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Starbucks Is Closing Its La Boulange Stores — Can Its Other Brands Survive?

The company wants a more diverse portfolio of stores, but the demise of La Boulange is an early sign of the challenges the smaller brands are facing.

Posted on June 17, 2015, at 9:29 a.m. ET

David Vergne / Starbucks

It has been about three years since Starbucks acquired La Boulange, a San Francisco bakery, in 2012. Starbucks planned not only to bring its baked goods into its existing U.S. cafés, but also to "build [a] premium, artisanal bakery brand" through a chain of stand-alone stores, as it had done so successfully with premium coffee.

Now, Starbucks has decided it can only do one of these two things. By September, it will close all 23 La Boulange stand-alone locations and the two manufacturing facilities that serve those them. "Starbucks has determined La Boulange stores are not sustainable for the company's long-term growth," it said in a release.

The closures suggest that some of Starbucks' emerging store brands aren't taking off as well as it had expected, and there a number of others still in its portfolio: Teavana (a tea company it acquired in 2012), Evolution Fresh (a juice business it acquired in 2011), and its high-end Starbucks Reserve café chain, which is still in its infancy.

In fact, as Starbucks announced the end of its La Boulange stores, it also said that it will close its Evolution Fresh retail location in San Francisco. There are three other Evolution Fresh locations in the state of Washington.

Starbucks stores will continue to offer La Boulange brand baked goods, which have significantly boosted its food sales since rolling out nationwide. In the most recent quarter, food sales grew 16%, and sales of breakfast sandwiches were particularly strong, increasing by 35%. It also has taken Evolution Fresh to Starbucks cafés and brought it into grocery stores as bottled juices and smoothies.

While Starbucks may eventually own several large restaurant brands — as Yum Brands owns KFC, Pizza Hut, and Taco Bell — it may prove too difficult for Starbucks to build new chains with the scale it has reached with its cafés. These smaller brands might end up instead as supporting cast in Starbucks' 22,000 global stores, or in supermarkets, where Starbucks can develop them into large at-home brands.

The company has not been sentimental about its store strategy. It already closed its Tazo tea store, and closed nearly all of its Seattle's Best outlets. It turned both into grocery products instead.

The bigger question is whether Starbucks can meaningfully expand its Teavana brand, which now includes more than 300 tea gift shops and a handful of tea bars. The company has repeatedly referred to tea as a big opportunity not just in the U.S. but globally.

"As the second most-consumed global beverage behind water, tea presents a $90 billion global market opportunity," CEO Howard Schultz said in a release when the first Teavana tea bar opened in New York in 2013. That's a big market, not one the beverage company will likely give up on easily.

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