Starbucks (Nasdaq:SBUX) just blew around $100 million to buy some 19 bakeries in a grand effort to expand into baked goods. I’m OK with the basked goods concept. Coffee and something sweet preferably sweet margins are a great business model. But what do you get for $100 million. Bay Bread and La Boulange apparently; who knew?
Concept and menu development are necessary business catalysts. Would you like fries with that will probably be emulated forever. But why these bakeries and at this price ? No reason. I thought so.
The decision-making process is flawed in Starbucks executive suite. You do not make the big M&A move to expand your menu offering. You set up a series of test kitchens sometimes in stealth mode to develop new products.Then you test market at key locations within a demographic context. Essentially you buy several ponies in the same race and wait to see what happens. It’s all a matter of evolution.
Starbucks has panicked and wants to make the big meglomanical move. OK so how did the board sign off on what the market clearly does not believe in. The short answer is a serious lack of food experience intersecting with too much strategic orientation.
Let me explain
Two members of the board bring big geo-political credentials. A former Defense secretary under two presidents from both major political parties Robert Gates of course. Then we have Joshua Ramo who is now the number two guy at Kissinger Associates. If you have global aspirations two good gets. If you want to sell coffee and cup cakes, well that’s just not their forte.
You have several financial types: William Bradley managing director of Allen & Company, Mellody Hobson from Ariel Investments and James Shennan of Trinity Ventures. Not saying they are not smart but they are financial engineers not food operations types.
Then you have two members who come from the Pepsi (NYSE:PEP) DNA pool. Olden Lee and Craig Weatherup. You know what they say about mixing up DNA pools.
Last but not least you have some retail and consumer products backgrounds: Myron Ullman JC Penney (NYSE:JCP), and Javier Teruel of Colgate Palmolive (NYSE:CL) . They have the closest relevant pedigree. not sure if they signed off on the deal.
Two more board members have no relevant background Kevin Johnson from Juniper (NYSE:JNPR) and Clara Shih who did something clever with a Facebook App. Clara at the very ripe age of 29 sits on Starbuck’s Nominating and Corporate Governance Committee. I’m sure she is very clever but can you sell me any coffee and baked goods. do you really have the grey hairs of experience to play at this level. 29-year-old thought leaders scare the hell out of me.
So this board has signed off on what they thought was a “sweet deal”and ignored the thousand other baked good options that are available. Critical thinking not deep enough. I can just see the board meeting now where they served some samples from the target and everyone agreed that it tasted very good.
George Gutowski writes from a caveat emptor perspective.
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