Starbucks: 'We are bakers too'

Starbucks is getting into the bread business.

The Seattle-based coffee chain announced plans Monday to buy San Francisco-based Bay Bread and its La Boulange bakery brand for $100 million.

"This is an investment in our core business," said Howard Schultz, Starbucks chief executive, in a conference call with financial analysts. "After more than 40 years, we will be able to say that we are bakers too."

Schultz said one-third of Starbucks transactions include the purchase of a food item. Food now accounts for $1.5 billion in sales at U.S. company-operated Starbucks stores and has grown sharply in recent years, he added.

Starbucks will create a "new methodology" to produce fresh baked items, Schultz said without elaborating.

"We are going to bring new level of merchandising and romance to the food category," he added.

La Boulange, which was created by French master baker Pascal Rigo, is known for its "artisanal" products, including croissants, pastries, loafs, cookies and breads.

The new items will be rolled out at Starbucks locations in San Francisco beginning in 2013, according to Cliff Burrows, president of Starbucks Americas. But the company hopes to expand the La Boulange brand in Starbucks locations nationwide and in other retail outlets.

Starbucks' (SBUX) stock rallied after the company released a statement saying it would announce a new business initiative. The stock ended the day 3.3% higher at $53.90, but it erased most of those gains in extended trading as investors digested the news about La Boulange.

Back in April, shares of Starbucks hit an all-time high above $60, marking a sharp rise from its March 2009 low of about $10. That's a stunning comeback for a company that only a few years ago was thought to have lost its way.

The company has pulled back on the pace of new store openings in the U.S. since Schultz reclaimed the CEO spot in 2008. Starbucks even closed hundreds of underperforming stores to cut costs.

Over the past few years, the coffee chain has made a bigger push into China. It now has 570 stores in 48 Chinese cities. Starbucks recently indicated that it expects China will become its second-largest market by 2014 and that it plans to have more than 1,500 stores up and running in China by 2015.

Starbucks has also expanded into the lucrative single-serve coffee market by partnering with Green Mountain Coffee Roasters (GMCR) on Starbucks-branded K-Cups. Green Mountain shares also ended the day higher, but gave back gains in extended trading after the announcement was made.

In addition, Starbucks also announced plans to start selling its own single-serve machine, dubbed the Verismo, later this year.