Starbucks to upgrade food

Starbucks to upgrade food by buying artisan bakery chain

The coffee giant plans to absorb San Francisco-based Bay Bread and have the bakery's founder create food products for Starbucks stores.

By Tiffany Hsu, Los Angeles Times
June 5, 2012

In hopes of upgrading its pastry offerings, Starbucks Coffee Co. plans to spend $100 million to acquire the San Francisco artisan bakery Bay Bread and its La Boulange brand.

The company's pastries are made using fresh and locally sourced ingredients favored by its French founder, Pascal Rigo. His operation runs 19 La Boulange stores in the Bay Area that sell croissants, pastries, cookies, breads and more.

Starbucks said Monday that it was acquiescing to customer demand for "more wholesome and delicious food options" by rolling out products created by Rigo at U.S. Starbucks stores, starting in the San Francisco area in early 2013.

In addition, Starbucks plans to turn La Boulange into a nationwide chain.



With the planned purchase, which will need regulatory approval, the world's largest coffeehouse company would make a further commitment to food, which is already responsible for one-third of its transactions and $1.5 billion of its annual U.S. revenue. Food sales at Starbucks have grown by double digits over the last two fiscal years, including a 14% jump in the first half of 2012.

"Food is a key component of our core business that represents a significant opportunity for continued growth through multiple channels," Starbucks Chief Executive Howard Schultz said in a conference call announcing the deal. "We believe there is a tremendous opportunity to increase food attachment and, in doing so, drive incremental traffic into our store."

In recent years, Starbucks has moved to phase artificial ingredients out of its food products and offer smaller portions, often in response to patron requests on social media sites and other online venues.

Consumer outcry in April caused Starbucks to ditch a dye made from cochineal insects that had been used to color some of its pastries, which are shipped in from suppliers and sold from cases.

Writer Teresa Huang, 37, often eats the food Starbucks sells when she is in the cafes. But she's not happy about it.

The food offerings are "generic, not terribly appetizing," said Huang, who lives in Mar Vista. She'd rather go to the Panera Bread or Corner Bakery Cafe chains, but Starbucks has more locations.

"They charge a lot for it and put it in a fancy wrapper, but it's basically airplane food," Huang said of Starbucks food. "But if they bring some of the things on the La Boulange menu to Starbucks, I'll be very happy."

Although executives promised that the new offerings will use "the finest ingredients," they expected margins to stay the same. Starbucks will work to expand its own production and distribution abilities, they said, enhancing some in-store equipment while also partnering with third-party suppliers to develop baked goods for the brand.

Someday, Schultz said, the company may offer La Boulange products in supermarkets and other non-Starbucks stores, much as it already does with its K-Cup and Via coffee packets and its ice cream.

The bakery deal — being made with Next World Group, an investment firm that owns Bay Bread — is expected to close this fall, in Starbucks' fiscal fourth quarter. At that point, Rigo would be named senior vice president and general manager of La Boulange at Starbucks.

Moving into the baking industry would be another instance of Starbucks venturing beyond coffee. In recent months, the company has also become a juice purveyor with its nascent Evolution Fresh chain, as well as an energy drink maker and, at some stores, an alcohol seller.

Starbucks stock closed up $1.75, or 3.4%, at $53.90 on Monday before the bakery announcement. That was 55.5% higher than it was a year earlier.