Many people believe that France is the birth place for café and coffee culture (Koslofsky 2017). The French people are obsessed with this very strong, entrenched café and coffee culture. Although previously the French coffee industry was deemed rigid and highly saturated, since 2013 it experienced major changes as French coffee consumers became increasingly open to other types of coffee (Landweber 2015). This spurred growth of branded coffee shops and increased the quantity of raw coffee beans being imported by small and medium-sized craft roasters. Consequently, this has changed the dynamics of international coffee market because France is becoming a prime market for many international coffee exporters from all over the globe.
According to Teuber (2009), the café and coffee culture in France is intrinsic to modern French food consumption. Additionally, these café have historical and cultural significance and many testify of their unique delicate dark café noir. Per Pendergrast (2010), many Parisian cafes have prominent place in history because it is where French freedom fighters plotted their rebellions and a hub for many famous philosophers and writers (Gordon 2015). However, unlike other coffee drinkers all over the world the lifestyle of French coffee lovers is unique, they prefer roasted coffee with 60% of French people espresso, and only 10% can stomach Americanos (Koslofsky 2017). In many countries, most caffeine drinkers grab to go coffee (carryout orders) but French coffee drinkers like to sit down and drink their coffee (Pendergrast 2010).
As the French coffee market continue to grow, there has been an increasingly demand by French government to improve their sustainability certification. Therefore to meet this increasing demand, many coffee brands have been forced to comply with sustainable certification labels such as Fairtrade, Rainforest Alliance and organic labels, and UTZ Certified (Raynolds 2009). Coffee retailers and coffee chains like Starbucks also have to comply. FairTrade is a popular label among French consumers and leads the market with projected annual increase of 10% per annum. Additionally, staff welfare is paramount because coffee chains and retailers have to comply with the French workers welfare association (Raynolds 2009).
Generally, coffee is consumed in many parts of France and as mentioned above, 80% of coffee is consumed in cafes. Thus, choosing a strategic location in a big town with a heavy population must be a key parameter to consider before setting up (Luttinger and Dicum 2011). Particularly, Paris has a rich coffee culture and Marvin and Smith should consider setting their East African-inspired coffee shop in this big city because it will attract tourist as well as locals who appreciate different cultures. Additionally, Marvin and Smith should consider establishing layouts with relatively similar designs as French cafes that unique layout and décor with dark café noir because many coffee drinkers are adamant and consider many western culture cafes such as Starbucks a mediocre (Kraulis 2014).
Marvin and Smith coffee shop also should consider the logistics of their supplier, Gumutindo Coffee; normally French coffee is purchased from exporting countries by both international dealers and individual small scaled dealers (Murthy and Naidu 2012). Since Gumutindo Coffee is a known Fairtrade in Uganda, the best entry channel is directly to coffee roasters or manufacturers to eliminate the need for intermediaries. In order to promote an environment that is relaxing with an East African feel to it, Hank and Patty must train their staff especially baristas and must be given high wages to promote quality service and loyalty. They must ensure also that their products are fairly prices and roasted to the highest quality (Luttinger and Dicum 2011).
Hank and Patty should choose a marketing mix that will complement and solidify their marketing strategy; this should provide a concrete marketing approach to penetrate the French market. Murthy and Naidu (2012) suggested the choice of marketing mix must complement and strengthen the marketing strategy. Therefore, this section should contain a deep analysis of where Marvin and Smith coffee shop will stand in the market and industry when compared to its competitors. The marketing mix helps Hank and Patty find gaps in the market and exploit this to set their shop apart from others by solving new and emerging customer needs in France (Kleinman 2006).
This entails the contents of Marvin and Smith coffee shop menu. For example many French people prefer roasted coffee taste (espresso) which is a little bitter as compared to others coffee’s all over the world. Also, it is important that the product and service are of very good quality to attract customers. Other services such as free Wi-Fi and the themed nights should complement the products (Kleinman 2006).
Hank and Patty must also consider the cost effects of running this new coffee shop. They should keep in mind how much it cost to produce a quality coffee brand that market itself. Choosing a pricing method is important, they can either use the competitive pricing strategy, value pricing, or cost-plus pricing. Generally, Marvin and Smith coffee shop prices should examine their competitors and prices and come up with prices that match up their customers’ expectation and demand. Hank and Patty should set prices that will cover all the costs however they should not set too high prices because profit cannot be realized for each item.
Additionally, the shop should find out before rolling out more products their customers perception of the product value. The price of the product sends a message to the customers because it tells them the value you put on your products. Therefore, too low prices and customers will undervalue the product because imply you have a less value of the product, conversely, high prices indicate you place a higher value in your product (Kleinman 2006).
Social media and digital marketing is the best way that Marvin and Smith coffee shop should establish use in promoting its product, this way; they will reach a wide audience. They should also have an active website and engage in massive promotion. Marketing using coupons and competition is also important because it increase the number of engagements, likes, and followers(Kleinman 2006).
Marvin and Smith coffee shop should be set up in a strategic position where people coming to buy the products have ease accessing. Factors to consider include setting the shop in a central business district, parking area, busy malls, drive thru, and near industrial buildings.
Other elements that Hank and Patty should consider include packaging. The visual elements of the shop and products send a big message to the potential customers. Thus, the brands logo should sent a warm welcoming message. The shops décor, design, employee appearance, and general presentation of coffee are key factors to consider. It is also important to consider the positioning of the shop, factors such as where the shop stand in the market relative to competitors, where the shop stand in the hearts of the customers, and words that come to mind when a customer think of the quality, price, atmosphere, and service. Finally, understanding the people (both customers and staff) is necessary to set up a durable business (Kleinman 2006).
The decision for any business to expand globally presents a set of challenges because it means understanding the culture nuances of different nations and tailoring your products to match their demand and preference. For example in relation to Marvin and Smith coffee shop establishment in France the challenges that will be faced include the management structure, organization culture, gaining competitive advantage, and staffing.
Perceptibly, expanding the coffee shop to another country will present considerable challenges when it comes to the management of the chain of coffee shops. Going global will disrupt the existing business activities because Hank and Patty will be required to take on more responsibilities in the day-to-day activities in addition to the global initiative (Bonin and Goey 2009). Clearly the management structure of the shop will need more experts in establishing a beachhead team. Previously, many coffee chain shops such as Starbucks and Macdonald through trial and error tried to launch with executives from the parent company. This strategy did not work for the chains because the executives from the parent company did not understand the culture of the new countries.
Consequently, Hank and Patty must not repeat this mistake. Hitt, Ireland, and Hoskisson (2017) assert that entrepreneurs should not only invest on ideas but they should also invest in people. The management will help in solidifying the staff and people needed to keep the shop running. The best strategy is to use a proven interim team from France with deep domain expertise and knowledge of the culture and lifestyle of French coffee drinkers. On the other hand, t Hank and Patty can outsource interim management leadership to executive leadership organizations that will help in recruiting a permanent management team. The management team must clearly breakdown the organization structure, fill management gaps, describe the legal structure and ownership, and provide a board of advisory members (Hitt, Ireland, and Hoskisson 2017).
Organization culture and structure are changing and evolving rapidly as quickly as they can be identified. Enterprises such as this Marvin and Smith shop must assess the diverse cultures effect on the organization structure. Many organizations present and discuss their organization culture and strategy in distinct tête-à-têtes. Per Clark 2016, this leads to problems when it comes to realizing their business goals. The organization culture of Marvin and Smith coffee shop is vital in achieving desirable performance. To succeed in this saturated French market, Marvin and Smith coffee shop should position itself not only as a coffee seller but to also provide an environment that is both relaxing with an East African feel to it.
Hank and Patty must understand that organization culture is powerful because it is linked to the shops distinctive activities and capabilities and creating a strong culture needs a deep understanding of how to accomplish organization goals as a team. Therefore, Marvin and Smith management should invest on the positive attributes associated with the shop that are directly connected to the shops identity such as the distinct “East-African feel”.
Moreover, Hank and Patty must understand the notion and role that diversity and inclusivity play in creating a welcoming environment for customers from diverse cultures. This cuts across not only for customers but also their employees. They must invest in staff training; this can include short courses in coffee preparation, communication skills, management, and coffee tasting because employees who feel cared for will provide high quality customer service to customers. Letting employees bring their emotional energy to shop where they feel they have a stake help bring the shops culture and identity to life. For example, Starbucks have a strong culture that appreciates diversity in all levels of management and staffing, the employees at Starbuck feel appreciated because they are “partners “with the management (Bonin and Goey 2009).
Financial ratio analysis is the best analytic tool that is used by many organizations to verify overall the performance of the business. Ratio analysis is commonly used because ratios are easy calculated from a company’s balance sheet and statement of financial income. Common ratios include ROA, RAE, ROCE, Current ratio, Quick ratio, Total debt ratio, and Asset Turnover that show the profitability, solvency, and liquidity of a company (Hitt, Ireland, and Hoskisson 2017). Thus the management of Marvin and Smith coffee shop should compute these ratios to pinpoint the strengths and weakness of the current shops in order to set viable strategies and initiatives to be used in establishing the new shops in France.
From the income statement and the balance sheet, the gross profit ratio gives the relationship between the shops gross profit and total net sales revenue. In this case
- Profitability ratios
- Gross profit ratio = gross profit/ net sales
Gross profit ratio = 208000/360000
This means the Marvin and Smith coffee shop may reduce their current selling price by 58% without making a loss.
Using the provided financial statement;
- Net profit ratio/ profit margin = net profit/net sales
Net profit ratio= 26800/360000
The Net profit is the ratio of after-tax profit to net sales. Marvin and Smith coffee shop net profit ratio will reveal the remaining profit after deducting administrative, financing, and cost of production expenditure. In this case, Marvin and Smith coffee shop managed their business affairs efficiently.
- Return on Capital Employed (ROCE)
This ratio is found by dividing net operating profit (EBIT) by capital employed. It shows how a company generates profit from capital employed (it shows how much profit each dollar of capital employed into the shop generated). For the case of Marvin and Smith coffee shop, Hank and Patty each contributed $50,000 and their friends helped them raise another $100,000. Thus, total capital employed is $200,000
ROCE = net operating profit/ employed capital
ROCE = 26,800/ 200,000
This means for each dollar Hank and Patty invested, the shop made 10 cents of profit. Normally, investors are keen on calculating this ratio because this ratio shows company’s average borrowing rate (Hitt, Ireland, and Hoskisson 2017).
- Liquidity ratios
- Current ratio
This ratio measures the shops ability to pay both of its short-term and long term obligations. This ratio is calculated by dividing the shops current assets by its current liabilities. A higher ratio point out that the company is more liquid. However, Hitt, Ireland, and Hoskisson (2017) suggests that the commonly acceptable current ratio is 2 and ratios less than one indicate that a company will have difficulty fulfilling its current obligations. Nevertheless, a very high current ratio is not desirable because it shows that the shop is not using its current assets efficiently.
Calculating this ratio for the case of Marvin and Smith coffee shop is as follows
Current ratio = current assets/current liabilities
Current ratio= 35,400/ 6,200
This shows that Marvin and Smith coffee shop is not using its current assets efficiently. Therefore, Hank and Patty must find ways to invest this capital efficiently. Ceteris paribus, creditors will always prefer to lend to companies with high current ratios. So Hank and Patty will not have trouble finding a creditor when they decide to expand to France.
- Acid test ratio/quick ratio
This ratio measure a company’s ability to pay its short-term obligations using its most liquid assets (assets that can be quickly converted to cash). Financial analysts regard this ratio as a measure of company’s financial strength or weakness because it shows the company’s short term liquidity.
Quick ratio= (current assets-inventory)/ current liabilities
So the quick ratio for this shop is
Quick ratio = 35,400- 8,000/6200
Although, the commonly accepted quick ratio is 1, this shops ratio is higher than one showing the coffee shop is in a better position when it comes to seeking investors and partners.
After calculating and analyzing the above ratios, it is clear that Marvin and Smith coffee shop has a pretty health financial position.
The overall viability of overseas expansion for Marvin and Smith coffee shop is credible because the shop is in a healthy position. At this point the business does not have external debt and loans, this together with the high quick and current ratios imply that the shop will not have trouble securing loans or finding a interested investor. Furthermore, the café and coffee culture in France is growing very fast with France being the fifth largest importer of coffee and its products. For this reason, Marvin and Smith shop should be established in French where there is prime growing market (Teuber 2009).
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