Starbucks’ La Boulange Deal Creates Some Indigestion

By KEVIN HARLIN, INVESTOR’S BUSINESS DAILY, Posted 06/05/2012

Starbucks’ moves to cook up a better dining experience has made for a bit of indigestion among its investors and some of its competitors.

Shares of the world’s largest coffeehouse chain were down 4% midday Tuesday to 51.68, a day after it announced it was paying $100 million for the San Francisco bakery chain La Boulange.

The idea, Starbucks’ CEO Howard Schultz said in an after-hours conference call Monday, was to build La Boulange into a national brand, while also incorporating some of its gourmet cafe offerings into his own coffee shops.

Coffee chain Caribou Coffee (CBOU) was off 1.3% midday Tuesday to 12.05. Green Mountain Coffee Roasters (GMCR), a sometime Starbucks partner and sometime competitor in the home single-serve coffee market, was down 3.3% to 22.70.

Both had shot up late Monday when Starbucks said it would have an after-hours announcement — possibly on takeover speculation.

Smaller competitor Peet’s Coffee & Tea (PEET) also slipped slightly Tuesday to 58.02.

Darren Tristano, executive vice president of Technomic, a restaurant industry consulting and research firm, said the bakery acquisition will put Starbucks more squarely in competition with bakery-cafes such as Panera Bread (PNRA) and the privately held Corner Bakery chain. Panera shares were down about 1% to 138.67.

Starbucks has experimented before. It’s rolled out beer and wine sales at some of its cafes and has rejiggered its menu multiple times. The acquisition of the La Boulange brand could bring in more customers in the early morning hours for the bakery’s pastries and croissants, and later in the day for loaves and sweets. The chain’s 19 cafes also serve artisan sandwiches.

Tristano thinks Starbucks loyalists will appreciate La Boulange’s pledge for high-quality, locally sourced foods.

“Better quality food will provide a better tasting product for Americans who are willing to pay a little more to get a little better,” he said.

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