For Starbucks, which wants to sell more food, the $7.2 billion acquisition of bakery-cafe chain Panera Bread by the company that runs Peet’s Coffee, Einstein Bros. Bagels, Krispy Kreme and more means a stronger competitor for potential customers.
Starbucks has been struggling for years to pull off its ambitious plan of selling more food.
That task just got tougher. JAB Holding’s $7.2 billion acquisition of bakery-cafe chain Panera Bread on Wednesday vaults the investment firm into the exact same lunch business that Starbucks is trying to penetrate.
While Starbucks has been attempting to improve its fare for years, it has yet to establish itself as a legitimate dining spot. Panera, meanwhile, has been fueling growth with a menu of chicken-tortilla bowls, flatbread sandwiches and Fuji apple salads.
JAB’s multibillion-dollar coffee and doughnut spree
Previous acquisitions of full or controlling stakes:
2016: Krispy Kreme, for $1.35 billion
2015: Keurig Green Mountain, for $13.9 billion; Intelligentsia and Stumptown, undisclosed.
2014: Einstein Bros. Bagels, for $364.5 million
2012: Caribou Coffee, for $340 million; Peet’s Coffee, for about $1 billion
Source: New York Times, Seattle Times
Now, with JAB’s backing, it could compete globally with Starbucks and enlist the holding company’s roster of coffee offerings, like Peet’s Coffee, and brands such as Krispy Kreme.
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Starbucks Chief Executive Officer Kevin Johnson, who took the helm just four days ago, is betting big on food. He wants victuals to eventually account for 25 percent of U.S. sales, up from 20 percent now. The company is introducing a lunch lineup in Chicago this month dubbed “Mercato,” which will feature salads and sandwiches.
But Starbucks’ forays into food have been met with mixed reviews in the past. In 2008, CEO Howard Schultz had to overhaul the chain’s warm breakfast sandwiches after customers were turned off by the smell of burnt cheese.
About two years ago, the Seattle-based company brought back certain loaf cakes after diners complained about the new La Boulange line of pastries. It also curtailed its so-called Evenings program, which offered wine and appetizers.
More recently, Starbucks has added fancier menu items, including sous vide egg bites, gluten-free sandwiches and vegan bagels. But Starbucks fare is mostly made off-site, rather than in the restaurants, which aren’t big enough for cooking. That could make it less appetizing for customers, said Peter Saleh, an analyst at BTIG. “Panera’s food will always be better than what Starbucks can offer,” he said. “Starbucks is not designed to offer that high-end food. They don’t have the kitchens.”
Starbucks stores have typically been about 1,700 square feet, while Panera bakery-cafes average 4,500 square feet.
Panera also has attracted diners with a move toward “cleaner” ingredients, including bacon made without artificial nitrates and preservatives. It announced last week that it would start listing the amount of added sugars in drinks, a further attempt to promote healthful eating. The company boosted comparable net sales by 5.3 percent in the most recent quarter, and the stock was already up 34 percent this year before the JAB takeover.
With JAB’s backing, Panera could expand internationally and compete globally with Starbucks, which has more than 25,000 cafes worldwide.
While there are only about 2,000 Panera locations, JAB can enlist its other brands, including Krispy Kreme, Caribou Coffee, Peet’s Coffee, Senseo and Douwe Egberts.
At the very least, Panera could start selling Caribou or Peet’s coffee, making each location into more of a direct Starbucks competitor.
“JAB could use its greater portfolio of concepts to compete on much greater scale,” said Stephen Dutton, an analyst at Euromonitor International in Chicago. “That will be a threat to Starbucks for sure.”