Financial Strengths & Weaknesses

Starbucks managed to better control of average store opening costs. More particularly, the company centralized buying, developed standard contracts and fixed fees for certain items and consolidated work under those contractors who displayed good cost-control practices. Starbucks had a huge debt capacity, as during the early start-up years the company avoided debt and financed new stores entirely with equity capital. Actually, this capacity, along with profitability improvement and balance sheet strengthen, made Schultz softened so that Starbucks completed some debt offerings.

Starbucks enjoyed strong internal cash flows for 1997-2004 periods. This cash-flow stream allowed the company to finance virtually all of its store expansion with internal funds. Last five years (1998-2003) Starbucks enjoy increasing financial figures in terms both of income statements (total net sales, net earnings, earnings per share) and of balance sheet items (total assets, shareholders equity). Long-term debt decreases as a percentage of total assets. Actually, in absolute dollar values long-term debt follows a decreasing pattern since 1999.

Therefore, equity finance has greater portion overtime.

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Share price follows an increasing pattern for the (1992-2003) period, according to case study data (Thompson et al, 2005). According to recent share price data (http://finance. yahoo. com/q/bc? s=SBUX), Starbucks share price was increased until the end of 2004. Thereafter, share price seems to follow a cyclical nontrending pattern around . 45$ - 0. 60$. The consolidation of companies after the acquisition was considered as successful enough in the context of culture issue.

In order to symbolize the merging of the two companies and the two cultures, a new logo was created and melded the designs of Starbucks logo and Il Giornale logo.

One of Starbucks core competencies was identifying suitable retailing sites for its new stores. Actually, the company was regarded as having the best real estate team in the coffee bar industry, along with a sophisticated system for identifying not only the most attractive individual city blocks but also the exact store location that was best.

In that context, it also worked hard at building effective relationships with local real estate representative in areas where it was opening multiple store locations. Starbucks possessed an excellent know-how along with an excellent capability of passing this know-how in the context of local partner/ licensee use for international expansion. This effective know-how passing strengthened more company's effort for brand building around the world. Concerning organizational culture, Starbucks encourage employees to express their opinions and contribute to decision-making procedure.

Company's top management creates a culture where all employees feel that they are respected both as humans and as workers and are able to free express their ideas and opinions through formal procedures (see Mission Statement construction and annual Partner View concept). Starbucks paid special focus on human resources management. On that context, a special health case insurance program was initiated for all employees including part-timers. By that program, workforce commitment had been tighter.

Additionally, morale was increasing and employees were far more eager to contribute substantially to company's success. Moreover, except from that insurance program, the new compensation plan gave strong motives to employees to become partners rather than simple employees. That was another reason for employee to become a key success factor for Starbucks. Due to Starbucks initiates to employees, the result was that it allowed to the company to attract motivated people with above-average skills and good work habits.

Turnover rates were too low compared to similar business because Starbucks was considered as an attractive place to work in. Starbuck provides also organizational capabilities in order to keep employee morale in high levels during the ongoing years. More particularly, company's management was concerned by field reports of stores that were suffering from slumping employee morale and store manager burnout. It is worthwhile to mention that Starbucks was named by Fortune magazine as one of the "100 Best Companies to Work for" in most of the years since 1998 until 2002.

Morale is very high to all stores among the staff. This high morale passes to customers that find people working in Starbucks having fun. All this creates a pleasant experience to customers and motivates them to become loyal ones. One other strong point of Starbucks was the effective employee training. More particularly, training program included both technical issues concerning all the variety of drinks and breweries preparation, and organizational issues concerning the culture of company, the way they will manage customers and generally operate a store in order to communicate Starbucks' values and benefits.

After a few years of consolidated Starbucks starting up, the company created its own in-house team of architects and designers in order to ensure that each store would convey the right image and character. A "stores of the future" project team was formed to raise Starbucks store design to a still higher level and come up with the next generation of Starbucks stores. There was a vision of what a Starbucks store should be like.

This vision included concepts as an authentic coffee experience that conveyed the artistry of espresso making, a place to think and imagine, a spot where people could gather and talk over a great cup of coffee, a confronting refuge that provided a sense of community, a third place for people to congregate beyond work or the home, a place that welcomes people and rewards them for coming and a layout that could accommodate both fast service and quiet moments.

Starbucks used systems in order to control services standards quality inside stores. This is why the company used mystery shoppers who posed as customers and rated each location on a series of criteria. Starbucks paid special attention to corporate and social responsibility issues. The company take special care about the environment hosted its stores. It had found the "Starbucks Foundation" and contributed substantially to other foundations efforts.

This effort could be considered actually as complementary to its advertising absence (see next). Starbucks lacked experienced management. Even Schultz had never led a growth effort of such magnitude and was just learning what the job of CEO was all about. Moreover, other Starbucks employees had only the experience of managing or being part of a six-store organization. Starbucks didn't own the sites they operate its stores. Therefore, they were limited enough in terms of how they could redesign and rebuild stores spaces as they would desire.