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Did Starbucks Buy (and Close) La Boulange Just to Get Its Recipes?

$100 million wasn't a lot to fix food problems

Photo: Getty Images

Starbucks courted San Francisco's upscale La Boulange bakery chain for six months before buying it in 2012, for $100 million in cash. At the time, the acquisition was hailed as a definitive step to get top-shelf bakery products into the coffee giant's massive system, while also providing another avenue for expansion: 400 units within five years, some said. A jubilant La Boulange official said he had "confidence that Starbucks will stay true to the La Boulange brand" as it spread the quirky bakery to across the country.

Three years later, little more than crumbs remain of those plans. Starbucks announced last week that it will shutter all 23 of La Boulange's locations, along with the bakeries that supplied them. The heralded national expansion never took place. And Starbucks corporate's tone was decidedly clinical.

"Based on our ongoing evaluations," the company said in a statement, "Starbucks has determined La Boulange stores are not sustainable for the company's long-term growth."

What happened? Starbucks hasn't explained the machinations behind its decision, but Darren Tristano, evp of Chicago-based restaurant consulting firm Technomic, believes that Starbucks probably couldn't make La Boulange work as a growth vehicle.

"I'd speculate that it was their intention to go down the [expansion] path they indicated, but they likely failed," he said. "But if you look back to the beginning, it didn't really sound like we were going to see them growing La Boulange. It seemed like they were going to learn from it."

And learn Starbucks did. The La Boulange acquisition supplied the coffee giant with a range of fine pastries (fine pastry recipes, that is, as regional suppliers wound up doing the actual baking). La Boulange-developed delicacies like chocolate croissants and marshmallow dream bars will remain on the shelves in Starbucks' 12,000 U.S. locations. And these delicacies are largely responsible for Starbucks' 16 percent jump in food sales in the most recent quarter.

So is this a case of a big-bad chain gobbling up a mom-and-pop shop just to get use of its recipes? Not exactly, but maybe a little.

"Starbucks is being very closed-lipped, and they don't want to be known for going out and buying companies [just] for their intellectual property," said Noelle Ifshin, president of 4Q Consulting, which works with restaurant companies large and small. "But companies do that all the time." Saddled with a reputation for below-par food for years, Starbucks needed a serious pastry fix, fast, and that's what La Boulange gave it. To solve a problem that big, Ifshin said, "a hundred million is not a lot of money."

And certainly not for Starbucks, which posted $778 million in revenue in the second quarter. Besides, she added, "it's cheaper to close all those [La Boulange] stores and not have the operating expenses and not have to indoctrinate them in the Starbucks way. Merging management cultures is always difficult."

Still, there's not a lot of public goodwill to be had by killing off a beloved local bakery chain—and La Boulange had a loyal following in San Francisco. And while La Boulange's tasty recipes were enough to furnish Starbucks with improved food sales figures, they might ultimately not be enough to change standing customer perceptions about Starbucks' fare.

"Over the long term, Starbucks has not been very successful with food," Tristano said. "They've had enough mishaps that consumers aren't exactly trusting. The product comes in overnight and is reheated; it's not fresh." Now, Tristano adds, it's better—even if La Boulange has baked its last croissant.

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