HEDGEYE ANALYST: Howard Penney, Managing Director of Restaurants (@HedgeyeHWP)
The recent acquisition of La Boulange Bakery by Starbucks (SBUX) raises some questions. First and foremost is the price of $100 million for a bakery chain that CEO Howard Schultz justifies through a growth strategy. The goal is to expand the La Boulange footprint by distributing its goods throughout Starbucks stores and making it a nationally known name. Bringing French baked goods to the masses is a strategy that has a high likelihood of working out, similar to how Americans have embraced Italian espresso.
But the concern we have at the moment is distribution. In a note written by Maury Rubin’s City Bakery Daily, he outlines the issues related to the logistics of shipping and distributing freshly baked goods:
“Many years ago, when Starbucks first moved into New York City, they asked if City Bakery would consider being a supplier of baked goods. I was completely interested, until I learned the required delivery schedule: orders needed to ship to a central location by 6pm to be sold the next day. In our bakery, then as now, we bake every thirty minutes all morning long. The goal is to have pastry on our counter that was in the oven within the hour when bought. For Starbucks, we would need to have baked 15-18 hours before the fact.”
Howard Schultz believes that the way La Boulange handles its logistics justifies the $100 million price tag. In reality, it will probably require further capital expenditures to keep the quality associated with La Boulange products after they are shipped since it is highly unlikely existing Starbucks stores will be retrofitted with the ability to produce baked goods.