Here’s How Panera’s Acquisition By JAB Can Impact Starbucks, Dunkin’ Brands

by Trefis Team
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Recently, JAB Holding Company announced that it will acquire Panera Bread for $7.5 billion, as it looks to expand its coffee and breakfast stores. JAB already owns Krispy Kreme Doughnuts, Peet’s Coffee, and Keurig Green Mountain. Through this acquisition, JAB will get control over Panera’s nearly 2,000 bakery cafes in the U.S. which are immensely popular for their healthy fresh food offerings. Panera also has an advanced digital ordering system which improves service efficiency. JAB was on the lookout for a target for a while now and Dunkin’ Brands was considered as one of the possible candidates. However, with Panera’s acquisition it is clear that Dunkin’ will not be acquired for now. Without the backing of a strong player, Dunkin’ Brands cannot expand aggressively and hence this development was viewed negatively by the market and some of its shareholders. We believe coffee giant Starbucks (NYSE:SBUX) can also get adversely impacted by this development, as it looks to increase its food sales. At its recent annual general meeting, the company announced that it plans to launch Starbucks Mercato – a new lunch menu which will offer a variety of fresh salads and sandwiches to meet consumer needs.  With an increased focus on lunch, the company plans to double its food business by 2021.

However, with the backing of JAB, Panera Bread can become a strong competitor to Starbucks in this segment. While its 2,000 outlets in the U.S. are much smaller compared to Starbucks’ 11,000 strong store network, its menu innovation in the form of chicken tortilla bowls, flatbread sandwiches, and Fuji Apple Salads, is driving growth. With the backing of JAB, Panera can expand aggressively, challenging Starbucks. Panera is also focused on healthy and fresh food items, which is likely to attract customers in the long term as their preferences shift towards natural and preservative free food.  Further, JAB can use its network of restaurants including Krispy Kreme, Caribou Coffee, and now Panera Bread to compete effectively with Starbucks.

According to our estimates, Food, Coffee Bean, and Merchandise spend per customer visit at a Starbucks company operated store will increase steadily from $2.26 to $ 2.72 by the end of our forecast period.

However, if the company is able to double its food business in the next few years and this spend crosses $4 by the end of our forecast period, there can be a more than 10% upside to our price estimate.  While Starbucks has high food ambitions, the acquisition of Panera by JAB can make it more challenging for the company to meet its goals.

While Dunkin’ Brands lost a strong acquirer through JAB’s acquisition of Panera bread, Starbucks has gained a potentially strong competitor. Whether Starbucks will be able to meet its food ambitions in this changing restaurant landscape remains to be seen.

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