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JAB Holdings Inches Close to Starbucks in Panera Bread Race

The mystery surrounding the potential buyer of Panera Bread PNRA continues as the company has been exploring options since it received takeover interest.

As of now, Starbucks Corporation SBUX was deemed to be the best match for Panera, among other potential suitors like JAB Holdings Co. and Domino’s Pizza Inc. DPZ.

Starbucks is keen on strengthening its portfolio through significant innovation in core food offerings. Apart from beverage innovation, Starbucks has been making an effort to offer more nutritional and healthy products, over which Panera has quite a strong hold.

However, analysts at Credit Suisse are of the view that Panera will most probably be acquired by JAB Holdings, who has executed a spree of acquisitions of many of the premium U.S. brands under the Consumer Goods category.

JAB-Panera Compatibility

JAB Holdings is a European investment firm, backed by Austria’s billionaire Reimann family. The company has been actively taking over companies in the consumer and food sectors over the past few years.

In 2012, JAB Holdings acquired Peet's Coffee for about $1 billion. JAB Holdings also took over one of biggest coffee companies, Jacobs Douwe Egberts, in partnership with Mondelez International Inc. MDLZ, in the following year. In 2015, JAB Holdings reached a deal worth over $300 million to buy Espresso House, the leading coffee chain in Sweden and Norway. More recently, JAB Holdings spent $1.35 billion to add Krispy Kreme Doughnuts to its portfolio.

Given JAB Holdings’ coffee-centric acquisition strategy, Panera Bread looks like a good match as coffee will be a great accompaniment to Panera’s freshly baked items.

Moreover, Panera’s focus on digitally enabled channels as well as sales boosting and marketing initiatives are encouraging. All these measures are expected to translate into strong comps and sustainable double-digit EPS growth starting 2017. Looking at the fundamentals, Panera seems well-positioned for consistent revenue growth. In fact, the company has recorded historic sales growth of 8% in the last five years, while the industry’s average was 4.6%.

Starbucks’ Fears

Given JAB Holdings’ aggressive acquisition strategy, it poses a serious threat to Starbucks, which has been trying to boost sales for quite sometime now.  

Starbucks is also striving to expand its food offerings in the U.S. to complement its drinks. Food has become a key growth driver and contributes around 20% to the company’s U.S. revenues. Starbucks plans to double its U.S. food sales to more than $4 billion by 2019 by focusing on breakfast, lunch, snacking and evening programs.

Meanwhile, JAB Holdings is really keen on building a caffeine empire that could pose challenge to Starbucks. For instance, the ‘Coffee & Bagels’ chain of JAB Holdings combines the best of both brands -- the coffee offering of Caribou (acquired in 2013) with the freshly baked goods of Einstein Bros. (acquired in 2014). Such co-branding chains reveal JAB Holdings’ intention to combine different products in its portfolio in order to take on rivals like Starbucks.

Bottom Line

Some analysts are of the view that in terms of customer and product mix, and the size of the acquisition, Starbucks may emerge as the most suitable partner for Panera, as JAB Holdings is more focused on emerging, differentiated franchise concepts like cafes and consumer packaged goods.

Again, others believe Starbucks’ desire to focus on premium coffee makes the Starbucks-Panera union an unlikely one, and sees JAB as the suitable candidate, given JAB's current portfolio of coffee assets..

Nonetheless, investors should keep a close watch on the story to find out how things shape up for Panera.

Zacks Rank

Starbucks and Panera both carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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Mondelez International, Inc. (MDLZ): Free Stock Analysis Report
Panera Bread Company (PNRA): Free Stock Analysis Report
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Starbucks Corporation (SBUX): Free Stock Analysis Report
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