Please make a peer-review of this two papers

 IV. Internal Environment: Strength and Weaknesses (SWOT) and SWOT Analysis

Structure- Starbucks is structured in a way that makes their products easily and readily available, with brand recognition that won’t allow consumers to drive past them without stopping. Another structure of their business is the “third place” strategy which makes their stores a third place for consumers to hang out aside from work and home. These strengths make the stores busy all day every day, but this is also a weakness. For customers who don’t use the Starbucks app, sometimes it can take upwards of 15 minutes to get your drink and if you’re in a rush that is a big hold up. This shows just another success of their loyalty rewards program,

Culture- Starbucks culture is built on inclusion and diversity for their employees and consumers. They also hold a culture of wanting to be environmentally friendly and do as much as possible to save the planet. Inside a Starbucks, it usually feels like everybody working there is happy to be there and in a good mood, so they have a really strong culture within their stores. Reading through some research and quotes from their executives, the culture and love for the business is strong up top as well.

4 PS of marketing- The four P’s of marketing are product, price, place, and promotion and I will be analyzing the four P’s along with Starbucks Caramel Frappuccino. The Caramel Frappuccino product is one of Starbucks’ most popular and because it attracts a lot of young/new coffee drinkers. It is a frozen coffee beverage topped with whipped cream and it is so sweet it basically feels like a milkshake. It looks like a milkshake too and that is what compels younger people to want to try it. The price of a Caramel Frappuccino ranges from $4.25-$5.25. It does seem very expensive for coffee but if compared to the cost of a milkshake, which the drink is often compared too, the price isn’t that unreasonable. The placement of the Caramel Frappuccino from Starbucks shows how hard they’d like to push the product. Their drive-thru menu doesn’t have much space, but they always make room for a picture of the drink to entice customers to buy it. The Caramel Frappuccino at this point in time doesn’t need any more promotion as it has already established itself as one of their most popular. They still push it to customers, but most drinkers already know how good it is!

The table above lists 4 important financial ratios for Starbucks and their two biggest competitors. The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations. Starbucks has a very bad current ratio as it is rare and dangerous for a company to have a current ratio below 1. Both of their competitors, especially Folgers are fine with their current ratio’s though. The gross margin percentage shows the percentage of revenue that is left after manufacturing costs. Starbucks and Folger have very good gross margin percentages. ROI (Return on Investment) shows how well a company is using investments to create revenue and Starbucks has an off the charts ROI. Once again Folgers has a great number. Finally, is return on assets which shows the amount of revenue being generated in comparison to the assets owned by the company. Starbucks, while they do have a good ROA, is the worst on this list, with Dunkin leading the way.

The financial position- Through analyzing Starbucks net income from the last three years, they may be plateauing, and they may need to bring in something new. There is major inconsistencies with their net income as during 2020, which was due to Covid, they only made $928,300,000. Which then blew up to a massive $4,199,300,000 in 2021 but then a steep drops off to $3,281,600,000. The down year for covid makes sense but not the down year for 2022. Something very confusing about Starbucks’s balance sheet is the fact that they have negative equity, and more liabilities than assets. I’m not sure how that is possible, but it is consistently on the balance sheet from multiple different sources. No matter the reasoning, it is not good for the company, and they need to find a solution fast. Their current ratio being below a one is not good and could catch up to them quickly and put them in to a deep hole of not being able to pay their bills.

Table of Internal environment:

 Starbucks strengths are very strong, and their weaknesses are very weak as shown in the table above. The brand they have built themselves is one of the biggest on the planet. When consumers across the world think of a coffee shop, the number one that will come to their minds is Starbucks. Most people across the whole world know what their logo is and means, similar to Coca-Cola and McDonald’s. This is a huge deal and will mean they will never run low on customers. The number of locations they have is another one of their biggest strengths. With nearly 36,000 stores worldwide, consumers won’t have to go far to purchase their products and that accessibility is huge for sales as well.

A major drawback for consumers of coffee from coffee shops is the prices. There is a major difference in price between purchasing coffee at a shop and making it yourself at home and that is why a lot of people, especially Americans will make their own coffee. This isn’t a huge issue for Starbucks though as even though their prices are high, they are about the same as most major competitors. The biggest weakness I’ve noticed through my analysis of Starbucks is their finances. They have a negative 8 billion dollars in equity on their balance sheet which I haven’t noticed before. Because of this they have a current ratio below 1 which means they owe more money currently than they have assets to pay off these liabilities. This could prove to be an issue for Starbucks in the long term as they may not be able to make payments to their vendors.

  I believe Starbucks doesn’t need to revise their mission statement. The mission statement is “With every cup, with every conversation, with every community – we nurture the limitless possibilities of human connection”. This mission statement goes perfectly with their goals, structure, and what they stand for. With Starbucks “third place” strategy, it is very clear from the mission statement that they are pushing for that more than even their coffee. Starbucks wants to be a relaxing spot for anyone to come in and hang out, meet up, build relationships, do work, homework, or all of the above. This is exactly what their mission statement portrays. Additionally, they include “with every cup” to show that the main focus of their product line is their beverages, which are and have been their biggest cash cows as long as they have existed.

            V. Strategic Alternatives and Recommended Strategy

The biggest strength of Starbucks is their brand recognition and customer loyalty which can be used to their advantage with their innovative business model. Starbucks could take their “third place” strategy to a different level by implementing “Starbucks Libraries”. Additionally, a major weakness of Starbucks is their dependance on coffee or coffee related products. Implementing a lunch or dinner menu could help put them ahead of the pack if it doesn’t stray too far from their mission and main product line. The main goal for Starbucks at this time is to break away from the major players in the industry (McDonald’s, Dunkin, and local coffee shops) and make it nearly impossible for customers to choose anyone but themselves. A way they could do this would be by lowering prices.

For Starbucks to implement their new Starbucks Libraries, they will need a lot of cash to get the job started which may be an issue with the current state of their current ratio so now, it may not be a feasible option. Once Starbucks does have enough cash on hand, they should try with just one location in a major city. They should rent a large, multi-floor space and furnish it with comfortable seating. The space should have a floor for socialization, a floor for quietness and for work to be done, and then a floor for peace and relaxation, maybe with soothing music. Each floor should have a café counter where customers can buy coffee, and books for customers to grab and read. This new space could really elevate Starbucks brand, and it’s something different to elevate their “third place” strategy.

Additionally, Starbucks needs to become more diverse than just coffee. They do serve and offer food and other drinks, but it is nothing different to other cafes. If they added a food menu, similar yet unique to Panera Bread, it would really elevate Starbucks customer base and “third place” strategy. Additionally, Starbucks needs to expand the size of the stores they currently have. Most of them are very small so not many people can sit in them before it becomes too crowded. This is something, like the libraries, that cannot be done right now because of the state of Starbucks finances.

The head executives at Starbucks need to work urgently to get their financial situation back under control. From observation of their financial situation, it is possible that they may have expanded too fast and will soon find themselves in a cash and liquidity nightmare. While expansion was and still is one of their biggest goals, it is important for businesses to not do things that they can’t afford. It may even be necessary in the meantime for Starbucks to close some of their doors to get their financial position under control. According to Investopedia, “Reasons for a company's negative shareholders' equity include accumulated losses over time, large dividend payments that have depleted retained earnings, and excessive debt incurred to cover accumulated losses”. (Clark) These major losses from Starbucks have put them in a position with more liabilities than assets, current and long term. Starbucks main goal at this time should be to put together a plan to save their financial situation before it is too late.

References

Clark, K., & Brown, J. R. (n.d.). What Does Negative Shareholders' Equity Mean? Investopedia. Retrieved May 29, 2023, from https://www.investopedia.com/ask/answers/08/negative-shareholder-equity.asp