Starbucks to buy La Boulange bakery brand

by Eric Schroeder
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SEATTLE — Starbucks Coffee Co. has agreed to acquire San Francisco-based Bay Bread, L.L.C. and its La Boulange bakery brand for $100 million from a management and an investment group, Next World Group. La Boulange operates 19 retail locations in the Bay Area and sells baked goods, pastries, salads and sandwiches in a casual, sit-down setting. The transaction, which also includes the hiring of renowned French baker Pascal Rigo, is part of Starbucks’ larger effort to expand its food business.

“This acquisition will mark a significant next step in an important investment in growing our $1.5 billion U.S. food platform, which is a core part of our Starbucks business,” said Howard Schultz, chairman, president and chief executive officer, during a June 4 conference call with analysts. “Starbucks has made a commitment to evolve and enhance our customer experience with innovative, premium and authentic products, and today’s announcement is the next step in delivering on that commitment. We see an incredible opportunity to bring the artistry of the best french bakery product to the U.S. marketplace, in a similar way that Starbucks brought the romance of the Italian espresso bar to many American coffee consumers for the first time.

“With this acquisition, we will make an investment in a core part of our business while also building and romancing the La Boulange brand into the nation’s best premium retail bakery cafe experience. Our key strategic goal will be to introduce artisan bakery products under the La Boulange brand into our stores in the U.S., giving customers more reasons to frequent and enjoy their experience during multiple dayparts, and as a result, drive incrementality within existing and new stores. We will also be accelerating the expansion of La Boulange Bakery’s retail footprint in key U.S. cities over time, to build a differentiated brand and customer experience, unlike any other in the premium retail bakery category.”

Mr. Schultz said approximately one-third of all Starbucks transactions in the United States have a food item attached to them, and as such represents a significant opportunity for continued growth through multiple channels.

“With La Boulange, we have a significant catalyst not only to continue that, but to grow it even further,” he said. “We looked comprehensively at potential opportunities when making this acquisition, and we believe La Boulange Bakery is truly unique in terms of visionary leadership, product taste and quality, brand authenticity, bakery capabilities, and significant potential for growth.”

Cliff Burrows, president, Starbucks Americas, who will oversee the integration and expansion of La Boulange, said the acquisition also will give Starbucks the opportunity to build the La Boulange artisanal bakery brand.

“Starbucks plans to make investments over time to broaden production and distribution capacities in selected markets, while working closely with outside suppliers to create a broad range of La Boulange products for our U.S. Starbucks stores,” Mr. Burrows said. “We will also continue to serve Bay Breads’ wholesale bakery customers, and will evaluate expanding distribution through this channel over time. That said, everything that we will do will be done through the lens of an unwavering commitment to maintaining the uniqueness, quality, and level of care that Pascal is known for baking into each of his croissants, pastries, loafs, cookies, and breads.”

Mr. Rigo has lived the traditional art of French baking since he was seven years old when he began work at his village bakery in Paillet, France. Over the past 40 years he has worked for several prestigious bakers near Bordeaux and in Paris, and later he moved to the United States where he has owned and operated several of his own bakeries and restaurants. He opened the first La Boulange store location in San Francisco in 1999.

“La Boulange believes in whole foods made from the freshest ingredients, including specialty grain, European-style butter and locally sourced produce,” said Mr. Rigo, who will be named senior vice-president and general manager of La Boulange bakery at Starbucks upon closing of the acquisition. “We weigh, mix, divide, roll, cut, bake and care about every croissant, cookie, pastry, loaf and bread that goes in our pasty case, and we are looking forward to sharing our passion with Starbucks loyal and discerning customers. We are proud to join the Starbucks organization.”

Mr. Burrows said Starbucks is looking to San Francisco, the area where La Boulange bakery is based, for the initial rollout of products sometime early next year.

“Over time, we would look then to build out from in this part of the world, both with increased capacity under the La Boulange brand, and production facility, and also, we will look to leverage existing suppliers,” he said. “We will look to leverage on their existing supply base to help us expand more quickly.”

The company plans to utilize a combination of commissaries and in-house facilities for baking the products, said Troy Alstead, executive vice-president, chief financial officer and chief administrative officer.

“This will be a hybrid model going forward, meaning we have acquired some production capacity, and so we will be in our own company-owned facilities going forward, doing some of the actual production of the product for the Starbucks stores,” Mr. Alstead said. “We will also, in a hybrid model, leverage outside suppliers, many of whom we work with today, as we begin to partner with them going forward additionally, to leverage our in-house capabilities and their existing production capacity. It will be some of both going forward.”

The acquisition is expected to dilute earnings by approximately 2c per share in the second half of fiscal 2012, the company said. Bay Bread, L.L.C. and the La Boulange bakery brand will be a wholly-owned subsidiary of Starbucks Corp.

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