CASE STUDY OF HANK MARVIN & PATTY SMITH: EXPANSION OF MARVIN AND SMITH COFFEE BUSINESS IN ROME, ITALY

This report examines the potential for Marvin & Smith's coffee shop to expand into the Italian market, specifically in Rome. It analyzes the market's attractiveness, including coffee consumption trends, cultural factors, and logistical considerations. The report also develops a marketing mix strategy for the expansion, considering product, place, price, and promotion. Additionally, it explores the implications of expanding geographically, including supply chain management and competitive advantage. Finally, the report evaluates the impact of profitability and liquidity on the expansion decision, using relevant financial ratios.

CASE STUDY OF HANK MARVIN & PATTY SMITH

Table of Contents
INTRODUCTION................................................................................................................................2
TASK 1 JUSTIFICATION FOR EXPANSION OF MARVIN AND SMITH COFFEE BUSINESS IN ROME,
ITALY................................................................................................................................................3
TASK 2 MARKETING MIX IN RELATION TO EXPANSION DECISION IN ROME, ITALY........................7
TASK 3 IMPLICATIONS OF THE NEEDS FOR MARVIN & SMITH’S COFFEE SHOP TO COVER A
WIDER GEOGRAPHICAL AREA IN ROME, ITALY...............................................................................9
TASK 4 EVALUATION OF IMPACTS OF PROFITABILITY AND LIQUIDITY ON AVAILABLE DECISIONS
.......................................................................................................................................................11
CONCLUSION.................................................................................................................................13
REFERENCES...................................................................................................................................14
1

INTRODUCTION
This report focuses on the potentially strong place for the business expansion of the Marvin &
Smith’s coffee shop. The prime objective of Marvin and Smith is to expand their business in a
European Union country such that suitable recommendations will be provided along with
appropriate strategies and justifications for fruitful expansion. The country which will be taken
into consideration is Italy in which the business will be expanded in Rome (Armstrong, et al.
2015). Further, the marketing strategy, logistical aspects, and justifications will be provided as
per the city. The appropriate marketing strategies will also be assessed in order to expand
business in Italy.
2

TASK 1 JUSTIFICATION FOR EXPANSION OF MARVIN AND SMITH COFFEE
BUSINESS IN ROME, ITALY
It has been suggested to Marvin and Smith that they should expand their business in the
market of Rome, Italy due to various valid reasons which have been discussed in details as
follows. It has been evaluated by the research that an average person in Italy consumes around
4.3 kg of coffee. In addition to this, the total consumption of coffee in Italy is around 211
thousand of tonnes. Thus, it could be determined from the statistics that the business of coffee
shops in Italy has huge potential. The demand for coffee among the people of Italy has been
growing rapidly and the need for high-quality coffee is huge. The lifestyle and culture of the
Italian people towards coffee has been transformed in the recent time which is the prime
reason for expanding business in the Italian city (Mathuva, 2015). The selection of right location
is a challenging task but the most appropriate location for the business in Rome as it has the
huge population as compared to other Italian cities.
Figure – Caffeine (Coffee) Consumption by Country
(Source - https://www.caffeineinformer.com/caffeine-what-the-world-drinks)
Italy is a beautiful destination site for the business as it is tucked between beautiful neighbour
countries like France and Switzerland along with the Mediterranean Sea which is fruitful for the
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expansion of coffee shop business. It is also a member of North Atlantic Treaty Organization
and the European Union (Hill, et al. 2014). These aspects are attractive and effective for the
business expansion of Marvin and Smith. The major requirements of the human resource are
effective educational standards and along with the legal rights of domestic entities obligations
and foreign investors which will be fulfilled here.
Figure – Coffee consumption by a person
(Source - http://www.coffeeresearch.org/market/consumption.htm)
The ranking of Rome is in top 10 of the business development cities which makes Italy a major
destination for the business such that the operational and logistics cost is low. The Italian city
effectively dominated other European cities regarding the logistics operations (Fan, et al. 2015).
This ranking has been made by considering aspects of operational costs, labour market,
infrastructure, and market access which helps in adopting the business environment of Rome
for the business.
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There are certain challenges and issues which might be observed by Marvin and Smith during
their business expansion in Rome such as:
 The bureaucracy of Italy is quite complex which could influence the business functioning
to the huge extent.
 The credit and taxes policy of Italy is hard which needs to be managed adequately.
 The hierarchy and organization culture needs to be simple and effective such that it will
influence the growth of business at large scale.
 Every country possesses distinct culture and traditions and it needs to be understood by
the company for business functioning.
The export industry of Italy contributes around 70% in the GDP of the nation. In addition, it is
also helpful for around 450 million consumers of Europe such that the business expansion in
Italy will be fruitful for the business of other European markets.
Moreover, the business expansion in Italy is fruitful because the transport network of Italy is
strong as it is connected through air, water, and road effectively with different regions. It is one
of the prime reason due to which the distribution and logistics of Italy are quite strong in the
market (Cadden, et al. 2013). The other advantage of choosing Italy is that the human resource
is of high class such that productivity level will always be high.
The tax rates in Italy are also nominal as compared to other European countries which are
effective for the business functioning.
5

Figure - Top tax rates in Europe in 2015
(Source - http://www.celiaalliance.com/european-income-tax-and-social-security-the-latest-
trends.html)
Apart from all the benefits of business in Italy, the establishment of business in Italy requires
around 1 to 2 month as the business procedure is quite complex. The help of Italian Ministry of
Foreign Affairs could be taken in order to establish the business in Italy as there are various
aspects and guidelines which need to be followed for the functioning of the business.
6

TASK 2 MARKETING MIX IN RELATION TO EXPANSION DECISION IN
ROME, ITALY
The prime justifications for selecting the business in Rome, Italy has been understood which
makes a substantial stance for expanding the business of Marvin and Smith in their market. A
marketing mix for the coffee shop has been developed for the business in Rome, Italy. The
marketing mix strategy is helpful for the business in gaining competitive edge such that some
recommendations have been made which will help in expanding the business in Italy through
the effective marketing strategy.
The 4P’s of the marketing mix has been evaluated which will be helping Marvin & Smith in
determining appropriate marketing strategy so that they could handle their competitors
effectively (CBI, 2016). The 4P’s of marketing mix will be focusing on product, place, price and
promotion that will be helping in the business expansion of coffee shop in Rome.
PRODUCT
The coffee shop of Marvin & Smith provides finest coffee beans from Gumutindo Coffee which
is known as best quality coffee. The quality of the coffee should be similar during the business
expansion in the market of Rome in order to maintain the culture and tradition effectively. The
innovation in the products could be observed in pastries salads along with other options for
breakfast which could be served along with the coffee in Rome. It will be helpful in gaining the
competitive edge over the competitors that are present in Rome market. The major people Italy
prefer filtered coffee which should be served by the shop. It is necessary to enhance the
product portfolio for Marvin & Smith for attracting the huge number of customers. In addition,
they could serve high-quality tea with a herbal fusion for maintaining fair trade suppliers in
Rome.
PLACE
It is necessary to choose the most suitable place in the Rome in order to gain the attraction of
the huge number of customers which could be effectively done by developing attractive
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product portfolio (Flynn, et al. 2010). The location in Rome is attractive and has the huge
number of visitors on a daily basis which is helpful for the business growth of Marvin & Smith's
coffee shop in Italy.
PRICE
It is necessary for Marvin & Smith that they used appropriate pricing strategy for the business.
The recommended strategy is penetration pricing strategy which will be helpful in building the
position in mind of the consumers as they will be offering products and services at low cost. It
will further establish a strong brand image in the Italian market. Further, they could take the
competitive edge over the competitors by serving products of high quality at low costs. It will
develop an opportunity for Marvin & Smith to attain huge market by providing high-quality
coffee to their customers at the low cost which will capture the huge market base. In addition,
the pricing strategy is helpful for them in gaining competitive edge along with the growth rate
in the Italian market.
PROMOTION
The coffee shop outlet of Marvin & Smith in Rome is the first outlet in Italy such that they will
require potentially strong promotion strategy in order to develop their brand at the
international level. The promotional strategies could be conducted through different methods
such as digital marketing, hoarding promotions, and social media which will gain the attention
of the consumers. The complimentary services such as pastries and beverages also help in
promotion. In addition, they could provide offers and discounts to the new customers. For
gaining the competitive edge in the market, they could provide theme evenings, Wi-Fi facility,
and relaxing ambience to the customers for gaining effectiveness in the market.
8

TASK 3 IMPLICATIONS OF THE NEEDS FOR MARVIN & SMITH’S COFFEE
SHOP TO COVER A WIDER GEOGRAPHICAL AREA IN ROME, ITALY
The focus of Marvin & Smith is to gain a huge geographical area of Rome, Italy which could be
done by working in two areas such as supply chain and the area of competitive edge. These
areas are explained in details as follows:
SUPPLY CHAIN
The market structure of Italy regarding the supply chain has been focusing on the direct deal
between the suppliers and the producers of the coffee. There are several implications which
will be faced Marvin & Smith in their supply chain. Several stakeholders are involved in this
process such as farmers, distributors, and the exporters for the supply chain of the coffee. A
shorter supply chain is required by Marvin & Smith as they want to conduct fair trade in order
to gain huge profit margin by reducing the intermediaries cost (Johnsson, 2012). The fair-trade
supply chain will be focused by Marvin & Smith for their business in Rome.
Though the direct contact has been increasing between the roasters and exporters and the
coffee trade has been taken over by the importers. In Rome, the role of re-exports is essential
as the small roasters have been facing huge competition due to the medium and large based
roasters due to the introduction of single-serving systems.
COMPETITIVE ADVANTAGE
It is necessary for Marvin & Smith to effective gain the competitive edge over the existing
market competitors in the industry of Rome so that their business growth and development will
be high. The coffee shop of Marvin & Smith should effectively surpass the brand loyalty and
popularity of the existing coffee shops which could be done by delivering high-quality coffee.
The company needs to conduct attractive marketing and promotion along with the penetration
pricing strategy so that they could compete with the competitors and also deliver products of
high quality at affordable prices to the people of Rome. The efforts of the company should be
potentially strong in order to gain the attention of customers and also fulfilling their needs
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effectively (Nagle, et al. 2016). They could also design a soothing ambience along with attractive
infrastructure of the coffee shop in Rome which will help in managing the competition in the
market. It also helps the customers in choosing the place which fulfils their needs effectively as
compared to coffee shops with low facilities. The trade magazines are also helpful in gaining
adequate information of market so that the company could assess their competitors and
develop appropriate strategies for handling competition. Also, they could conduct online
marketing in order to offer different products and services to the customers which help in
maintaining healthy communication with the consumers. It helps in building the strong image
of the company in the market and also gain huge market share.
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TASK 4 EVALUATION OF IMPACTS OF PROFITABILITY AND LIQUIDITY
ON AVAILABLE DECISIONS
The financial information of the coffee shop of Marvin & Smith has been assessed effectively. It
will be helpful in measuring the influence of profitability and liquidity on the decision-making by
evaluating the ratios adequately.
S. no. Ratio Formula Calculation
1
Gross profit (Gross profit/ sales)
*100
57.8%
2
Return on capital
employed
Net operating profit/
(total assets – Current
liabilities) * 100
25%
3
Quick ratio Quick assets/ current
liabilities
4.50%
4
Current ratio Current assets/
current liabilities
5.80%
5
Net profit ratio (Net profit/ Sales)*
100
7.50%
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The above calculations regarding the profitability and liquidity ratios are helpful in evaluating
certain analyses regarding the influence of decision on the coffee shops of Marvin & Smith
which have been demonstrated below:
CURRENT RATIO
The ideal ratio has to be considered of 2:1 that helps in ensuring about the current assets
availability of the company so that they could reduce the current liabilities i.e. 5.8:1 that
demonstrate a potential liquidity position (Bélissent, 2010). It effectively provides the
favourable situation for the business at international level such that in Rome, Italy.
QUICK RATIO
The ratio assesses the position of the company to pay every current liability from their current
assets in order to accept the inventory which could be converted into cash under 90 days. Here,
Marvin & Smith possess quick ratio 4.5 during 2016 which demonstrate their potential position
that will be helpful in conducting large investments for the expansion at international level.
NET PROFIT RATIO
It is known as the profitability ratio that helps in understanding the financial situation of the
company. It also helps in assessing the financial development and performance of the company
regarding the profit earned through net earnings. Here, it is 7.5% of the margin which states a
high performance.
GROSS PROFIT MARGIN
It is another form of profitability ratio which helps in identifying the financial strength of the
company as they have earned around 57.8% of the gross profit margin which effectively
demonstrates their decision of the business expansion.
RETURN ON CAPITAL EMPLOYED
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This ratio provides information regarding the return which will be attained against the capital
investment in the company. The return on the capital investment I 2016 for the company is
around 25% (Goodman, et al. 2016). It demonstrates that the company will avail benefits of the
business expansion at the rate of 25% through the business expansion in Rome.
CONCLUSION
It has been depicted from the discussion which has been conducted in the study that the Rome
in Italy is a favourable location for the business expansion of Marvin & Smith at international
level. The justification section has assessed different reasons due to which the business
expansion of the company in Italy is appropriate and it will also help in the business of coffee in
Italy. The company will also ensure that they follow fair trade policies for the business. The
marketing strategy for the coffee shop of Marvin & Smith in the Rome has been developed by
considering the marketing mix. It will be applied effectively in order to accomplish the
organizational objectives and also help in gaining the competitive edge over the competitors.
It has been observed that gaining competitive edge results in different implications and the
supply chain structure results in different implications for the business expansion of Marvin &
Smith at international level. There are various recommendations which have been made that
further help in gaining the competitive edge over the competitors and utilizing penetration
marketing strategy for gaining huge popularity in the market of the Rome along with substantial
growth. It is evident that the promotional strategies that are recommended are helpful in
gaining huge market segment which will leave a huge influence on the behaviour and attitude
of the consumers in Rome. When the financial performance of the company along with the
liquidity position has been assessed then it is evaluated that the position of the company in the
market is good. The company could effectively implement their decision of business expansion
at international level and also conduct the successful prospects of the effective development in
the market of the Rome.
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