Monday, June 25, 2012


A bakery.  
$100 Million. 

Now that's a recipe. 

Three weeks to the day since Starbucks dropped $100 million to buy La Boulange, a local San Francisco bakery, that number still swirls round my mind. On Wall Street, where Starbucks lives, this was perhaps just another deal. Down here on the ground in bakery land, this deal is one for the ages.

Local retail bakeries don't get bought for a hundred million dollars. In the land of local bakeries, bakers think about the price of butter, not valuation. Bakers don't cash out, they crap out. After years of the daily routine, joints tire, then slow, all while a corporate suitor is not standing by with a check to go comfortably into the sunset. The bakery business is a deceptive one, a challenge that doesn't quite meet the eye. After all, how hard can it be to mix flour and water into a morsel of goodness and sell it for $3? Truth be told, you can't imagine. Most local bakeries lurch along through months then years, if that long. I read recently that the average operating profit for retail bakeries nationally is 3.5% [don't spend it all in one place!]. Reality for small retail bakeries is squirrelling away cash from one holiday season to the next, while wishing someone would invent more holidays. Year after year, even with growth, the small bakery life is a relentless economic grind that defies the sweet, tempting look of all those pastries in the bakery case. Against this reality, $100 million in a bakery deal is epic, and La Boulange is now officially the Instagram of the bakery world. 

It may be more accurate to say La Boulange wasn't exactly just another neighborhood bakery. It had a man [a private equity firm invested in 2006] and a plan [19 stores today with 25 more planned next year]. Still, being purchased by Starbucks for $100 million in cash is pixie dust to 99% of bakers who have ever baked in all of baking time. Tell a baker that Wall St. is standing by with a hundred million payday, then watch them fall backwards into their 60-quart Hobart mixer with cartoon stars circling above their head. 

$100 Million. I wonder [because someone should be] if this deal is about Starbucks and Starbucks only [in that  Starbucks could afford $100 million to try to end its longtime practice of selling universally-recognized terrible food]. Or, more compelling, is there meaning in this deal beyond Starbucks? Does the purchase of a local bakery for $100 million signal a new day of speculative opportunity for Main Street bakeries? Did a dozen or so better bakeries around the country just become more valuable in the tailwind of this transaction? Is there about to be a bakery boom? [followed by a bakery bubble?]. If so, who are the bakeries, who are the buyers, and what might any of it be worth? 

Meantime, what about the baking in this bakery deal? While reading about the goals of the Starbucks-La Boulange partnership, a number other than $100 million comes to my mind: twoas in two hours. La Boulange is a classic French patisserie, so I assume it will be a short time only before Starbucks customers begin enjoying croissant, n'est pas? The challenge with that: a great croissant has about a two-hour window from the moment it comes from the oven, if we're serious about a great croissant. At four hours, the sun is setting. After that, you're the proud owner of an artifact of a croissant. Bon Appetit! 

Many years ago, when Starbucks first moved into New York City, they asked if City Bakery would consider being a supplier of baked goods. I was completely interested, until I learned the required delivery schedule: orders needed to ship to a central location by 6pm to be sold the next day. In our bakery, then as now, we bake every thirty minutes all morning long. The goal is to have pastry on our counter that was in the oven within the hour when bought. For Starbucks, we would need to have baked 15-18 hours before the fact

Assuming La Boulange produces a great croissant, how will they get them to 11,000 Starbucks everyday on a timetable that says quality? [I'm assuming retrofitting 11,000 Starbucks with ovens is not possible given lease considerations]. Operationally, this will need a Marshall Plan-like approach. Great croissant, God bless 'em, have non-negotiable physical properties and know not of hundred million dollar acquisitions.  

I'm not rooting for or against, I just can't wait to see how this unfolds. With $100 million already spent, will it cost Starbucks tens of millions more to actually get the quality they seek into customer's hands?  

1 comment:

  1. Hi Maury,
    Pascal from La Boulange here. Love the way you bake and ...write. Let's chat on the phone one of these days.
    Warm Regards


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