Is Starbucks going after Panera?
The company is spending $100 million on a San Francisco chain of casual restaurants serving sandwiches and salads.
The company is shelling out $100 million in cash for Bay Bread, the parent company of the La Boulange brand. Starbucks said it will start adding croissants and other French pastries to its menu early next year.
Why would Starbucks spend that kind of cash on better croissants? For the answer to that question, you only have to look at shares of Panera Bread (PNRA), which fell more than 1% Monday and were down another 1.6% in after-hours trading.
Starbucks didn't explicitly say it was making a run at Panera's business, but investors made that leap pretty easily. La Boulange has 19 locations in the Bay Area, selling ham and cheese croissants, sandwiches, salads, soups and desserts.
Starbucks has never shied away from huge ambitions, and this buyout of La Boulange hints at a broad rollout of restaurants with fresh salads and sandwiches. Panera has enjoyed a long run at the top of this sector, growing to 1,500 locations from 1,000 five years ago, according to the Associated Press. Its sales rose by 73% over the same period.
"We'll take it one store at a time, starting in metropolitan areas around the U.S. where there's demand," said Cliff Burrows, president of Starbucks Americas, according to the AP.
Starbucks has been toying with this idea for a while. It has tested beer and wine sales at some of its locations, and has experimented with adding healthier items to its menu. But it has never ventured into food sales to this extent before.
About a third of the transactions at Starbucks stores include a food item, the AP reports.
It's unclear whether Starbucks will simply add an expanded menu to its current locations or open a completely new restaurant with food as the focus.
Don't forget one other important possibility: Starbucks may begin selling La Boulange products at grocery stores -- an area the company is desperate to cultivate.
Investors didn't seem too thrilled with the purchase, or the fact that it will cut full-year profit by about 2 cents a share. Starbucks' shares were down 2% Monday in after-hours trading.
Also they would have to actually serve food, not pastries. The pastries department at Panera is not the money maker, it's the soups, salads, sandwiches, and paninis.
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