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In the News

Starbucks Failed $100m Takeover - Was It Really a Failure?

Three years ago, back in the summer of 2012, Starbucks announced a takeover of a small bakery chain based in San Francisco - La Boulange.

I say small bakery chain. The takeover price paid by Starbucks wasn't particularly small. Starbucks paid $100million.

Fast forward three years and Starbucks has announced that their chain of La Boulange stores is to close. The 29 La Boulange stores and two manufacturing facilities will close.

So, was this a failed takeover by Starbucks? Or was there an alternative strategy behind the takeover?

Starbucks bought La Boulange to address a perceived strategic weakness in its product offering - food.

The Starbucks food menu had been widely criticised for being unimaginative and unattractive - a problem since food sales tend to be high margin and help extend the sales potential for each Starbucks outlet.

In late 2014 Starbucks announced plans to double its annual revenue from food in the U.S. to more than $4 billion in the next five years - a stretch corporate objective.

La Boulange’s pastries and breakfast sandwiches have since been central to the fast growth of Starbucks’s food sales. Alternative suppliers have been trained to produce the extended product range designed by La Boulange founder Pascal Rigo.

But running the separate La Boulange stores has become a distraction. Some of them have also been loss-making.

A spokesman for Starbucks explained that the main motivation in closing La Boulange was a desire to focus on the core Starbucks business rather than operating two separate but related retail chains.

So, whilst the $100m price tag for the La Boulange takeover might seem to have resulted in a substantial loss of shareholder value, maybe this success or failure of this takeover isn't as clear cut as that.

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