NEW YORK (TheStreet) -- Three years after Starbucks (SBUX) - Get Starbucks Corporation Report bought the La Boulange baked-goods brand to bolster its food offerings, the coffee giant is closing the 23 pastry shops that came with it to focus on expanding the brand in house.
La Boulange's pastries and breakfast sandwiches have been central to the growth of Starbucks's food sales. But running the separate La Boulange stores, located mostly in San Francisco, has become a distraction, according to Cliff Burrows, Starbucks group president for the U.S. Starbucks acquired La Boulange parent company Bay Bread in 2012 for $100 million, seeking to bolster a food-product menu that had drawn customer complaints for lacking quality and consistency.
Starbucks reported that food sales grew 16% in the quarter ended March 29 versus the prior-year period and that sales of breakfast sandwiches rose 35%. At the time of the acquisition, Starbucks said it planned to open more La Boulange cafes in major U.S. cities. But the company recently completed an analysis of its stores and determined that "the La Boulange cafes are not a sustainable model for Starbucks long term," Burrows said.
Some of the La Boulange cafes were underperforming, but Burrows said the main motivation in closing them was a desire to focus on the core Starbucks business rather than operating two separate but related retail chains. Food has become a key growth strategy for Starbucks as it seeks to become more than a coffee chain.
In December, the Seattle company said it plans to double its annual revenue from food in the U.S. to more than $4 billion in the next five years. Starbucks also said it plans to close its Evolution Fresh juice store in San Francisco because it was underperforming. The other three Evolution Fresh stores, located in Washington state, will remain open. Starbucks acquired the juice brand in 2011. Burrows said Starbucks will continue to open more Teavana stores. The company acquired the brand of mall-based tea shops in 2012.
TheStreet Ratings team rates STARBUCKS CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate STARBUCKS CORP (SBUX) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins."
You can view the full analysis from the report here: SBUX Ratings Report