Starbucks on Monday announced an agreement to acquire the San Francisco-based Bay Bread LLC and its La Boulange bakery brand for $100 million in cash.
With the acquisition, the Seattle-based coffeehouse chain plans to beef up its food offerings in Starbucks stores with La Boulange-branded French pastries, croissants, breads and muffins, which company officials hope will drive traffic and build the chain’s food attachment rate.
Long term, however, Starbucks officials also plan to build La Boulange into a national brand with its own retail outlets across the country, as well as moving into grocery and other channels with branded consumer packaged goods, or CPG, products.
Howard Schultz, Starbucks’ chair, president and chief executive, said the company plans to bring the artistry of the French bakery to the marketplace in the same way it brought the “romance” of the Italian espresso bar to virtually every corner of America.
“This is an investment in our core business. After more than 40 years, we will be able to say that we are bakers too,” said Schultz.
Under the agreement, Starbucks will hire La Boulange founder Pascal Rigo, who will serve as senior vice president and general manager of the La Boulange brand for Starbucks. La Boulange currently operates 19 locations around the San Francisco Bay area. The bakery chain was founded in 1999 by Rigo, who began baking at age 7 in Paillet, France.
The San Francisco bakery chain is known for its use of high-quality ingredients, including European-style butter, specialty grain and locally sourced produce, Rigo said in a statement. “We weigh, mix, divide, roll, cut, bake and care about every croissant, cookie, pastry, loaf and bread that goes into our pastry case, and we are looking forward to sharing our passion with Starbucks’ loyal and discerning customers,” he said.
Starbucks also plans to continue offering Bay Breads wholesale products to restaurants, hotels and specialty grocery stores and may expand that aspect of the business over time, the company said.
The French bakery is being sold by Next World Group, a team of management and investors that has worked with Rigo to build the brand over the past six years.
Sébastien Lépinard, Next World Group’s founder and majority investor, said Starbucks shares the bakery chain’s values and vision for bringing premium products to customers in a socially responsible way. “We trust that Starbucks is the best partner to take La Boulange to the next level while staying true to the brand and bringing the romance of an authentic French bakery to life,” he said.
Food now accounts for about $1.5 billion in revenues at Starbucks —about 20 percent of overall sales — Schultz said. “La Boulange gives us a significant catalyst to growth that even further.”
Only about one-third of Starbucks transactions have food attachments, he noted. And, though the coffeehouse chain has made efforts to build its food sales in recent years with Bento box lunches, mini desserts such as cake pops and more healthful breakfast sandwiches, the opportunity remains to invest in that core aspect of the business.
“Starbucks is the healthiest it has been in decades,” he said. “Now is the time to enhance the experience and create differentiation in the marketplace between us and everyone else.”
However, food sales grew by 14 percent in each of the first two quarters of fiscal 2012, Schultz said.
Starbucks locations in the San Francisco area will be the first to see La Boulange products in stores by 2013, Schultz said. The products will be added to Starbucks locations across the country and made using existing production facilities and outside facilities.
While plans for eventual CPG products are “baked in,” Schultz said that won’t happen until La Boulange has been built into a national brand. Starbucks also will open “flagship” stores of La Boulange around the country, which would further bolster the strength of the brand and offer “icing on the cake,” said Schultz.
“The unit economics are attractive and we could add something to it. It’s also an opportunity to showcase Starbucks coffee,” he said.
La Boulange marks the second large acquisition aimed at helping to build Starbucks' retail business. Last year, the company bought the Evolution Fresh juice brand for $30 million, bringing the bottled juice products into coffeehouse locations as well as launching a new juice bar concept the company plans to grow.