Marvin & Smith Coffee Shop Expanding Business in Austria

| October 20, 2020

Question

Case Study Assignment Help

Working with a Partner

Working with someone else is both a benefit and a challenge, and it’s important early in the semester to establish ways of working together, and how to most effectively produce the best result for both of you.

The reasons for working together are simple – working with people is an essential life skill in all organisations.  It’s often necessary to work with experts who you may find difficult to manage at times, or to work in a group or a project team to produce a new product or system.

The earlier that you agree on things, the better the work will go as the semester progresses.  Work pressures from other courses and deadlines will soon focus your minds.  So as early as you can:

  • get to know your partner and what they’re like
  • agree meeting times each week to work together (and separately) on the assignment.  It is recommended that for the first few weeks, you work together, to build trust and confidence in each other and a common understanding of the work that needs to be done.  Working together on Question 1 is ideal, as you both then have a common understanding of which country you will be expanding to, and what needs to be done.  See below for further tips and hints on each of the questions.

Then, it will be more efficient for you each to work separately, as you can divide your time effectively on each of the questions – working separately on each topic in Question 3, for example, then coming together at the end to interlink the two Operations topics.

Agreeing how you will work together is an essential beginning – once that is done, the work can be produced effectively.

Tips and Hints on the Case Study Assignment

Q1 – Justify chosen country

  • Why this country?
  • Facts based on café culture, lifestyle, coffee drinkers
  • Ethical considerations: Fairtrade adoption, staff welfare etc and why
  • Structural considerations: location, layout, transport, etc and why
  • Logistics: based on location – supplier deliveries, customers to provide your services/products etc and why

Q2 – Marketing Mix

ProductPrice
PromotionPlace
  • Use a 4Ps marketing mix; a 7Ps marketing mix is not required for this Assignment
  • Elaborate and link (to Q1 and case study) to coherently justify your tailored marketing mix

Q3  –What are the implications of the need for Hank and Patty to cover a wider geographical area in terms of a different country? Consider any impact this may have on any two of the following and show how these issues are interlinked:

Information systemsOrganisation cultureManagement structureGaining competitive advantagePersonnel and managing staff issuesSupply chain

Whichever 2 you pick look back to Q1 and Q2 as well as the case study material to inform and enhance ideas you present here.  This will make your report hang together better as a proposal for expansion.

Q4 – Using the following financial information, evaluate how their profitability and liquidity may impact on decisions available to them

  1. Identify ratios and values for:
  2. Gross profit and analyse what it means; and
  3. Net profit and analyse what it means
  • Identify Return On Capital Employed (ROCE)and analyse what it means
  • Identify Liquidity
  • Current ratios and analyse what it means
  • Acid test ratio and analyse what it means

Q5 – Write a concluding summary about the overall viability of overseas expansion at this stage.

  • DO THIS LAST once all previous 4 Qs done because you are both summarising your findings, and concluding your report.

Answer

Table of Contents

Executive Summary. 3

Expanding Business in Austria. 4

Marketing Mix. 6

Product 6

Price. 7

Place. 8

Promotion. 8

Implications of Expanding to Austria. 8

Organizational Culture. 8

Gaining Competitive Advantage. 10

Financial Ratios. 11

Gross Profit 11

Competitor- Caffè Nero. 11

Net Profit 11

Return on Capital Employed. 12

Current Ratio. 12

Acid Test Ratio. 12

Conclusion. 13

References. 14

Executive Summary

This report aimed at scanning through the EU country members to establish one in which Marvin & Smith Coffee Shop  can expand its activities. From the gathered facts, Marvin and Smith should internationalise their coffee business to Austria. Austria is believed to be the place where the first global coffee house was setup in 1685, and has since have had a strong culture of drinking coffee. It ranks position 12 among the top 20 global leaders in coffee taking. 92% of Austrians take coffee with 75% of them drinking two or more cups daily. The coffee market is underserved as the current shops are lagging in terms of services expectations and coffee technology. Business expansion in this country will be supported by the firmly institutionalised and open to global investment and trade program. The economy also has a highly skilled labor force, favourable tax rates, political stability, adherence to the rule of law and stable financial sector, all which present a good environment and market for growth. This expansion plan will impact on the organisation culture and competitive advantage.

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Expanding Business in Austria

Marvin & Smith Coffee Shop should expand its operation to Austria. Marvin & Smith should also open a coffee shop in Austria because the country ranks position 12 among the top 20 global leaders in coffee taking (Smith, 2017). The Local (2014) noted that 92% of Austrians take coffee with 75% of them drinking two or more cups daily. The Local went ahead to note that the first world coffee house was setup in 1685 in Vienna by Johannes Theodat, an Armenian merchant. The country’s coffee houses have become part of the Viennese culture and following this recognition, UNESCO listed it as an intangible heritage in 2011. The coffee houses in Austria as used by people, who come there to chat, eat strudel and read newspapers.

Despite the engrained culture of coffee taking in Austria, the market is yet to be fully exploited a thing that present a feasible business opportunity for Marvin & Smith to exploit.  Reid (2017) noted that though among the eight global best cities for coffee, the standard of coffee in Vienna was lagging in terms of services expectations and coffee technology.

Doing business in Austria is easier and based on the 2018 Index, it ranked number 32 with an economic freedom score of 71.8 (The Heritage Foundation, 2018). Its economy is well developed, resilient and highly globalised. The government’s policies support foreign investments with its transparent regulatory system. This country is good for Marvin & Smith’s business expansion as it is firmly institutionalised and open to global investment and trade. It also has a strong tradition of adhering to the rule of law in support of crime and corruption reduction, protecting property and contractual rights of both natives and foreigners.

The business will also benefit from the country’s political stability, relative low tax burden (corporate tax rate of 25%), highly skilled labour force, and a well-capitalised banking industry that provides a gamut of financial services. The Austria’s employees have a business oriented-education, maintain good relations with employers, which lead to low strike rates. A look at Table 1 shows that a majority of people are aged 15 and 54 years, implying that a resourceful work force is available.

Table 1. Austria’s demographic profile (July 2017 est.)

Population8,754,413FemaleMale
Age0-14 years: 14.01%
15-24 years: 11.07%
25-54 years: 42.42%
55-64 years: 13.23%
65 years and over: 19.26%
598,519 475,500 1,856,937 584,022 954,986628,205 494,016 1,856,532 574,570 731,126
EthnicityAustrians 91.1%, Yugoslavs 4% Turks 1.6%, Germans 0.9%, Others 2.4%  
GDP417.2 billion  
Per capita48,005  

Source: Index Mundi (2018)

These employees will make good baristas who understand their roles, and create a welcoming and personal environment for customers, which they lack in other shops. Austria is also a good business market because it is centrally located making it an ideal-East-West business hub. It is also the leading freight and flight logistics hub in Easter Europe, implying that deliveries of supplies will be smooth.

However, Marvin & Smith should realize that starting a business in Austria takes a bit longer and involves many steps (The Heritage Foundation, 2018). Therefore, from the above analysis, Austria proves to be a healthy market and potential growth area for business.

Marketing Mix

The marketing mix denotes the interrelated actions and solutions used by an enterprise to achieve its marketing goals and meet customers’ needs (Išoraitė, 2016). Every company that wants to thrive in the market must strive and pay a closer attention to all components of marketing mix that include, place, product, price and promotion. In the event that the company miss-aligns these elements, it might face some shortcomings in its business. Therefore, Marvin & Smith must professionally synchronise these four elements to achieve differentiation and a competitive advantage over the already established coffee shops.

Product

Išoraitė (2016) defines the product as the service or physical item offered to the customer and which the client is willing to pay. Recently, the concept of product has been expanded to go beyond the natural products and services to include customer’s experience, quality, features, package, warranties, options and brand name (Ehmke, Fulton, & Lusk, 2015). As noted by The Local (2014) both men and women love coffee and which is served in different types. Therefore, in their coffee shop, Marvin & Smith should include a dozen of coffee variations to meet every customer’s taste and preference. The common variations that will be served include Espresso, Cappuccino, Mélange, Eiskaffee, Mokka, Mazagran, Türkischer, Milchkaffee, And Kleiner Brauner, and a Ugandan brand.

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In addition, the environment will be designed in such a way that it offers a typical atmosphere that enhances customer’s experience. To associate with the country’s heritage, the interior will have round tables and chairs. Also, besides wearing the dinner jackets, waiters will be highly trained and motivated to better serve the customers to a different experience. The introduction of an environment with an East African feel, access to free Wi-Fi and power sockets for customers to charge their laptops, iPads and phones, and the themed evenings will be the key differentiating factors from the competitors. Besides, other products which are east African inspired such as high quality tea, herbal infusions, pastries, snacks and cold drinks will be offered.

Price

It refers to the charge or the monetary value a client is willing to pay for a product or service (Išoraitė, 2016). The price setting decisions are involving and tricky as setting very high prices may be unaffordable by the target market niche while proposing very low prices may be linked to inferior products. Therefore, a though market research is required to establish what other firms are charging for the same or similar products and services. The value should be a fair reflection of the product positioning in the market. The set price should provide for a profit margin and several pricing strategies exist (Ehmke, Fulton, & Lusk, 2015). Marvin & Smith can set the coffee prices based on the going rate- prices prevailing in the market. Table 2 presents the national and regional prices for a standard cup of coffee.

Table 2. Selected EU country’s price/cup of coffee

CountryPrice per cup (€)
Austria2.83
Germany3.10
France3.7
Italy3.13

Source: The Local (2015)

Alternatively, they can adopt a value-based pricing strategy. According to Ehmke, Fulton, and Lusk (2015), this is a pricing approach that considers the customer’s perception of quality as opposed to basing it on firm’s costs. Therefore, the above product description that Marvin & Smith plan to offer and the per capita income in Table 1, this approach appears feasible. The customers will be willing to part with a premium for the extra experience enjoyed.

Place

It denotes the methods and processes through which customers access products and services (Išoraitė, 2016). Being new in the market, Marvin & Smith should set a café in Vienna’s busy street as its distribution channel. In this location they will be able to have contact with and directly serve the customers for a different experience.

Promotion

It denotes the activities taken by an entity to create or increase customer awareness of the products with an aim of realizing more sales and developing brand loyalty (Išoraitė, 2016). Marvin & Smith can use a local radio and/or a newspaper to inform the public of the shop opening, products, services and the unique experience they will enjoy. They should also print posters and banner adverts bearing company’s particulars and offerings, and place them along the roads in the city.

Implications of Expanding to Austria

Organizational Culture

According to Kaplan, Dollar, Melian, Van- Durme, and Wong (2016) culture is a crucial determinant of success of failure of a business during the times of change. The performance of the business will depend on whether the culture was aligned with the business direction. Similar arguments were noted by the Government of Canada (2017) that a culture that is incompatible with the business goals affects the company’s success.

An organisation culture may be viewed as the values, beliefs and standards set for a given business. A culture that supports positive leadership behaviour and reward systems has a direct bearing on the firm’s performance, employees’ engagement and retention, and customer service (Kaplan, Dollar, Melian, Van- Durme, & Wong, 2016). A well-defined and supportive culture gives employees direction while engaging with customers and colleagues, increases their loyalty and decreases turnover rates.

Marvin & Smith’s coffee shop has a culture of enhancing fair trade and equality. They require that the workers uphold these beliefs and promote and show positive behaviours and attitudes in the workplace. In the themed evenings, the employees are also required to play games with customers when they have no partner to play with.

It has been established that over time, a constant conflict exists between maintaining standards and rapid growth. To continue and promote these strong ethos in the new market in Austria, Marvin & Smith will, in their recruitment drive, hire employees that will respect and value these beliefs. In addition, by internationalizing their coffee shop’s culture of training the staff, offering them development opportunities and wages above and beyond its rivals in Austria, Marvin & Smith will attract a large pool of talented and skilled people. Such people will keep the shop’s mission at heart and maintain the required services and products standards. Therefore, a strong organisational culture will act as the café’s differentiating factor from its competitors and help it earn a completive advantage.

Gaining Competitive Advantage

Among the reasons why entities internationalise their activities is to gain a competitive advantage over their rivals (van Rossum, 2017). One of the avenues through which Marvin & Smith’s Austria’s café will gain a competitive advantage is through offering quality products and services that are unmatched by its competitors. This approach is called the differentiation strategy and is one the generic approached proposed by Porter. According to Zekiri and Nedelea (2011) the differentiation strategy supports competitive advantage where the firm provides services and products that differ from those offered by its competitors. Wang, Lin, and Chu (2011) posited that the competitive advantage is achieved where high income customers are satisfied with higher value in the consumed products.

Maintaining the traditional interior layout of café shops and argument it with an environment that has an East African feel, access to free Wi-Fi, and power sockets for customers to charge their laptops, iPads and phones, and the themed evenings coupled with high quality tea, herbal infusions, pastries, snacks and cold drinks will be the key differentiating strategies and sources of competitive advantage. These offerings will also address the current lag in the Austria’s coffee industry in terms of services expectations.

The authors added that a company that successfully implements the differentiation strategy has research and development skills, high image, creative staff and close relationship with suppliers. Wang, Lin, and Chu (2011) added that among the attributes that contribute to a competitive advantage are highly trained and skilled workers. On this note, the strong organizational culture of Marvin & Smith’s coffee shop will support the café’s differentiation strategy owing to its commitment to hiring highly skilled employees who are customer-oriented.

Financial Ratios

Financial ratios are metrics used in assisting the analyst to pinpoint the strengths and weaknesses of a firm (Poznanski, Sadownik, & Gannitsos, 2013). They are strong tools and the quantitative approaches to analysing the three financial statements of an entity and linking them with an aim of assessing its performance (Lan, 2012).

Gross Profit

It is the gross amount expressed in terms of sales. From the results in Table 3 the gross profit ratio of Marvin & Smith’s Coffee Shop was 57.7% while that of Caffè Nero was 22.8% implying that its strategy of managing cost of sales is better than the competitors.

Table 3. Financial ratios

RatioMarvin & Smith’s Coffee ShopCompetitor- Caffè Nero  
Gross profit57.78%22.8%%
Net profit margin7.4%(8%)
ROCE25.1%(149%)
Current ratio5.710.67
Acid test ratio4.420.64

Net Profit

The net profit margin ratio aim at assessing the overall profitability of a firm and is obtained by expressing the net income as a proportion of net sales. The Marvin & Smith’s Coffee Shop’s net profit margin was 7.4% while that the competitor was negative 8%. The results imply that Marvin & Smith’s Coffee Shop was able to translate its sales into earnings. In contrast, its competitor made loss which translated into a net profit margin value.

Return on Capital Employed

It is a metric used to assess the efficiency as well as profitability of capital investments of an entity (Singh & Yadav, 2013). Marvin & Smith’s Coffee Shop’s ROCE was 25.1% while that of the competitor was negative 149% implying that the café successfully managed to use its resources to generate returns. This value is a validation that Marvin & Smith’s Coffee Shop has a competitive advantage (Singh & Yadav, 2013).

Current Ratio

According to Poznanski, Sadownik, and Gannitsos (2013), it shows the flow of cash in the near future as the company meets its short run obligations using the short-term assets. From Table 3, the current ratio of Marvin & Smith’s Coffee Shop and competitor is 5.71 and 0.67 respectively. These results indicate that the cafe managed to efficiently settle its obligations while its competitor could not and that extra resources can be used in the expansion plan.

Acid Test Ratio

Also called the quick ratio, it assesses the liquidity of an entity by eliminating inventory and concentrating on those items that can be quickly converted to cash. Marvin & Smith’s Coffee Shop’s acid test ratio was 4.42 while that of Caffè Nero was 0.64 implying that without the inventories, the former’s liquidity was very good while that of latter firm was poor.

Conclusion

The desire to improve company’s bottom line and owner’s wealth has seen firms expand their operations in other regions. However, it is prudent to scan the target market and understand all the underlying factors likely to affect the business activities. This paper has analysed the EU countries and selected Austria as a feasible country for Marvin and Smith to expand their coffee shop business. The government policies and regulatory system support investments by national as well as foreigners. They may use the expansive financial sector of Austria to get the capital and other services to finance its Vienna café. Besides, Marvin and Smith can use the profits made by their London shops to finance some of Austria’s operations. This country has a deep culture of coffee taking and the market is underserved in terms of the expected experience.

Focusing to fill this unmet demand and introducing an environment with an East African feel, and recruiting the highly skilled personnel, Marvin and Smith will gain a competitive advantage over its rivals. The Austria’s labour market also has business-trained people who maintain a healthy relationship with very low labour actions. Marvin and Smith should ensure that it makes clear its ethos to the newly recruited employees to ensure that a conducive working environment is maintained for quality service delivery to the customers. However, the business registration takes longer than in the neighbouring economies. Additionally, Marvin and Smith should be wary of experiencing competition from the already operating cafes in Vienna.

References

Ehmke, C., Fulton, J., & Lusk, J. (2015). Marketing’s four P’s: First steps for new entrepreneurs. Retrieved from Purdue Partners for Innovation in Indiana Agriculture: https://www.extension.purdue.edu/extmedia/ec/ec-730.pdf

Government of Canada. (2017, February 27). Why organizational culture matters to your small business. Retrieved from Government of Canada: https://canadabusiness.ca/blog/why-organizational-culture-matters-to-your-small-business/

Index Mundi. (2018, January 20). Austria demographics profile 2018. Retrieved from Index Mundi: https://www.indexmundi.com/austria/demographics_profile.html

Išoraitė, M. (2016). Marketing mix theoretical aspects. International Journal of Research-GRANTHAALAYAH, Vol. 4 (6), 25-37.

Kaplan, M., Dollar, B., Melian, V., Van- Durme, Y., & Wong, J. (2016, February 29). Impact of culture on business. Retrieved from Deloitte: https://www2.deloitte.com/insights/us/en/focus/human-capital-trends/2016/impact-of-culture-on-business-strategy.html

Lan, Z. J. (2012). 16 financial ratios for analyzing a company’s strengths and weaknesses. AAII Journal, 18-22.

Singh, J., & Yadav, P. (2013). Return on capital employed: A tool for analyzing profitability of companies. International Journal of Techno-Management Reserach, Vol. 1 (1), 1-13.

Smith, O. (2017, October 1). Mapped: The countries that drink the most coffee. Retrieved from Telegraph: https://www.telegraph.co.uk/travel/maps-and-graphics/countries-that-drink-the-most-coffee/

The Heritage Foundation. (2018). Austria economy: Population, GDP, inflation, business, trade, FDI . Retrieved from The Heritage Foundation: https://www.heritage.org/index/country/austria

The Local. (2014, November 18). 92 percent of Austrians drink coffee. Retrieved from The Local: https://www.thelocal.at/20141118/92-percent-of-austrians-drink-coffee

The Local. (2015, May 22). 12 points for Vienna’s cost of living. Retrieved from The Local: https://www.thelocal.at/20150522/12-points-for-viennas-cost-of-living

van Rossum, J.-E. (2017). 5 benefits of international expansion. American City Business Journals, https://www.bizjournals.com/bizjournals/how-to/growth-strategies/2017/12/5-benefits-of-international-expansion.html.

Wang, W.-C., Lin, C.-H., & Chu, Y.-C. (2011). Types of competitive advantage and analysis . ternational Journal of Business and Management, Vol. 6 (5), 100-104.

Zekiri, J., & Nedelea, A. (2011). Strategies for achieving competitve advantage. The Annals of The “Ştefan cel Mare” University of Suceava. Fascicle of The Faculty of Economics and Public Administration, Vol. 11 (2), 63-73.

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