Report: Business Expansion of Marvin & Smith's Coffee Shop in Spain

This report provides a detailed analysis of the business expansion plans of Marvin & Smith's Coffee Shop, focusing on entering the Spanish market. The report begins by justifying the selection of Spain as the target country, citing its strong coffee consumption culture and market potential. It then develops a tailored marketing mix for the Spanish market, addressing product, price, promotion, and place strategies. The report also examines the key factors for successful market entry into Spain, including gaining a competitive advantage and managing the supply chain, as well as ways to tackle emerging issues. Furthermore, the assignment assesses the impact of profitability and liquidity ratios on decision-making, calculating and interpreting gross profit ratio, net profit ratio, and return on capital employed. Finally, the report evaluates the feasibility of global expansion for Marvin & Smith's Coffee Shop.

Business Expansion
of Hank and Patty

Table of Contents
Question 1: Selection of nation for Marvin & Smith’s Coffee Shop’s expansion with
justification.............................................................................................................................1
Question 2: Tailored Marketing Mix for expansion of Marvin & Smith’s Coffee Shop in
Spain.......................................................................................................................................2
Question 3: Key factors while gaining entry into Spain and ways to tackle emerging issues3
Question 4: Profitability and Liquidity Ratios affect decision making of Marvin & Smith. 4
Question 5: Feasibility of Marvin & Smith’s Coffee Shop’s expansion on global level.......7
REFERENCES................................................................................................................................8

Question 1: Selection of nation for Marvin & Smith’s Coffee Shop’s expansion with justification
Marvin & Smith’s Coffee Shop has the intention of carrying out expansion into one of
the countries which are a part of EU looking upon the need to facilitate growth and development
of the entity in today’s hyper competitive market place (Martinez-Toledano and et. al., 2019).
With respect to this, it is recognised that Spain is a lucrative market for the respective coffee
shop as it has extensive coffee consumption culture. Further, a number of factors have been
taken into consideration by Marvin & Smith to select Spain as the market for expansion for Hank
and Patty:-
Spain is an impeccable location for coffee consumption as a large proportion of audience
within this nation are inclined towards consuming coffee on a regular basis. People hereby are
equipped with knowledge about all types of coffees that are available in market and thus demand
from the coffee shops in accordance with their preferences (Morales and Devesa, 2017). The
extensive likelihood of people towards consuming coffee has led to a rapid increase in number of
cafes within this region within last some years. Spain over the course of time has emerged as one
of the most prominent and largest exporters of coffee worldwide.
It is further analysed that the coffee culture within the confines of Spain owes its
existence and rapid development to national culture and history. In past, freedom fighters used to
accumulate in cafes and discuss strategies for rebels (Yang and Yaoyungyong, 2020). Also, cafes
are preferred by youngsters because of the soothing and pleasant environment that is provided
within its confines. Further, a significant proportion of population of Spain like roasted coffee
owing to which the concept of cafes has become prominent with the passage of time.
Looking upon the growing coffee market and its evidential statistics, the government of
this nation demands cafes to maintain sustainability certificates obtained from Fairtrade,
Rainforest Alliance and many more. Out of the total population which consumes within Spain, it
is found out that almost 82% people possess likelihood towards consuming it within cafes only.
Thus, the research done by the entrepreneurs of Hank and Patty has equipped them with
knowledge regarding the rapidly growing coffee culture (Santos‐Álvarez and García‐Merino,
2018). This is why Spain has been selected as the country for carrying out expansion. Further,
Savelle has been chosen as the place to locate the outlet as the people within this city are driven
by the need to consume roasted coffee on a regular basis. Being a populous city, this acts as a
lucrative market for Hank and Patty to carry out geographical expansion and thereby attain rapid
1

growth and success. Thus, Marvin & Smith should design the cafe outlet in the manner such that
it reflects the culture and tradition of Spain.
Question 2: Tailored Marketing Mix for expansion of Marvin & Smith’s Coffee Shop in Spain
Marketing mix is determined as the effective marketing tool used by businesses for
developing their brand awareness at marketplace in appropriate manner (Binda and Merlo,
2020). Development of this marketing mix also provides guidance to the overall marketing team
about the company and helps them out in the effective implication of marketing activities at
marketplace. With reference to the Hanky and Patty, the manager of this company has made use
of effective marketing mix for its new coffee shop based on the culture of Spain. The developed
marketing mix for the coffee shop is specified as below in detailed manner:
Product: This is the first element of the marketing mix which provides detailed
information on the products and services that are offered by the company to its customers. With
reference to Hanky and Patty coffee shop it can be said that the respected manager of the
company could emphasises on the roasted coffee in its coffee shop in order to provide it touch
with the Spain (Gries, Fritz and Feng, 2017). Here, all kind of coffee drinks offered to the
customers will be of higher quality with the motive of satisfying it customers to the extent level.
In addition to this, other complimentary services are also offered to their customer who includes
theme events, free WIFI, various theme sections. All of them collaboratively focus on delivering
better services to customers which will satisfy them at extensive level.
Price: By observing overall procedure that is establishment of Hanky and Patty coffee
shop in Spain it can be said that at the starting six months the economic pricing strategy would
be followed in order to attract maximum number of customers towards them in appropriate
manner (Ayala, Cantó and Rodríguez, 2017). With the passing period of time and increasing
popularity of Hanky and Patty coffee shop among customers the respective manager of the
company will move forward towards premium pricing policy. With the increasing prices they
will ensure to enhance the quality of their product and service offering in the appropriate manner.
Promotion: This element clearly depicts the promotional tactic used by the company for
enhancing its brand awareness at marketplace. In context of Hanky and Patty coffee shop, it can
be said that the respective manager of this coffee shop will make use of digital marketing as well
as social media method in order to promote their current product and service offering among the
proposed customers (Mérida and Golpe, 2016). In addition to this, various discounts, offers and
2

facilities will also be provided to its selected lucky customers. Adoption of this method will
directly help them out in attracting maximum number of customers towards within the Spain.
Place: Hanky and Patty coffee shop will be located in Savelle a prime location of Spain
which is popular for its historical base. Along with this, another motive of selecting this place is
the higher consumption of coffee at this place (Camacho, Pacce and Ulloa, 2017). Its set up
would be established in the shopping complex which will be able o attract maximum number of
local customers as well as tourist towards it. From this, it can be said that Hanky and Patty coffee
shop will be able to generate adequate level of revenue and maximise their profitability in
appropriate manner.
Question 3: Key factors while gaining entry into Spain and ways to tackle emerging issues
The main factors taken into consideration by Marvin and Smith at the time of entering into
Spain are specified as below:
Gaining competitive advantage
Competition within the coffee industry is very high which shows risk of substitution is
also high for the same company (Cuervo-Cazurra, 2018). Here, almost 70% of the ratio is held
by large scale companies and other corporate giants whereas, the leftover proportion is hold by
small coffee shops. Higher increase in the production cost, climatic modifications and alarming
atmospheric condition which could become the main reason of failure. With the reference to
Hanky and Patty coffee shop, it can be said that the respective coffee shop can easily gain
competitive edge by using advanced technology. Adoption of this technology can easily help
them out in dealing with the emerging issues at marketplace.
Supply Chain
When it comes to procurement of products and services from overseas, management of
contractor and supply chain can also become a complex and tough process (Harrison and Corkill,
2016). Unfortunately, the length and complexities associated with supply chain inflate the
probability of working together with contractors who at times have immoral and even unlawful
business practice. One of the biggest apprehensions is the danger in global business, of
compulsory work and worker manipulation. Thus, it is essential for Hanky and Patty to have
sound comprehensibility of such essential matters while carrying out expansion into a larger
geographical area, in terms of a new country (Here: Spain).
3

Question 4: Profitability and Liquidity Ratios affect decision making of Marvin & Smith
Profitability Ratios
(A) GROSS PROFIT RATIO
Gross profit is calculated with the deduction of cost of sales from total revenues. Further,
Gross Profit Ratio is calculated by setting a link between net sales and Gross Profit (Creel,
Hubert and Labondance, 2015). Thus, this ratio is calculated by making use of a particular
formula which is presented below:-
Gross profit ratio = Gross profit / Net sales * 100
Calculations:
Particulars Amount
Gross profit £208,000
Sales £360,000
Calculation £208,000 / £360,000 * 100
Gross profit ratio 57.77 %
Information about current business and impact over decision making:
In accordance with the above calculation of ratio, it can be clearly stated that Marvin &
Smith’s Coffee Shop is earning fair gross profits at present and the ratio is also 57.8% which is
above margin and shows that the coffee shop is gaining adequate gross profits. A higher gross
profit ratio will impact over the decision making of Marvin & Smith in the manner that they will
have more surplus funds to invest in marketing and sales. This implies enhanced scope of
company to attain extensive growth and development in near future.
(B) NET PROFIT RATIO
Net profit can be regarded as the measure of actual profits which are left post deducting
all of the expenses at the year’s end (Creel, Hubert and Labondance, 2015). Further, Net Profit is
reached at by showing a link between net sales as well as net profits. In this regard, the
calculation of this ratio is done by making use of the following formula:-
Net Profit Ratio = Net Profits / Net Sales * 100
4

Calculations:
Particulars Amount
NP £26,800
Sales £360,000
Calculation £26,800 / £360,000 * 100
NP ratio 7.44 %
Information about current business and impact over decision making:
In accordance with the calculations done above, it can be said that the entity is earning
net profits of £26800 which is marginal. The entity still possesses the scope to enhance its net
profits by cutting all the unnecessary expenses of Marvin & Smith’s Coffee Shop. Further, it is
seen that the net profit ration of 7.4% is fair but has a potential of increment. Thus, it can be said
that the entity has the capacity as well as resources to take due measures through which this ratio
can be duly enhanced, thereby implying a better financial position of the company.
Return On Capital Employed Ratio
This ratio can be seen as the measure of efficiency or capability of a corporation of
earning returns over the capital invested within the company (Rodrigues and Rodrigues, 2018).
Return on Capital Employed Ratio is reached at by making use of the following formula:-
Return On Capital Employed Ratio = Operating Profit / Capital Employed * 100.
Calculations:
Particulars Amount
OP £26,800
CE* £106,800
Calculation £26,800 / £106,800 * 100
ROCE 25.09 %
5

Information about current business and impact over decision making:
As per the calculations presented above, it can be clearly inferred that the organisational
efficiency of earning returns over the capital invested in business is 25.1%. This implies that
Marvin & Smith’s Coffee Shop has sound financial positioning. This indicates that the decision
making of Marvin & Smith should be focussed upon enhancing the operating profits largely so
that the organisational efficiency can be specifically improved to earn gains over invested sum of
money.
Working Note*
CE = TA - CL
= £113,000 – £6,200
= £106,800
Liquidity Ratios
(A) CURRENT RATIO
This can be defined as the measure of current assets as against the current liabilities of the
company (Deng, Liu and et. al., 2018). The ideal current ratio is acknowledged to be 2 : 1. This
ratio is calculated by making use of the following formula:-
Current Ratio = Current Assets / Current Liabilities
Calculations:
Particulars Amount
CA £35,400
CL £6,200
Calculation £35,400 / £6,200
CR 5.70 times
Information about current business and impact over decision making:
As per the calculations done and present above in the table, it can be clearly inferred that
the liquidity position of Marvin & Smith’s Coffee Shop is excellent as the entity has almost triple
6

the ideal ratio. This shows the capacity of current assets to pay off the current liabilities of
company is quite good and thus, the payment is made in a timely manner.
(B) QUICK RATIO
This can be viewed as the measure of short term assets of a company as against its short
term liabilities (Rodrigues and Rodrigues, 2018). In this regard, the ideal quick ratio is
acknowledged to be 1 : 1. This ratio is reached at by making use of the following formula:-
Quick Ratio = Quick Assets / Quick Liabilities
Calculations:
Particulars Amount
QA (£35400- £8000) 27400
QL £6200
Calculations £27400 / £6200
QR 4.42 times
Information about current business and impact over decision making:
As per the calculations presented in the table above, it can be stated that the quick ratio of
Marvin & Smith’s Coffee Shop is more than 4 times of the ideal ratio. This implies that the short
term assets of the entity hold the capacity to pay off the short term debts in due course of time.
Question 5: Feasibility of Marvin & Smith’s Coffee Shop’s expansion on global level
The expansion plan of Hank and Patty within Spain can be said to be viable as the
country possesses extreme likelihood towards consumption of coffee on a constant basis.
Further, the financial ratios indicate that the entity has adequate assets to pay off the debts and
sufficient profits to invest in effective domains of business (Lupton and et. al., 2018). At present,
the entity does not possess any long term debt which needs to be repaid. Further, the extensive
population of Savelle within Spain presents Hank and Patty with the opportunity to increase its
revenues and profits in upcoming time. Apart from this, social media and digital marketing
would allow the café to establish sound relations with the people in new market and thereby
attract them towards the outlet.
7

REFERENCES
Books and Journals
Camacho, M., Pacce, M. and Ulloa, C., 2017. Business cycle phases in Spain (No. 17/20).
Mérida, A. and Golpe, A.A., 2016. Tourism‐led growth revisited for Spain: Causality, business
cycles and structural breaks. International Journal of Tourism Research, 18(1), pp.39-51.
Cuervo-Cazurra, A., 2018. Business Groups in Spain: Regulation and Ideology Drivers for
Transformation. Cuervo-Cazurra, A.
Santos‐Álvarez, V. and García‐Merino, T., 2018. Motivational focus of international
entrepreneurs in Spain: From early explorers to straggler exploiters. Canadian Journal of
Administrative Sciences/Revue Canadienne des Sciences de l'Administration, 35(3),
pp.444-456.
Binda, V. and Merlo, E., 2020. Trends in the Fashion Business: Spain and Italy in Comparison,
1973–2013. Enterprise & Society, 21(1), pp.79-109.
Gries, T., Fritz, M. and Feng, Y., 2017. Slow booms and deep busts: 160 years of business cycles
in Spain. Review of Economics, 68(2), pp.153-166.
Ayala, L., Cantó, O. and Rodríguez, J.G., 2017. Poverty and the business cycle: A regional panel
data analysis for Spain using alternative measures of unemployment. The Journal of
Economic Inequality, 15(1), pp.47-73.
Martinez-Toledano, C., Law, D., Haugh, D. and McGowan, M.A., 2019. Who pays the price of
folly? The business cycle and income and wealth mobility in Spain.
Morales, J.M.L. and Devesa, M.J.S., 2017. Business cycle and external dependence on tourism:
Evidence for Spain. Tourism Economics, 23(1), pp.187-199.
Harrison, J. and Corkill, D., 2016. Spain: a modern European economy. Routledge.
Yang, M.H. and Yaoyungyong, G., 2020. The Impact of Culture on Multinational Business
Expansion: A Case Study Evaluating Merchandising in Asian 7-Eleven Franchises.
Lupton, N.C., Jiang, G.F., Escobar, L.F. and Jiménez, A., 2018. National income inequality and
international business expansion. Business & Society, p.0007650318816493.
Deng, P., Liu, Y., Gallagher, V.C. and Wu, X., 2018. International strategies of emerging market
multinationals: A dynamic capabilities perspective. Journal of Management &
Organization, pp.1-18.
Rodrigues, L. and Rodrigues, L., 2018. Economic-financial performance of the Brazilian
sugarcane energy industry: An empirical evaluation using financial ratio, cluster and
discriminant analysis. Biomass and bioenergy, 108, pp.289-296.
Creel, J., Hubert, P. and Labondance, F., 2015. Financial stability and economic
performance. Economic Modelling, 48, pp.25-40.
8