Strategic Expansion Plan Marvin and Smith

Introduction

Marvin and Smith is an emerging good investment that has made good profits and registered growth due to its unique products and business model. The business has expanded from one coffee shop to three locally but intends to venture into international markets within Europe. The expansion plan, however, requires adequate research and planning to avoid putting the business at the risk of overstretched financial commitment.  This work examines the viability of the idea from different perspectives such as suitable location, promotional strategies, and financial ratios. The expansion into the international markets may currently be unsuitable but with proper planning and adequate capital, this may be a worthy consideration in future. The assignment argues that with the current capital and profits it’s better for Marvin and Smith to focus on exploiting local markets first to have the adequate financial potential to grow into international markets.

Finland

Finland is one of the best countries that has a great coffee-drinking trend especially given the large number of booming coffee shops in the area. Finland is one of the leading coffee-loving nations in the world going by the level of coffee products demand in the nation.  The kind of increasing trends in urbanized lifestyles in Finland and the growing culture of enjoying social life in one of the coffee bars in the town makes it a great destination to open a new shop. It is one of the European nations that has been ranked by the World Bank as the fourth best in Europe in doing business (Valkila, Haaparanta and Niemi 2010). The World Bank has come up with the ranking after closely monitoring each nation within ten important parameters that have an impact on the operationalization and learning of business.  Some of the parameters include taxation policies, contract enforcement, property rights, and access to infrastructure such as roads and electricity, business startup bureaucracies, credit aces, protection of foreign investors among others. Hence by Finland being the fourth position means that it is the most strategic country that will be easy to set up a new coffee shop.  When the country has a very favourable business environment that makes it easy to do business then it means that the costs of setting up new investment in the area are very low as compared to other regions. This will be the case with Finland which is the country that has good and efficient business registration and operationalization procedures and little bureaucracies for new startups and foreign investments (Vanharanta, Kantola and Seikola 2015).

 A look at the main coffee shop players in the entire Finland coffee industry suggests it’s only those businesses that were leading in new and unique products that did perform best in the industry in the year 2015.  The current trends indicate high growth in demand for coffee products by 9 per cent in 2015 other products such as fruit juice recorded a greater growth in demand at 16 per cent.  The growth in the sales of most coffee shops was driven by the diversification of the products into juice products.  Such trends make Finland a proffered destination for establishing a coffee shop in the region. 

Competitive landscape

Though the nature of coffee shop competition in Finland is high the demand trends for coffee and other beverage products are high.  Finland consumers are becoming highly responsive to health products such as natural prepared unique fruit juices. One of the main diversification areas of the Marvin and Smith’s coffee shop is in the mango juice and other fruit-inspired products. The Finland consumer markets are also becoming so much interested in uniquely crafted coffee beverage products. This implies that introducing the new and uniquely prepared beverages from east African sources can help make Marvin and smith’s coffee shop more competitive in the Finland market.  The competition in the region may be high but the unique products offered by Marvin and Smith’s coffee business is likely to give it a competitive advantage over other local and international players in the market.

The demand

Finland is leading in demand for coffee with an average den of 2.64 ups/day for an average individual (Alioucheand Schlentrich 2015). People in the country has a high demand for a cup and it is a common beverage all day. More important people have a culture of meeting at coffee bars to have a chat and catch up with life events. Special celebrations and luncheons are organized in the coffee shops. Employees in several organizations have a culture of organizing for a coffee evening to celebrate after long days of work. Target customers are therefore very important when considering the location of the coffee shop. A country like Finland with such a high demand for coffee and the best business operating environment can be the most preferred destination for establishing a new Marvin and smith’s new coffee shop branch. Fair business practices are becoming a common concern for consumers and the government in Finland. Therefore coffee importers are required to source their products from Africa but ensure that they strictly conform to the European Union fair trade standards (De Pelsmacker, Driesen and Rayp 2015). Marvin and Smith’s coffee shop sources their products from a fair trade registered supplier. Finland is very keen on business that promotes ethical fair trade and hence Marvin and Smith’s coffee shop is likely to thrive well in such a business environment. The high and middle-income consumers are the best targets for the coffee shop. Finland provides the best environment to set up a coffee shop branch in the area given that the percentage of the population in such segment is growing.  

Product

Marvin and Smith’s coffee products are unique and east African inspired having been sourced from one of the best coffee products in Africa. A variety of products will give the coffee shop a unique look as most of the competitors sell traditional brewed coffee products. Product differentiation is key in Marvin and smith’s coffee shop.  Speciality products including freshly prepared mango juices and other fresh products from different varieties of fruits such as passion, pineapple among other fruits will help give Marvin and Smith’s coffee products an exceptional taste.  East African inspired pastries and snacks products will also be offered by the coffee shop and this will help to diversify the products from what the local Finland consumers have been consuming. Such product differentiation is the key strategy for the marketing of Marvin and smith’s coffee brand in the area (Aliouche and Schlentrich 2015).

 Pricing

 The pricing of Marvin and Smith’s coffee products is based on high value for differentiated products. High-quality products accompanied by quality products make the customers find value for the money spent in the coffee shop. The focus will be value for consumer money and what in the consumer’s perception looks like fair prices. To maintain the quality and justify relatively high prices of the products the quality of coffee sourced from east Africa will be maintained.  The average coffee price in Finland will be similar to that of Marvin and smith’s coffee shop paces in England and hence the consumers in Finland are not expected to consider it as expensive.  Howler special discounts will be offered on themed evenings to cover market segments that may view such prices (Leaders, Preece and Kerrane 2011).

Place

The first branch for Marvin and Smith’s coffee shop will be opened in Stockholm the capital city of Finland. This is the major transport hub and highly populated urban setting in Finland. Finland is one of the countries within the European nation with sparse population. Hence setting up the coffee shop in Stockholm where the population density is high makes it more accessible to several people.  The best location will be close to the high-end income consumer segment but the primary focus will be a serene and strategic location not far from the city (Constantinides 2016)

Promotion

  A combination of different promotional strategies including sponsorship events and online marketing will be used to communicate to Finland consumers.  Marketing through social media platforms, major bloggers,  Twitter, direct mails, website and other online platforms will help to communicate effectively about the products and services offered by the Marvin and Smith coffee shop in the area (Lovelock, Wirtz and Chew 2009).

The implication of expansion on the management structure of Marvin and Smith’s

The expansion into the wider geographical area means that Marvin and Smith’s coffee shop organizational structure need to change from central to the decentralized system of management structure. The setting up of a coffee shop in the geographically diverse region in Finland means that the use of a centralized management structure may not work as it will make the decision making processes rigid. Middle-level managers in charge of each coffee shop need to be recruited or promoted from within to help assist the executive management in running day to day activities of the coffee shop in each region. The expansion plan into wider geographical location means that the executive management will not be physically present to make some of the decisions required in local contexts and hence the middle-level managers will have to be empowered to make sound decisions that will not contribute to negative consequences of the organization. As the business expands then the management structure may also be required to become more complex. For instance, Marvin and Smith’s may require creating several departments as their business continue to expand. There are different heads of departments that would be put under the middle-level managers, therefore, making the management structure more complex (Lovelock, Wirtz and Chew, P., 2009).

Gaining competitive advantage

Increased geographical distribution of the coffee shop branches implies that more customers will be targeted for the sale of the products. Market diversification implies that more sales are likely to be made if the promotional strategies are effective in such regions. People in various geographical locations have different cultures, tastes, preferences hence presenting more opportunities for product diversification.  The increased sales derived from increased products diversification and customer targets will imply a competitive advantage over other competitors in the market. Marvin and Smiths’ coffee shop will have diverse markets out of their internationalization strategy and this will offer them an opportunity to move away from highly concentrated markets to other consumer segments where there is less competition (Altman 2014). Growth in sales from diversified markets means that the coffee shop will have higher bargaining power over the suppliers giving it a competitive advantage over its competitors through reduced costs of production.

A change of management structure is interlinked with the increased competitive advantage since when there is a better man agent structure then there is the smooth flow of operations. A decentralized management structure also contributes to flexible business which can easily meet the consumer’s demand resulting into a competitive advantage in the market. An efficient management structure creates the incentive for innovation giving the business organization a competitive advantage in the market.

Evaluation of liquidity and profitability

Current assets /current liabilities = 35400/6200= 5.7

The liquidity ratio for the Marvin and Smith’s shop shows that there is adequate room for the borrowing. The business can source funding from various creditors such as banking institutions but with the current size of the business, there may be limits.   Liquidity ratio is very critical for creditors who want to commit their resources to financing the business. The liquidity ratio for Marvin and Smiths business is high there is the need for the business to maximally utilize its assets in the pursuit of capital to expand their business.  The business can as well invest part of their profits as capital for expanding the business to international markets. Financing of small business the size of Marvin and Smith’s may be challenging but with sound financial management, they can be able to meet the business financial obligation.  The business can think of borrowing from friends, financial institutions, or increase investment through inviting more investors to inject capital into the business (Barnes 2007).

Whichever the option the management may consider to source capital they must ensure that the business does not become overburdened with loans. The liquidity ratio is very important factor in business operation since it is an expression of the financial stability of the business.  Most of the business collapse due to liquidity issues hence when business is expanding to international market this is an aspect that they need to examine critically. However, there is no cause for Marvin and Smith not expanding their loans to raise more capital for overseeing expansion plan. The expansion will be expected to bear profits and make the business more competitive and this will help in recovering the initial investment capital and allow the coffee shop to meet its financial obligations (Altman 2014).

Conclusion

Marvin and Smith’s business is currently doing well given the first expansion plans which have seen the opening of two more branches. There are different countries in the European Union where Marvin and Smiths can expand a business.  Finland is the best country given the ire level of demand for coffee beverages annually. Finland is among the top countries that have best legal and administrative environment to start up the business. The available records indicate that Finland has the low level of bureaucracies required when registering the business and has good taxation policies and contract enforcement.  The infrastructure available in the capital city is favorable for the accessibility of the business.  Stockholm is a transport hub and preferred destination for businesses due to high population density. A good marketing mix in the area that combines the 4ps namely price, promotion, product and place are necessary for the marketing of the product in the area.  The business products are unique and product diversification can help set Marvin and Smith products apart. This would help to set competitive prices in the market and promote products and services across different market segments. The customers require the value for their money and this indicates that they may be willing to pay higher prices for the company products that are of unique high quality.

The expansion of the business into international market require high capital investment and this implies that the business must have adequate sources of capital to finance the expansion plan. There are also other requirements such as restructuring their management structure. They will also have to compete with other multinational and local competitors in the region where they locate their international branch.  Currently, there are several plans that require being finalized and implemented before the business enters into international market. First, there is need to reorganize its initial organizational structure to create room for the expanded network. The business also requires procuring a new information technology system that accommodates its expanded structure. The liquidity ratio and small profits indicate that there is a lot of financing that needs to be borrowed from the outside and given the high capital required in venturing into international market this may prove challenging to the business. It may have a great negative impact on its liquidity ratio putting the business at risk of bankruptcy. The best solution is for the Marvin’s and Smith to focus on exploiting local markets fully through opening additional branches locally as it initiates appropriate plans to position itself better for international expansion. 

References

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Valkila, J., Haaparanta, P. and Niemi, N., 2010. Empowering coffee traders? The coffee value chain from Nicaraguan fair trade farmers to Finnish consumers. Journal of Business Ethics, 97(2), pp.257-270.

De Pelsmacker, P., Driesen, L. and Rayp, G., 2015. Do consumers care about ethics? Willingness to pay for fair‐trade coffee. Journal of consumer affairs, 39(2), pp.363-385.

Aliouche, E.H. and Schlentrich, U.A., 2015. Towards a strategic model of global franchise expansion. Journal of Retailing, 87(3), pp.345-365.

Leaders, M., Preece, H. and Kerrane, B., 2011. FOUNDATIONS OF MARKETING.2,pp 342-46

Constantinides, E., 2016. The marketing mix revisited: towards the 21st century marketing. Journal of marketing management, 22(3-4), pp.407-438.

Lovelock, C.H., Wirtz, J. and Chew, P., 2009. Essentials of services marketing.

Saleem, Q. and Rehman, R.U., 2011. Impacts of liquidity ratios on profitability. Interdisciplinary Journal of Research in Business, 1(7), pp.95-98.

Barnes, P., 2007. The analysis and use of financial ratios: A review article. Journal of Business Finance & Accounting, 14(4), pp.449-461.

Altman, E.I., 2014. The success of business failure prediction models: An international survey. Journal of Banking & Finance, 8(2), pp.171-198.

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