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Starbucks Looks to Italy for Its Latest Food Inspiration

By Jeremy Bowman – Jul 18, 2016 at 6:03PM

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The coffee giant has made another investment in a high-end bakery business and although initial plans look modest, there could be a big boost for the coffee giant.

Image source: The Motley Fool. 

In its quest to build a food business to match its coffee empire, Starbucks (SBUX 1.15%) has gone shopping once again. 

Last week, the coffee giant made a strategic investment and became a global licensee of Princi, a "renowned boutique bakery and cafe," as Starbucks said in its press release.

Princi has just five locations, in Milan and London, but Starbucks plans to make it the exclusive food purveyor in all new Reserve Roastery locations, including in New York (slated to open in 2018) and Shanghai (slated to open in 2017), as well as its Reserve cafes (500 Starbucks Reserves stores are planned worldwide). With a group of investors, Starbucks also plans to expand the number of stand-alone Princi locations, taking the brand around the world. CEO Howard Schultz noted that the plans for the Roasteries mark the first time in 45 years that Starbucks will be baking inside of its stores, adding, "I can think of no better pairing for our most premium coffee experience and am excited by the possibilities we envision in Princi food elevating every daypart -- breakfast, lunch, and dinner -- in Starbucks Roasteries and Reserve Stores." 

If the raves sound familiar, that's because they are. Starbucks bought San Francisco-based bakery La Boulange in 2012, noting "the artistry of the French bakery" at the time, before shuttering its 23 stores last year, despite having promised to expand. The closure sparked a local backlash, but the chain's products live on in Starbucks stores.

Coffee and crumbs

Along the road to ubiquity, Starbucks has had a few growing pains with its food menu. In 2008, Schultz said the company would pull breakfast sandwiches from its cafes as a part of the turnaround plan, claiming that the smell from heating them up interfered with the coffee aroma. Instead, the company changed the way it prepared the sandwiches in order to eliminate the smell. Though its food has long been maligned, as Starbucks stores lack full kitchens as opposed to competitors like McDonald's, food sales have outperformed the overall business in recent years, benefiting from the La Boulange acquisition, and have become increasingly important as the company focuses on building traffic in the afternoon and evening hours.

In 2014, management set a goal of doubling U.S. food sales over the next five years, with the help of selling alcoholic beverages and cheese plates at select stores. In its first quarter this fiscal year, food revenue in the U.S. increased 20%, encouraged by promotions through the Starbucks app. 

La Boulange isn't the only acquisition that didn't go as planned. Starbucks closed its San Francisco Evolution Fresh juice location, leaving just three stores, and earlier this year pulled the plug on its Teavana tea bar concept, closing all but one of those stores. 

Its ultimate intentions with Princi may be bigger than including Princi menu items in its Roasteries and Reserve stores and adding stand-alone Princi stores. While the Reserve Roasteries appear to be a pet project of Schultz's and a smart marketing move, they won't move the needle in a direct sense, and expanding Princi on any sort of large scale could undercut Starbucks' own growth plans.

Instead, including some of Princi's items in Starbucks' regular stores could provide a boost. One of the reasons the company was attracted to the Italian chain is that it offers a 24-hour menu, featuring items like pizza in addition to pastries and other baked goods. Such an offering -- if Starbucks can pull it off -- could be just the thing to get customers in the door later in the day. 

Though Starbucks continues to grow comparable sales at a brisk pace, domestic beverage sales would seem to be nearing a saturation point. With food, Starbucks has much more room to grow, especially as the company seeks to add delivery and other convenient options like Mobile Order & Pay. Expect to hear more about the Princi partnership when Starbucks reports earnings this Thursday.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. 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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