Starbucks Corporation (NASDAQ:SBUX) has announced it will acquire San Francisco based Bay Breads and its related La Boulange brand for $100 million in a push to diversify its food offerings at its 17,400 worldwide locations. Starbucks views the move as a chance to upgrade its offerings for customers in an increasingly competitive market segment.
Starbucks Chief Executive Office Howard Schultz indicated that Starbucks Corporation (NASDAQ:SBUX) is looking to potentially offer the La Boulange products in grocery stores alongside its coffee and tea products.
Schultz has made a number of moves in an attempt to diversify the coffee giant’s product roster in order to adapt to changing consumer tastes. He has added “Via” instant coffee, a number of juice offerings and an increased number of food choices for customers.
While Starbuck’s segment is certainly still growing in the United States, there are a number of new entrances into the market place that are directly competition with the firm. Starbucks has always branded itself as being more than just a place to pick up a coffee and dash off to work, instead offering customers comforts that create a community atmosphere where people might sit and read a newspaper or meet a client. Increasingly, firms focused on food products are attempting to steal market share away from Starbucks by targeting this same community type market segment.
There are a number of firms on the higher end of the segment that pose a threat to Starbucks, but on the lower end, McDonald’s (MCD) is becoming increasingly competitive. While McDonald’s certainly doesn’t pose much of a risk to Starbucks’ higher end clientele, it can certainly win over a segment of the mass market clients that are currently loyal to Starbucks. The McCafe branding scheme in the United States and some foreign markets, as well as the introduction of higher end food products is an attempt to win over this attractive segment. Starbucks adding new food products to the lineup certainly is an attempt to maintain market share from both the higher and lower ends of its client base.
This is Starbucks’ largest acquisition to date, surpassing its 1998 takeover of Seattle Coffee Co., a United Kingdom based coffee operator, for $81 million. Starbucks is off 3.4% to $52.07 at 10:12EST following the announcement.