Coffee Shop Expansion Essay
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- Coffee shop expansion
Marvin and Smith should consider expansion into France to have a fair chance of growing their business in markets beyond London. The economy of France offers a considerably large market for the coffee business given that it is one of the most populous countries in Europe at 60.1 million people (Gilpin 2015). This is an important aspect for the expansion plan since the higher the population, the business should expect a considerably high number of potential customers. Other logistical considerations existent in the new market include the ability for one to sell the franchise to other investors. If the popularity enjoyed by the coffee shop can be replicated in France, this will offer the company an opportunity to expand much further through franchising. For this to succeed, they will have to determine the appropriate financial applications that will be applicable to manage the franchise on matters such as the language to be used. However, those interested in buying into the franchise would be required to open their business under French law before commencing any operations (Hardy and Butler 2016). This would guarantee a higher expansion rate within the French market at a lower cost as opposed to Marvin and Smith having to fund and operate each of the outlets.
Culture is a significant factor to look into when investing in new markets especially when the product being introduced has been successful in a different culture. The lack of universality in cultural understanding and orientation of people across the world is a clear indication of the need to have needs tailored to suit each market (Baker 2014). Marvin and Smith coffee shop would be in a position to offer services that are more tailored to suit the French market without necessarily having to change the composition and presentation of the main products. Culture plays a significant role in determining how people respond to marketing and products presented in the market. Food and beverages represent an integral part of how the French people view the world (Landweber 2015). Therefore, subtle considerations will be helpful towards ensuring its success in the market through creating a fusion between being an East African themed coffee shop and showing relevance of the French culture. This would be easy to replicate in the new market since by offering the same standard of coffee already popular in the London market, the only changes that would have to be effected are for example changes to the themed evenings.
The venture is likely to face structural challenges related to employment laws which for the most part are complicated as compared to most European nations. However, this can easily be tackled through the use of legal practitioners to guide through the process. This emanates from the need to gain better understanding of the legal structures that are applicable for the business before commencing on the hiring process. For example, one is required to notify the URSSAF of any new employment created not less than 24 hours to the time they are supposed to report to work (Hardy and Butler 2016). Failure to adhere to such guidelines amount to irregular hiring process which could further complicate the expansion plan bearing in mind penalties may be levied against the company. Other employment conditions revolve around the number of hours that one would be expected to work within a week. While this tends to differ with each jurisdiction, in France it is normally 35 hours (Hardy and Butler 2016). However, exceptions are given in order to allow smooth operations of various businesses whereby the employees get to earn overtime. The amount earned during overtime is not taxed hence acting as a morale boost for employees to work.
- Marketing Mix
- Price- the price is a representation of the valuation placed on a product depending on the costs incurred during production, the market segment and the profit targets set forth (Alon, Jaffe, Prange and Vianelli 2016). In this case, the coffee shop has to employ a low market entry price to be in a position to compete with already established coffee and related businesses. The market is price sensitive hence this strategy would be crucial towards building an initial customer base. To attain a low price and still operate profitably would require an increase in efficiency in both the sourcing of the basic ingredients to the production process itself. This lower cost of production can thus be transferred to the customers in the form of lower prices per unit purchased.
- Product- the expansion program heavily relies on the coffee servings in addition to other activities such as themed nights. However, it would be impossible for the venture to gain market traction if the minimum expected standards in the coffee servings are not met. This would consequently render all other marketing efforts ineffective as the customer main interest would be on the coffee servings. Therefore, the coffee shop has to adopt a way of ensuring that the customers get value by directing efforts towards quality improvement. In addition, consistency would also work as a complementing factor given that the customers’ expectations from a particular serving would always be attained (Baker 2014). Once that has been achieved then other services can be normalized to compliment the coffee shop operations.
- Place- the location chosen for the coffee shop will always play into determining how well it market entry strategy will work. Similar to other major markets, rental space in the French market is likely to be expensive in places where there is high flow of potential customers (Alon et al. 2016). Such places tend to offer most customers with convenience as they go about their day to day activities. In addition, certain locations tend to offer easy access and easier to configure the premises to fit a particular purpose. This would include the ground floor of a complex and possibly located next to a lawn or a walk way. Therefore, the coffee shop has to pick a location that is most convenient to the target market at the lowest rental cost.
- Promotion- this forms the basis of creating awareness in the market for the products on offer. The coffee shop has to extensively market itself in order to ensure that information reaches out to more potential customers. One of the best channels to ensure this through the word of mouth where programmes will be set in place to encourage regular customers to bring their friends. Offering incentives to employees would also effectively help in promotion as it can have a positive impact on their service delivery (Baker 2014). The coffee shop can also create its audience across various social media platforms where trivial competitions can be organised thus consequently increasing its popularity. Product and process description can be used to create a fan base on the social platforms if well executed.
- Implications of the need for Marvin and Smith’s to cover a wider geographical area
d) Gaining competitive advantage
By extending their operations to France, Marvin and Smith have to contend with initial high cost of operation. This is a challenge that already establish players in the industry do not have to face. As a counter measure, the coffee should concentrate on product differentiation. This refers to using particular aspects of the product or the service being offered to create a perception of being different in the money when compared to competitors (Walker and Madsen 2016). This can be achieved by introducing changes to the production and presentation commonly adopted by the competitors. The coffee shop will also have to settle on what forms of themed evenings will be borrowed from the ongoing shops in London and which ones to modify depending on the cultural orientation in the French market. France also tends to receive a huge number of tourists from different nationalities hence it would be prudent to have each evening themed according to common cultures across continents. This will offer both new and regular customers an opportunity to learn something new each time they visit the premises. The only factors to be maintained consistently are the various coffee servings and drinks.
Competitive advantage can also be obtained through the owners of an enterprise choosing to become people developers. In this case, the employees become part of the core system for the enterprise where they are encouraged to work as a team. This include complimenting where necessary and providing each employee with adequate time to learn the specifics of the code of service to be employed at the coffee shop (Baker 2014). This is important given the dynamic nature of the outlets hence more effort would be required from them as opposed to a scenario where the shop is operating on a single theme throughout. The team would be instrumental towards ensuring efficient service delivery.
f) Supply chain
This refers to the connection between the sourcing of materials and the final product reaching the customer. This represents one of the ways in which an enterprise can gain competitive advantage while maintaining sustainable operations from both the supply and customer ends (Christopher 2016). By extending their operations to France, Marvin and Smith have to contend with increased logistics in supplying the shops already operating in London and the new ones to be established. One of the logistical challenges in this case would be on trying to regulate the quality of the supplies obtained especially as their demand continues to grow. By maintaining consistent supply channels, the coffee shop will be in a position to acquire large quantities of supplies at a lower cost. These benefits can be passed on to customers in the form of lower prices for various servings.
An efficient system will require the suppliers to be in a position to handle the additional demand without compromising on the quality of materials. Therefore, more stringent measures will have to be taken to ensure that the minimum acceptable standards are met since failure to attain that would have a cascading effect which would ruin the quality of the end product (Seuring 2013). Such a breakdown in the supply chain would be damaging to the prospects of the new coffee shops in France given that they are yet to gain a customer base. Sustainable practices have to also be ensured. This is important in brand imaging whereby consumers in the French market would be expecting the enterprise to source their products from suppliers who have positive sustainability reports on the operations. This might be hard to effectively determine if the number of suppliers is big and the sources for similar products are few.
- Profitability and liquidity
Profitability
The profitability ratios tend to show how easy it is for an enterprise to generate income given a certain amount of investment (Collier 2015). The ratios are crucial in measuring the previous performance of an entity thus helping to predict the expected profitability levels in the subsequent financial period.
Return on assets- this ratio provides an insight as to the efficiency levels of an entity in using the available assets to generate profits (Brigham and Ehrhardt 2013).
Return on assets
The return on investment at 23.7% is fair hence an indication of a positive future for the coffee shop.
Profit margin before income tax- this ratio provides a measure of what percentage of income is generated by a particular size of revenues generated (Collier 2015).
Profit margin before income tax
This shows that the profit margins are low at 7.44% due to the high expenses that had to be incurred during the period.
Total asset turnover- this ratio is used to show the amount of sales generated from a particular level of assets invested.
Total asset turnover
A total asset turnover of 3.185 times is an indication that the revenues generated by the venture are three times the size of the assets used hence commendable.
Liquidity
The ratios under liquidity tend to provide a measure of how effective an enterprise is in covering their expenses. This impacts the business by indicating how the expenses being incurred are affecting the overall performance of the entity (Brigham and Ehrhardt 2013).
Current ratio- this ratio provides an indication of how well an entity is able to meet the current liabilities incurred using its current assets
Current ratio
The 5.7 to 1 ratio indicates that the coffee shop is able to meet its current liabilities using current assets easily.
Quick ratio- this ratio provides a comparison between liquid current assets held and the current liabilities of the entity.
Quick ratio
The quick ratio of 4.42 to 1 shows that the coffee shop is operating with adequate liquid current assets.
Net sales to working capital- this liquidity ratio is used to indicate the sales generated given a particular size of working capital (Collier 2015).
Net sales working capital
At 12.33 times, the net sales working capital ratio indicates that a smaller size of working capital is required to generate sales hence an indication of positive performance.
- Summary on the overall viability
The expansion plan for the coffee shop is highly viable given the big size of the market the enterprise will be operating in. the huge population also provides the enterprise with an opportunity to grow their business in France which would translate into greater returns (Walker and Madsen 2016). In addition, the local population and the huge number of tourists provide a wide range of possible market segments that can be targeted. Therefore, the coffee shops can be diversified on different locations to cater for the market segment within each. The ability of the coffee shop in generating revenues is crucial to its survival and eventual expansion in the French economy. The start-up costs will definitely be high given the need to secure premises, remodel the spaces and install all the necessary furniture and equipment. However, since franchising is also an option then Marvin and Smith can rely on local investors in opening more coffee shops.
Marvin and Smith have the required skillset to operate a coffee shop in France given their success in the London market. Over the time they have gained the necessary experience on various aspects of the business which includes the sourcing of supplies and the management of the coffee shops (Seuring 2013). This experience is crucial as it effectively ensures that mistakes they had committed in the initial venture would not be repeated. This would not be the case for first time investor in the coffee shop venture where guidelines tend to be tied to each brand. Moreover, the coffee shop is based on an innovative concept through having themed evenings. The success of such programs is likely to be replicated in France given the diverse nature of its population. The logic behind the coffee shop is clear hence the targeted segment will be able to form a connection thus becoming regular customers.
References
Alon, I., Jaffe, E., Prange, C. and Vianelli, D., 2016. Global marketing: Contemporary theory, practice, and cases. Routledge.
Baker, M.J., 2014. Marketing strategy and management. Palgrave Macmillan.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.
Gilpin, R., 2015. France in the Age of the Scientific State. Princeton University Press.
Hardy, S. and Butler, M., 2016. European employment laws: a comparative guide. Spiramus Press Ltd.
Landweber, J., 2015. “This Marvelous Bean”: Adopting Coffee into Old Regime French Culture and Diet. French Historical Studies, 38(2), pp.193-223.
Seuring, S., 2013. A review of modeling approaches for sustainable supply chain management. Decision support systems, 54(4), pp.1513-1520.
Walker, G. and Madsen, T.L., 2016. Modern competitive strategy. McGraw-Hill Education.
