Business Essentials Case Study: Coffee Shop Expansion in Romania

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BUSINESS
ESSENTIALS
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Table of Contents
EXECUTIVE SUMMARY................................................................................................. 3
INTRODUCTION..............................................................................................................4
QUESTION1.................................................................................................................5
QUESTION 2................................................................................................................ 7
QUESTION 3................................................................................................................8
QUESTION 4..............................................................................................................10
QUESTION 5..............................................................................................................12
CONCLUSION............................................................................................................... 13
REFERENCE................................................................................................................. 14
APPENDIX..................................................................................................................... 16
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EXECUTIVE SUMMARY
The case of Hank Marvin and Patty Smith has been presented. They have the years of
experience in the catering industry and have the common dream to open their own
business and they have opened their business. Now they are thinking to expand their
business to overseas and in the country which is not affected or very less affect by the
Brexit deal. Romania is decided as a place for expansion of business (Hantzsche et
al.,2019). Further, the research has been done on the scenario of Romania, whether it
is a good place for business or not. The financial analysis is also done according to the
given data and it is found that the business would be profitable in the long run.
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INTRODUCTION
Hank Marvin and Patty Smith have the concept to open their own company as they
have both been working for years in the food and catering sector and are now planning
to open their own company. They have spent 12 months in the research and then finally
decided open the coffee shop. They researched out each and everything about the
coffee shop business and then opened their first coffee shop in Wandsworth in South
London. Marvin and Smith opened another two stores in and around London after the
opening of the first coffee shop. Marvin and Smith decided to expand their company
overseas and chose Romania to grow their company (Pearson et al.,2014).
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QUESTION1
Coffee is one of the most valuable and popular beverage in the world trade. In research,
it is found that over 2.25 billion cups of coffee are consumed every day in the world. It
plays a main role in providing employment to many people, it is very crucial for the
economies of many developing countries. It is like the base for their foreign exchange
earnings (Boscor et al.,2014). It is the world's seventh-largest legal agricultural export.
As the research was done by Hank Marvin and Patty Smith, the country which is chosen
for the expansion of the coffee business in Romania. It is a country with blurred
financial, social, and political patterns that determine the country's investment hazards.
In order to find out that the country is the best option available for the coffee business, it
is necessary to have a clear knowledge of the economic, social and political
environment. Romaine is still at a beginner phase in the Coffee segment but the coffee
market has the potential to grow. In recent years the market for coffee has been grown
up in Romania, and the culture is also changing slowly. In 2018 there are many roasters
who sell great coffee. Each and every year the no. of roasters are increasing in
Romania. According to the UN trade statics, Romania is in the world best coffee
exports.
The standard corporate tax in Romania is 16% and the interest on the non-resident
companies is also 16%. In Romania, a branch of the foreign company is subjected to
follow the national law of the parent company and doesn’t have its own identity. It is
always under the main entity (Boscor et al.,2014). The branch is only being able to carry
out the activities which are authorised for the parent company.
Romania is on 30th number in the world for coffee consumption. In order to survive in
the market of Romania, Marvin and smith (M and S) coffee shop have to deal with their
competitors that are Origo, Guido, M60, Steam and Creamier.
In recent years, the economic growth in Romania has been increased and it has
become an attractive market for south-eastern Europe (Burca et al.,2014). The retail
sector has been grown by 19% and the number of stores has reached to 2,391 which
are owned by various domestic and international retailers. In the year 2017, the export
of food has reached to $82.5 million, and increased by 28.6 % by the year 2016. By
seeing these facts and figures one can say that the market in Romania is increasing.
Romania market is one of the fastest-growing markets (Edwards et al.,2013).
In the year 2007 Romania has become the European Union (EU) member and since
2004 has been North Atlantic Treaty Organization’s member. Romania has the tenth
largest population in the EU-28, with a population of 19.7 million. Romania's economic
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growth is the highest in the EU. In 2017, the growth rate of Romania's national product
(GDP) exceeded 7%, which makes it is fastest growing in Europe.
According to the report in the year 2017 the agriculture import in Romania has been
reached to $8.3 billion (Burca et al.,2014). Along with agriculture, the Romanian retail
market has also been grown in recent years, this contributed to the development. As the
country is developing more and more, Romania has become the investment market in
the n south Eastern Europe. Romania is also trying to strengthen its national currency.
Romania is in the top 5 European countries in term of growth. 85 % of the products in
the modern retail are either imported or of mixed origin.
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QUESTION 2
A marketing strategy or marketing mix is crucial for any business or in the setup of any
business. It gives the overall analysis of the market, which helps in establishing the
market. The marketing strategies include internal and external analysis, segmentation,
targeting, positioning, marketing plan, financial analysis, marketing plan etc…
As the marketing strategies includes the overall analysis of the market and then prepare
the plan so it gives the confidence to survive and grow in the market (Londhe and B,
2014). The marketing mix includes the 4’ps of marketing, which are very necessary for
the growth of the business. These 4'ps in context of coffee business in Romania are as
follows;
Product- Hank Marvin and Patty Smith want to expand their business in Romania by
opening a coffee shop. They can attract customers through the rang full of coffees like
Espresso, Mazagran Coffee, Eiscaffee, Macchiato, Cappuccino, Frappe, Black Eye
Coffee, Flat white coffee, Mocha etc… as the coffee can be made of many different
types. Other than the coffee they can also provide some snacks with the coffee to
attract the customers (Londhe and B, 2014).
Price– The price of a product decides the overall success of the organization or
business. The price of the product should be finalized after the proper research in the
market (Hantzsche et al.,2019). The average price that could be charged by M and S
coffee shop to the customers in the coffee business is 6.00 lei (lew).
Promotion– Promotion includes the ways through which a company wants to
communicate with prospective customers or make them aware of the product or
business. For the promotion, advertising could be used and as the world is being digital
so social media is also a good option for promotions. Other than this the organization
could also use the reward system and coupons or can tie up with the brands to
approach the consumer (Ferraro et al.,2017). Advertising has become very
sophisticated in Romania as they understand the value of advertising to promote things.
In recent years, Romanians have concentrated more on food and beverages
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advertising, the target customers are end-users, they advertise through chef blogs,
cooking blogs, and television. Advertising in Romania mainly focuses on the healthful
leaving style (Kim et al.,2011).
Place- The motto of the M and S coffee shop is to provide a place where customer can
relax with an East African feel as well as the needs are also fulfilled (like sockets for
phone/ laptops charging, Wi-Fi facility etc…). For the relaxation of the customers, they
have installed some games in the coffee shop through which customers can refresh
their mood (Ferraro et al.,2017).
It is almost impossible to present the business all over the country or region; the
marketer should place their business where is more opportunity for growth. For a coffee
business in Romania, it should be situated nearer to the industrial area or to the main
streets so it could attract youngsters. This would help in the growth of the business.
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QUESTION 3
Departments in an organization are very crucial. Each department plays a specific role
in the organization as there are many departments in the business and they manage the
business together. Each department is related to another, no single department can
lead the success and growth to the company, for the success, all departments need to
works with the support of each other (Chirtoc and I, 2010). As Marvin and Smith are
expanding the business into another country, they must need to know how to manage
these departments as they provide the resources required in the business.
The major department which needed to be managed is the Human Resource
Department. Human resource department is the department which is responsible for all
the employee-related issues like recruitment and selection, training and development,
employment legislation, payrolls etc… the organization needs to manage these all as
Marvin and Smith are opening their business in Romania, it is a new country for Marvin
and Smith and as the country changes the rules and regulation also changes, which can
affect the business (Chirtoc and I, 2010). The key factors that Marvin and Smith should
consider while expanding the business in unfamiliar territory are; they should take care
of the rules and regulation in that territory and should work according to that. In every
country, there is some employment legislation so the human resource management is
needed there and also to improve and grow business the best candidate suitable should
be hired. Human resource management takes care of the wages to the particular
employee
The second department which plays a major role in any business is marketing.
Marketing is the crucial department for any business and it is interrelated with the other
departments of the business. Expanding the business in the new territory could be a
very criticle job, there could be many challenges that would appear like having
obstacles in promoting the business, spreading the brand awareness, finding the proper
medium for promoting the business, tough competition from the existing business etc…
these all hindrances could be removed through the right marketing strategy. Marketing
strategies or marketing plan helps in setting up the business as the marketing plan
includes the proper marketing research and then only any other strategy is planned and
executed (Heisbourg and F, 2016).
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QUESTION 4
This study is about the finding out financial and income statement for M and S coffee
shop. The calculation for the study is as follows;
Gross Profit (GP): the gross profit is defined as the profit earned by the marketer after
cutting the cost of making and selling of the product in the total revenue generated
(Popescu et al.,2017). In this case, the gross profit would be the profit which Marvin and
Smith are earned after deducting the cost of making and selling the coffee.
Gross profit margin (GPM) = GP/ Sales *100
= 208000/360000*100
= 57.67 %
From the result, it can be analysed that the company’s liquidity margin condition is much
better than the current business.
Net Profit Margin (NPM): Net profit margin is defined as the net profit generated in the
percentage of revenue. It is generally in the percentage but could also be in the
decimals form.
NPM = Net Profit/ Sales *100
= 26800/360000* 100
= 7.46 %
Net profit margin in percentage is providing the revenue generated by the company.
Return on Capital Employed (ROCE): To measure how efficiently a company can
generate profit through capital employed. It can be calculated as;
=taxes and interest before profit /capital
Employed*100
Capital = debts (Long-term) + All equity
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This ratio is around 12.68 per cent for M and S Coffee shop, which implies the
profitability and effectiveness of the company with which its capital can be used helps to
provide the shareholder's equity and debt liabilities.
To identify the liquidity the following aspects needs to be calculated first;
Current ratio: current ration determines the company’s capability to pay the current or
short term liabilities with the current assets.
Ratio (Current) = Assets (Current)/ Liabilities (Current)
= 35400/6200
= 5.809
This result of current ratio shows that in future the M and S coffee shop would be able to
compete with the market conditions.
Acid test ratio or quick ratio (ATR or QR): Quick ratio also measures the liquidity of
the company but it is a more conservative measure to the liquidity =.quick ratio is as
follows;
QR = Cash equivalents+ market securities+
accounts receivables/ Current Liabilities
= 4.51
As the QR is telling about the liquidity of the company, so by the result it could be said
that current assets could be changed into the cash whenever needs.
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