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Starbucks buys San Francisco bakery chain for $100 million

9:36 AM, Jun 5, 2012   |    comments
A La Boulange bakery. Starbucks
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Starbucks got the coffee right. Now, it is trying to do the same with the food.

The world's largest coffee chain announced on Monday plans to acquire for $100 million a small artisan bakery chain, Bay Bread and its 19-unit La Boulange bakery brand.

Starbucks will purchase the San Francisco-based chain from the privately-held investment firm Next World Group. The transaction is expected to close in the third quarter of 2012.

The move comes just months after Starbucks (SBUX) purchased the tiny Evolution Fresh juice brand and at a time Starbucks is pushing hard to expand beyond coffee and vastly improve its baked goods and other food offerings. Food is one of the chains fastest-growing businesses, now accounting for $1.5 billion in revenues even as its sales have grown by double digits over the past two years.

"After more than 40 years, we will be able to say that we are bakers, too," says Howard Schultz, CEO at Starbucks.

Starbucks has long caught flak for its sometimes-mediocre food offerings. More recently, it has removed artificial ingredients from food and added some smaller portion sizes. While the chain has worked hard in recent years to improve the quality and content of its foods, it now appears to be conceding with this purchase that it needs to go outside for help.

"It makes perfect sense," says Jeff DeGraff, a management professor at University of Michigan's Ross School of Business. "Starbucks has to have a premium pastry product to go with its coffee if it wants to occupy the premium cafe space."

Starbucks ultimately wants to boost its food sales in the grocery aisles, not just at Starbucks retail stores. La Boulange products also are sold in several upscale restaurants, hotels and specialty grocers in the Bay Area. And Starbucks plans to grow the La Boulange bakery chain separately, too.

Besides purchasing La Boulange, Starbucks also hired the bakery chain's founder, French baker Pascal Rigo, who since he was 7 has spent years working in bakeries in Bordeaux and Paris. La Boulange is known for baking authentic French pastries and breads from scratch.

But it will likely be a while - perhaps many months - before the flavor and taste of La Boulange shows up at many Starbucks locations. Starbucks first has to upgrade many existing facilities and broaden distribution capacity in many markets. Some West Coast Starbucks locations could see the baked goods by early 2013, projects Cliff Burrows, president of Starbucks.

"It's a product that will match the quality of our coffee," he says.

His favorite La Boulange pastry? "It's got to be the croissant," he says. "Fresh and simple."

USA Today

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