Starbucks to buy bakery for $100 million to expand offerings

Starbucks Corp., the world’s largest coffee-shop operator, agreed to buy Bay Bread LLC for $100 million in cash, adding to its expanding portfolio of non-coffee businesses.

The acquisition of San Francisco-based Bay Bread and its La Boulange brand will decrease full-year profit by 2 cents a share, the Seattle-based company said in a statement today. The French-themed bakery sells homemade granola, flank steak sandwiches and organic bread, according to its website.

밯e are deeply committed to building a national brand with bakery items, Chief Executive Officer Howard Schultz said during a conference call. Starbucks may also sell La Boulange products in grocery stores where it already sells coffee and tea, he said.

Since returning as CEO in 2008, Schultz has introduced Via instant coffee, wrested control of packaged goods distribution from Kraft Foods Inc. and bought a juicemaker to cash in on the health and wellness trend. The purchase of a bakery extends the company’s reach further beyond its coffee-shop roots.

“It will be higher quality food” said Peter Saleh, an analyst at Telsey Advisory Group in New York.  “Starbucks customers are about the quality of the item and are definitely brand-conscious people.”

Starbucks fell 2.2 percent to $52.74 in extended trading. The stock rose 3.4 percent to $53.90 at the close in New York. The shares have gained 17 percent this year.

La Boulange bakery operates 19 retail stores in the San Francisco area and sells its products in restaurants, hotels and grocery stores, according to the statement. Besides selling the bakery’s food in Starbucks cafes, Starbucks will expand La Boulange locations nationwide.

밊ood is a critical component of the core Starbucks business, Chief Financial Officer Troy Alstead said in a telephone interview. Food, including fruit salads, chicken lettuce wraps and blueberry scones, makes up about 19 percent of sales at Starbucks U.S. stores, he said.

The transaction is expected to close in Starbucks fiscal fourth quarter, Alstead said. Pascal Rigo, who opened the first La Boulange store in 1999, will become senior vice president and general manager of La Boulange bakery at Starbucks when the deal is finalized.

The coffee-chain operator will need to explain how much more capital it will deploy as it rolls out Bay Bread products in its stores and expands La Boulange’s network, Saleh said.

Starbucks revenue rose 6.3 percent to $8.04 billion in the U.S. in the year ended Oct. 2. The company’s domestic segment made up 69 percent of revenue last year.

Last year, Starbucks paid $30 million for Evolution Fresh Inc. and has since opened one cafe to sell the flash-pasteurized juice, which it also plans to put in grocery stores. In March, Starbucks said it would sell 60-calorie, green-coffee extract energy drinks called Refreshers. It also owns the Tazo tea and Ethos water brands.

Starbucks has about 17,400 stores worldwide, including more than 10,800 in the U.S. (Bloomberg)