Starbucks Bakes a Brilliant Move

by Will Ashworth | June 6, 2012 9:25 am

I’m a daily visitor to my local Starbucks (NASDAQ:SBUX[1]) less than five minutes down the road. Sometimes I visit twice or even three times a day — I definitely don’t subscribe to the “coffee will send you to the poorhouse” theory that some financial websites like to espouse. For me, it’s an opportunity to get up from behind my desk and be in the world. I became a fan when I moved to Vancouver in 1995 to pursue a girl, and although that didn’t work out, I’ve been a regular ever since.

As good as the coffee is, I believe Starbucks can be an even stronger brand by continuing to improve the customer experience. One thing detracting from that experience is its food, which has all the appeal of a school cafeteria. Don’t get me wrong. I’ll buy the occasional cookie or mini-cake, but I’m in there every day, but most of the time I’m only ordering plain-old coffee.

Something’s holding me back, and that something might just be on the verge of being solved. On June 4, Starbucks announced that it was buying the LaBoulange bakery brand for $100 million[2] to bolster its baked goods offerings both in its retail stores and in grocery stores.

The markets didn’t seem to like the news, sending its stock down almost 3% on Tuesday. Barclays analyst Jeffrey Bernstein had this to say about the deal: “Needless to say, we have overarching concerns of distraction from the core coffee platform and/or damage to the existing customer experience, similar to concerns from other recent non-coffee initiatives.”

But hey, this isn’t Starbucks Music, Jeffrey. It’s not even Evolution Juice[3]. It’s an attempt to finally get serious about quick-serve food that doesn’t taste like plastic. I’m not sure how it could possibly damage the customer experience. After all, Panera Bread (NASDAQ:PNRA[4]) seems to be able to run a bakery and serve coffee without distraction.

I think Starbucks management can figure out how to talk and chew gum at the same time. They’ll be fine. And even if they’re not, it will make the company stronger, as past failures have done in previous years. In my opinion, spending $100 million to get the ball rolling seems like a pretty inexpensive way to bring about healthy transformation.

When I think of Starbucks today, I see a business taking chances much like Sir Richard Branson does with his Virgin brand. Branson has had many failures in his lengthy business career, but his successes have been colossally huge, and that’s why he’s a billionaire several times over.

Starbucks got complacent several years ago, forcing CEO Howard Schultz to jump back into the fray and provide some vision for the future. Whether it’s this deal, the Evolution Juice acquisition or yesterday’s announcement[5] that Starbucks-owned Seattle’s Best Coffee was partnering with Coinstar (NASDAQ:CSTR[6]) to introduce Rubi automated coffee kiosks in drugstores, convenience stores and other self-serve retail locations, Schultz is doing it in spades.

Starbucks has struggled with the positioning of Seattle’s Best brand since its acquisition in 2003, but it’s now hitting its stride. This announcement clearly demonstrates Starbucks isn’t afraid to think outside — or in this case inside — the box.

Starbucks shareholders should be dancing a jig today. If this doesn’t demonstrate management’s desire to be the best, nothing will.

As of this writing, Will Ashworth did not own a position in any of the stocks named here. 

Source URL: https://investorplace.com/2012/06/starbucks-bakes-a-brilliant-move/

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