Welcome to Your New Burger Joint... Starbucks?

Dinner could become just as important a meal for the coffee shop as breakfast

Jun 26, 2014 at 3:12PM
Screen Shot

Source: La Boulange.

Well, it's not really Starbucks (NASDAQ:SBUX) itself that will start selling burgers, but La Boulange, the small San Francisco bakery and cafe shop that it bought in 2012 for $100 million, will add them to its menu.

Having begun the process of adding baked goods from the cafe to a third of its stores earlier this year, and with plans to continue rolling them out nationally in the years ahead, Starbucks sees the opportunity to increase its share of the evening daypart by adding burgers to the baked good shop's menu, but only after first testing it at just one restaurant in Los Angeles before deciding on whether to expand further.

La Boulange typically caters to the breakfast and lunch crowd and is usually locked up by 7 p.m. While most of the menu remains the same when it comes to those dayparts, the Associated Press reports that for dinner the cafe will include build-your-own burgers and other evening-only dishes.

The cafe is turning into a huge success story for the java slinger. Although analysts originally questioned the impact it would have on Starbucks' operations and wondered whether the drop in same-store sales experienced late last year was a result of baristas needing to spend more time warming up baked goods, Chief Executive Officer Howard Schultz was right to scoff that the idea "had no legs," as La Boulange now has food offerings in over 8,500 Starbucks stores and its new breakfast sandwiches were largely responsible for the massive 50% increase in sales.

Sure, some customers hate change, and as Reuters recently reported, Starbucks brought back some of its old, pre-La Boulange loaf cake choices, but it's clear more customers are enjoying the wider menu selections available.

Screen Shot

Source: La Boulange.

The cafe offerings are having an impact on the competition as well. McDonald's (NYSE:MCD), for instance -- which is trying to straddle the dual needs of growing its bottom line while, at the same time, remaining true to its customers who look to it for cheap eats -- began introducing breakfast pastries at some of its restaurants. 

McDonald's is also under pressure from chains wanting to bite off some of its dominance of breakfast, where it maintains a 30% share of the market. Yum! Brands Taco Bell began offering a Waffle Taco to steal some business, as did White Castle, which started offering chicken waffles. Starbucks, which obviously counts on breakfast time to sell its coffee, is choosing to zig when others are zagging.

But it's not alone in seeing the opportunity. Zoe's Kitchen also wants to see dinner account for a larger percentage of its revenues. While the newly public Mediterranean cuisine restaurant is more heavily invested in the daypart, with 40% of total revenues (excluding catering) coming from dinner, it's looking to increase the division to a 50-50 split with lunch.

In short, no restaurant today can cede any daypart to its rivals. We're seeing chains with menus typically oriented to lunch and dinner targeting breakfast, breakfast places going after lunch, and places like McDonald's and Starbucks adding items usually not associated with its stores but giving them the chance to broaden their horizons.

Starbucks has a unique opportunity with La Boulange, and though it's only a small step, and despite the doubters who think it might add to customer confusion, I see the coffee giant baking additional growth into its future.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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