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Starbucks to McCafé: Not So Fast

Filed under beverages, Business, Marketing, McCafe

Starbucks’ $100 million acquisition of San Francisco-based Bay Bread LLC and its La Boulange bakery brand speeds the transformation of its coffee shops into bakery/cafes. As such, many observers see Starbucks looking to take share from top bakery/cafe brand Panera Bread. But Starbucks may also be moving to blunt the rapid growth of McCafé.

La Boulange offers baked goods and sandwiches.

Coffee is a $2 billion+business at McCafé/McDonald’s in the U.S. Food is a $1.5 billion piece of Starbucks’ sales here. The two brands are headed toward each other, working opposite ends of the same goal: to be the world’s top cafe/restaurant brand.

Saying it is responding “to customer demand for more wholesome and delicious food options,” Starbucks announced plans to “introduce many of [La Boulange baker Pascal Rigo’s] secret and storied recipes into its U.S. company-operated stores under the La Boulange brand, while also accelerating the expansion of the company’s retail footprint over time in key U.S. cities to further build a differentiated brand and customer experience unique to the premium retail bakery cafe category.”

La Boulange has 19 locations around San Francisco. In addition to organic coffees and espresso drinks, juices, tea and sodas, its units offer an extensive array of freshly baked pastries. Food offerings range from open-face sandwiches (one with goat cheese, Portobello mushrooms, pesto and roasted red pepper is $8.95) to regular sandwiches such as a $8.75 Provencal BLT with bacon, lettuce, tomato, goat cheese, and aïoli on ciabatta. A brunch menu includes french toast, house-made granola and a $7.50 Egg & Cheese Sandwich with tomato and choice of bacon, ham, smoked salmon or avocado on croissant or plain or multigrain bread.

Starbucks Chairman/President/CEO Howard Schultz used to insist that he wanted patrons to smell coffee, not food, when they walked into a Starbucks. But if Starbucks is going to grow as a brand, it needs a food menu that goes beyond muffins. The company says food now accounts for $1.5 billion in U.S. company stores and that it is growing by double digits in each of the last two fiscal years. Acquiring La Boulange “is Starbucks’ next step in its journey bringing authentic and delicious food to customers, delivering additional reasons to enjoy their experience during multiple day-parts and at differentiated retail locations,” the company said.

McCafés, such as this one in the Czech Republic, also offer baked goods, desserts and sandwiches as well as coffees.

Offering just the sort of “differentiated customer experience” that Starbucks says it seeks was one reason McDonald’s brought the Australian-developed McCafé concept to its U.S. stores in 2008. The chain has  1,500 McCafé locations now. The concept was introduced to its Canadian units in November 2011. In Europe McCafé tends to be a separate area within the restaurant with its own menu of upscale baked goods and sandwiches, which is just what La Boulange serves.

At the 600+ McCafés in Germany, for example, the menu includes bagel sandwiches, frappes, cookies, croissant, brownies, cheesecake and more, in addition to coffee and espresso drinks. McDonald’s would like to see this style McCafé spread globally.

In the U.S. the McCafé name is so well established that TV commercials for the new Mango Pineapple Smoothies describe them only as being from McCafé. The McDonald’s name isn’t used, although the “I’m lovin’ it” and Arches logo leave no doubt about where to go.

In an October 2010 analyst call, Don Thompson, the then-COO who becomes McDonald’s CEO on July 1, said that coffee had accounted for 2% of McDonald’s U.S. sales in 2004, before McCafé. By 2010 it had become 6%. Even if that percentage did not increase in 2011, it means coffee represented $2 billion of McDonald’s $34.2 billion in U.S. sales last year. “We do see coffee as a point of leverage and growth for us as we move forward,” Thompson said then.