Starbucks still in 'early days' of La Boulange roll-out
March 13, 2014
by Eric Schroeder
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NEW YORK — Food remains the biggest “near-in opportunity” for growth at Starbucks Corp., the company’s chief financial officer told participants at the Bank of America Merrill Lynch Consumer and Retail Conference held March 11 in New York.
“If you can just look at the scale of transactions coming to the store that don’t attach food, (you would see) 30 million out of 40 million transactions a week don’t have food attached,” said Scott Maw, c.f.o. “Food has grown nicely over the last 10 years or so, to about 20% of our revenue. But we still think there’s big opportunity to increase that percentage.”
A lot of the opportunity in increasing that percentage rests in the ability of Starbucks to integrate the La Boulange brand. Starbucks acquired San Francisco-based Bay Bread, L.L.C. and its La Boulange bakery brand for $100 million from management and an investment group, Next World Group, in 2012. Since that time, Starbucks has been steadily introducing La Boulange across its outlets.
“We’re about 50% rolled out with the bakery program within La Boulange,” Mr. Maw said. “And the bakery program is about half of the food in Starbucks. So we’ve impacted about 25% of the overall food platform in La Boulange. And that’s why we continue to say it’s ‘early days.’
“But what we see in the results of La Boulange — the customer reaction, the pride that our partners have in an elevated food experience — has well met all the expectations — rather lofty expectations — we had at launch. And we’re doing some things to adjust and improve the food program. We’ve had some things that have gone far better than we thought, where we see things like croissants that have doubled sales from pre-La Boulange levels. And we’re adjusting some things in the operations as well to get at some of the expected little hiccups we’ve had in the roll-out.”
Mr. Maw acknowledged La Boulange has been “an enormously complex roll-out.” Specifically, he mentioned the operational challenges within the supply chain, from buying the correct supply to implementing a successful warming routine for the products.
“We went to an all-frozen supply chain where we’re making these great products, flash freezing them, and then shipping to the stores, and buying them,” he explained. “So getting that routine right with the supply chain, buying routine right in the stores, was something that we investigated, invested in, and we think we’ve got right now.”
Another level of complexity includes educating consumers on the warming routine for the baked goods.
“We knew we’d have some little wrinkles, and we’re ironing those out as we move forward,” he said. “So overall, we’re very happy with the sales result in La Boulange. We’re very happy with the lift. And La Boulange, if you look at food, food also has contributed 1 point to 2 points of comp growth every quarter over the last three years. And most of those quarters, actually the vast majority, it was 2 points of growth. And so when we look over the next couple of years, we know La Boulange will give us some comfort level in continuing to at least meet that same level of contribution from food comps — or from food in comp growth. And what I would say is, the roll-out of La Boulange smooths that food impact slightly.”
Mr. Maw said Starbucks has begun to lap stores that rolled out the bakery products a year ago and expects to see 1 point to 2 points of food comp growth this year and heading into next year as the company starts to launch its lunch platform.