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Is Peet’s Coffee A Billion Dollar Baby?

logo_onlyWhile some  believe Peet’s is a sweet billion dollar deal for the German JAB Holdings, NBN has some doubts.  Yet the price for Peet’s might get even higher.

Bloomberg News reported that some investors think Starbucks is considering making a rival bid to keep the Northern Californian based coffee company from making the struggling coffee giant’s headaches even worse.  Adding to investor night sweats is  The Wall Street Journal report that Kraft might enter the bidding too.  This despite the fact that according to the Motley Fool the billion dollar latte is about 42 times the company’s earnings. Starbucks valuation is a mere 25 times earnings.

1205010508burts_lrgOf course while stockholders and M&A attorneys lick their chops, it’s worth remembering that Clorox’ much touted $970 million dollar purchase of Burt’s Bees resulted in a company write down of a whopping $250 million dollars.  Yet when corporate giants run out of ideas nothing gets their blood flowing and bolsters the company image more than buying a sexy brand, often regardless of price.  Can you say Vitamin Water?  Buying innovative brands is the CPG equivalent of that 70 old guy with the trophy wife riding shotgun in the Porsche.  Or maybe smoking crack on the street corner. Who cares how long the high lasts, right?  CPG Daddy likes it, no matter how hard the crash.

Starbucks June 2012 purchase of SF Bay area artisan La Boulange Bakery and the 2011 acquisition of Evolution Fresh Juice are touted as part company’s strategy to moved beyond the coffee bean.  Yet does it mean that like its CPG relations, Starbucks too has run out of  innovative steam?  Or is that question obvious?   Both acquisitions give the company expanded product offerings, greater control of its growing non-coffee business and the ability to open new stores under different brands in municipalities where the number of chain stores are limited.

Whether Starbucks can manage the transition from innovative entrepreneur to new corporate toy is an essential challenge.  Or is it?  Small brands need to grow with quality goods. Big ones can boost sales through marketing and volume. At least for a while until its time to count the beans on the spreadsheet.Starbucks has opened two Evolution Fresh Juice stores in Seattle and has plans to open a third in San Francisco.

The Boulange Bakery has tremendous local support in the SF Bay area and 20 outlets.  Foodies, bread and pastry lovers alike have marveled, “how do they keep the quality so high with so many stores?”    With the Starbucks in charge,  will these new offerings become just another mediocre combatant in the battle over bread and sandwiches.  One Panera, two Panera, three Panera, four?  City Bakery. Cosi.  Panini’s R Us.  While some folks currently buying an egg white breakfast flatbread sandwich at Dunkin Donuts will be excited, will others really care?  And if so for how long?

As for Kraft ,what’s frequently forgotten is how the big CPG’s (most notably Kraft and Proctor & Gamble) missed the boat when the coffee market changed.  Suddenly Janet Soccer Mom and hubby Joe Van HedgeFund stopped buying large cans of mediocre Arabica for Starbucks and other whole bean upstarts.  Yet the CPG coffee leaders took years to respond. Most likely asleep at the wheel while drinking Starbucks lattes while brainstorming  about how to reverse sagging sales of Maxwell House and Folgers .

While many believe the real value of Peet’s is on supermarket shelves rather than with new cafes, the highly saturated premium coffee market isn’t an easy one.  And despite strong growth in supermarket sales ever fickle upscale consumers could grow weary of the brand, once it goes into marketing hyperdrive.  Market opportunities in Europe might be brighter, but stay tuned.  This one will be interesting.

Oh yeah and one more question.  Who plays Starbucks CEO Howard Schultz in the movie version of this tale?  Robert Downey Jr, Jake Gyllenhall or Tom Hanks?  Better yet, how about a great British Shakespearean actor, one who knows Hamlet or even better yet, Macbeth?

4 Responses

  1. Shep Kroner
    Shep Kroner July 31, 2012 at 6:02 pm |

    I guess this was all predicatable. Take a group of Ivy MBA’s, buy a company, improve it, and sell it. I just hope the quality of the roasting continues. Otherwise, it may be time to turn to one of our fine local roasters here in the best place on eath, Seacoast NH.

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