Starbucks Hopes To Spur Food Sales With La Boulange Roll Out Nationwide

Starbucks has big plans for food. The ubiquitous coffee chain is now making a bold attempt to lure customers to try its baked products. The new menu has been created with the help of La Boulange, a $100 million San-Francisco based bakery chain that Starbucks acquired last year. You may soon see items such as croissants, muffins and cheese sandwiches at your nearest Starbucks store. ^[1]

By the end of 2013, the extended menu will be available in about 3,500 of the company-operated stores in the U.S. and by the end of next year, these will be rolled out in all of its company-operated stores across the country. This is part of Starbucks’ broader strategy to diversify its offerings in the relatively saturated American market while leveraging its brand to expand internationally. Other ventures include the acquisition of Teavana, expanding its offerings of packaged products and opening new juice bars under the Evolution brand.

Although its been a while since Starbucks purchased La Boulange, the move seems like a smart one. The acquisition of a high-end, French bakery resonates well with the premium appeal often associated with Starbucks.

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Food Sales Can Add Upside

As Starbucks is synonymous with coffee, it shouldn’t be surprising to see one in every three customers purchase a food item. The company sees this as a huge opportunity to grow its sales. A greater proportion of customers ordering food products along with their coffee could very well boost the average spend per customer.

Currently a Starbucks customer, on average, spends about $1.40 on food, and we forecast this figure to rise at about 0.5-0.6% annually. Our projection is conservative since this includes Starbucks’ international stores as well where baked good items haven’t been rolled out yet and aren’t expected to be introduced anytime soon. The food revenue per customer has actually declined in the last couple of years due to a growing contribution from Asia where prices are generally lower when converted back to the dollar.

But if food sales were to grow at a rate of 3% annually, we could see 5% upside to the Trefis price estimate. Note that this is based on the assumption that the additional sales of food products won’t impact its beverage sales.

We have a $58 price estimate for Starbucks, which is about 10% lower than the current market price.

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1. Starbucks has big plans for its new line of baked goods, May 24, bizjournals.com [↩]