Panera buyer gives Starbucks food for thought

A Panera Bread restaurant in New York. Panera has been attracting diners with a move towards "cleaner" ingredients, including bacon made without artificial nitrates and preservatives. With JAB's backing, Panera could expand internationally and compet
A Panera Bread restaurant in New York. Panera has been attracting diners with a move towards "cleaner" ingredients, including bacon made without artificial nitrates and preservatives. With JAB's backing, Panera could expand internationally and compete globally with Starbucks.PHOTO: NYTIMES

NEW YORK • Starbucks' struggle to pull off its ambitious plan of selling more food just got tougher.

JAB Holdings, the sprawling investment firm that owns Krispy Kreme and Keurig Green Mountain, has agreed to buy Panera Bread for about US$7.2 billion (S$10 billion), adding a bakery-cafe chain to a food empire that spans coffee, bagels and doughnuts.

The acquisition vaults JAB into the exact same lunch business that Starbucks is trying to penetrate.

While Starbucks has been attempting to improve its fare for years, it has yet to establish itself as a legitimate dining spot.

Panera, meanwhile, has been fuelling growth with a menu of chicken-tortilla bowls, flatbread sandwiches and Fuji apple salads. Now, with JAB's backing, it could compete globally with Starbucks and enlist the holding company's roster of coffee offerings, like Peet's Coffee, and brands such as Krispy Kreme.

Starbucks chief executive officer Kevin Johnson, who took the helm just four days ago, is betting big on food. He wants victuals to eventually account for 25 per cent of United States sales, up from 20 per cent now. The company is introducing a lunch line-up in Chicago this month dubbed "Mercato", which will feature salads and sandwiches.

But Starbucks' past forays into food have been met with mixed reviews. In 2008, then chief executive Howard Schultz had to overhaul the chain's breakfast sandwiches after customers were turned off by the smell of burnt cheese, which overpowered the coffee scent.

About two years ago, the company brought back certain loaf cakes after diners complained about the new La Boulange line of pastries. It also curtailed its so-called Evenings programme, which offered wine and appetizers, choosing instead to focus on its premium Reserve coffee brand.

More recently, Starbucks has added fancier menu items, including sous vide egg bites, gluten-free sandwiches and vegan bagels.

But Starbucks fare is mostly made offsite, rather than in the restaurants, which are not big enough for cooking. That could make the fare less appetizing for customers, said Mr Peter Saleh, an analyst at BTIG.

"Panera's food will always be better than what Starbucks can offer," he said. "Starbucks is not designed to offer that high-end food. They don't have the kitchens."

Starbucks outlets have typically been about 1,700 sq ft, while Panera bakery-cafes average 4,500 sq ft - almost three times the size.

Panera has also attracted diners with a move towards "cleaner" ingredients, including bacon made without artificial nitrates and preservatives. It announced last week that it would start listing the amount of added sugars in drinks, a further attempt to promote healthy eating.

With JAB's backing, Panera could expand internationally and compete globally with Starbucks.

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A version of this article appeared in the print edition of The Straits Times on April 07, 2017, with the headline 'Panera buyer gives Starbucks food for thought'. Print Edition | Subscribe