trade coffee. Statistics further suggest that revenues attained from fair trade coffee in Sweden have reached to 939 million Swedish kroner in the year 2016 (Sales revenue of fair trade coffee in Sweden from 2009 to 2016, 2017).
Sweden also adheres with the rules of staff welfare, equality etc. As the above ethics are a part of overall operations of the coffee shop hence choice of Sweden as a nation for expansion is highly justified. Moreover the coffee shop can be opened in Central Stockholm which has a presence of large number of offices, high foot traffic, residential areas as well as its close vicinity to public transport. As the transport facilities of Sweden is also well connected hence consumers will not worry about being a regular visitor of the coffee shop (Rytoken, 2016). East African layout of the coffee shop with themed evenings, free Wi-Fi, board game night and chit chat with Nanna will be welcomed due to presence of many international tourists in the nation almost for the entire year. Due to the presence of many coffee lovers the supplier power is moderate in Sweden and hence the firm is least likely to face any issue in getting a supply for its coffee shop (Spiegel, 2015). Same applies to the consumers as well who are coffee lovers and night life will favor the concept of themed evening that is a part of this coffee shop.
2. Present a tailored marketing mix in relation to the coffee shop expansion plan abroad.
The product offerings at the east African based coffee shop in Sweden will snacks, pastries and cold drinks (e.g. fresh mango juice) that will be inspired by East African culture which is also present in London based stores of Marvin and Smith’s coffee shop as per the case study. Coffees being the mostpopular hot drink in the nation will therefore be as per Swedish taste. Focus will be given on serving the consumers with espresso as well as other kinds of Italian coffee (Orta and et.al., 2015). Side servings to be kept with coffee will be sweet breads, cookies and cinnamon bonuswhich are usually favoured by the Swedish people.Other than this the presence of themed evenings and chit chat with Nanna will be main attractions of the coffee shop by which it cangain an edge over the other competitors.
As there are a large number of coffee shops in Sweden that cater to the need of local residents as well as international tourists hence the initial pricing will be kept low in order to attract large number of consumers towards the coffee shop and also generate an increasing market share in the competitive market of coffee shop. If the coffee shop is able to attain a good amount of sales volume through this pricing strategy then it can become a de facto standard of the industry which can aid in getting a good position within the market (Muller and Muller, 2016).
As per the place element of marketing mix for Marvin and Smith’s coffee shop, the company is planning to open its store in Central Stockholm. The shop will further be on the main street so as to attract a large volume of foot traffic and also being close to public transit. This will not only aid in attracting public form the nearby places but also assist in ensuring that consumers visit the place from other areas as well and act as repeats in the shop (Morris, 2017).It will also be ensured that the place is surrounded by a lot of offices and residential areas so as to attract visitors. This location is notdifficult to be found as central Stockholm is in itself a busy location.
In the start there will be a usage of very basic promotional strategy in form of word of mouth publicity; customer referral incentive program, After-Sale Customer Surveys etc. Other than this a web page will also be displayed on social networking sites such as Facebook etc. so as to attract the crowd(Orta and et.al., 2015). Signs and promotion boards will also be displayed outside the shop so as to attract the passer-by so that they can relax inside with a cup of coffee. All this strategies are most liklry to attract local consumers as well as international tourists by which they can come and enjoy a hot cup of coffee in mugs that has the logo of company.
3. What are the implications of the need for Marvin and Smith’s to cover a wider geographical area in terms of a different country
Various implications can be felt if Marvin and Smith make an attempt to cover up a wider geographical base by starting its operations in different nation being Sweden. As per the case study it is true that initial information system that has been set up in the coffee shop is structured and set up in such a manner in order to manage only one or two coffee shops. This has led to outdating of the initial information system hence the need is to update it so as to assist in theprocess of expansion(Muller and Muller, 2016). In this regard one of the basic steps is that the management of coffee shop must have a basic map in the hand so as to assess as to how information system will run today and in the future by taking into account the rapidly changing nature of the industry.
Then the need is to increase the overall capacity of information system so as to suit the business need after expansion has taken place. Other than this, it will be required to appoint expert professionals who can work on the modified system. This implies that the need is to provide proper training to the staff members so that they can be in a position to handle all the information in a better manner. There may further e a need to download software that favour the information system(Orta and et.al., 2015). One such is closed loop selected IFS applications as it has the presence of easy to use ERP suit as well as reporting capabilities that can be implemented in a rapid manner and without the need of any customisation. This information as well as the presence of other software can aid in proper storage as well as analysis of data so as to assist in the process of faster decision making. There can also be a better planning of expansion plan for the coffee shop which is most required as of now.
With the expansion plan as described in the case study there may be a need to bring change in management structure as well. As of now, Marvin and Smith’s coffee shop does not have a presence of proper management structure so as to manage the operations in best possible manner. But as they are planning to open another shop in Sweden hence the best suitable structure for the coffee chain can be geographical where one region can be of London while other of Sweden. Each region will have its own set of marketing, finance and operations team(Rytoken, 2016). This is a requirement as the coffee taste and preferences of consumers within Sweden will be entirely different from that of the ones that are based in London. Hence the need will be to appoint different managers for both the region. Other than this, local managers will also be required to be recruited who will have a know how about the local culture and ethos of the place. Other than this, there will also be a need to appoint board of directors which can further be divided into chairman for running the board in smooth manner(Orta and et.al., 2015). This can be followed by inside directors for monitoring and implementation of business strategy followed by outside directors for providing impartial judgement on the issues brought in front of the board. There will also be a presence of management team in form of chief executive officer, chief operations officer and chief finance officer for running the company in successful manner.
4 Using the following financial information, evaluate how their profitability and liquidity may impact on decisions available to them
- Identify ratios and values for:
Gross profit and analyse what it means; and
Gross profit =Sales - Cost of Goods Sold
= 360000 -152000
The gross profit for the company seems to be good which means that overall profitability as well as financial performance of the company is very good. Moreover it further indicates that the management of coffee shop is making effective use of labour and supplies in the overall process of production.
Net profit and analyse what it means
Total Revenue -Total Expenses = Net Profit.
208000-181200 = 26800
The overall net profit of the coffee shop also seems to be good which means that company is profitable on an overall basis and has the ability to achieve a satisfactory return on investment.
Identify Return On Capital Employed (ROCE)and analyse what it means
Return on capital employed = net operating profit \ total assets – current liabilities
= 26800 \ (113,000- 106800)
ROCE of the present company is very high which indicates that there can be investment of large profit chunks into the company so as to benefit the overall shareholders. The capital can be employed again at high rate of return which may aid in prdoucing earnings per share growth. Hence, high ROCE signifies successful chances of growth.
Current ratios and analyse what it mean
= Current assets \ Current liabilities
= 35400\ 6200
This ratio tells that there is a presence of good efficiency with respect to operating cycle of the company which showcase its ability to monetize the product offerings. As the ratio is high enough this means that the company is in a position to pay off its obligations and is also healthy on financial grounds(Muller and Muller, 2016). The present current ratio in context of the coffee shop is too high which means that the company has not utilised its current assets or short term finance facilities in an efficient manner which clearly indicates that the company is most likely to face the issue of working capital management.
Acid test ratio and analyse what it means
Quick assets \ current liabilities
= 27400\ 6200 = 4.41
As the acid test ratio is very high which suggests that the company is increasing top line growth and is also able to convert receivables into cash in a quick manner. By the help of this, the company is able to meet up the financial obligations. The coffee shop thus has a presence of higher inventory turnover as well as cash conversion cycles.
5 Write a concluding paragraph about the overall viability of overseas expansion at this stage.
The overall viability in terms of Marvin and Smith’s coffee shop expansion seem to be good as Sweden is a coffee drinking nation and the selected area of company being Central Stockholm is likely to provide an opportunity for the company. The firm has also been adhering with all ethical practices such a staff welfare and fair traderegulations which are given an increased emphasis in Sweden. Hence the firm is least likely to face issue in terms of expansion plan. However it will have to mould its marketing mix as per Swedish market by offering coffee and other products as per local taste of Sweden and pricing will also be required to be kept low seeing the competitive scenario of Swedish coffee market. The selected location can be Central Stockholm due to its good consumer traffic and public transport. Varied means of promotion will also be required in form of word of mouth publicity; social media channels among others. The management is further required to work in the direction of updating its information system as well as management structure. Other than this, the analysis of the company’s financial data shows good profitability followed by a good chance to attain a satisfactory return on investment. High ROCE signifies successful chances of growth while quick ratio indicates towards a presence of higher inventory turnover as well as cash conversion cycles. On a negative front, the company is facing issues in terms of working capital management as it has failed to utilise its current assets or short term finance facilities in an efficient manner.
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