This is Tech

Seattle locals know that small TopPot Donuts makes an amazing doughnut. If you are outside of Seattle, you might have had a TopPot doughnut at your local Starbucks. TopPot has been supplying Starbucks for some time now. Starbucks typically carries TopPot’s old fashioned (in plain and chocolate) and apple fritters. According to this Seattle PI article, Starbucks will be rolling out TopPot doughnuts in its stores nationwide starting in April.

It is safe to say that Starbucks has fairly well saturated the US market. In my building, we have a Starbucks on the 40th floor so people don’t have to take the elevator all the way to the Starbucks in the lobby.

So when you have multiple locations in the same building, and some of your stores are across the street or caddy-corner to your other stores, where do you go from there? You either increase in-store sales, or expand into other areas (or both). If you have read Howard Schultz’ biography of Starbucks, “Pour Your Heart Into It” you know that Starbucks’ focus originally was on great coffee. Now that Schultz is back in charge, you can expect that focus to continue. This is evidenced by the recent retraining of all Starbuck baristas on how to pull the perfect shot. So if Starbucks is refocused on great coffee, it wouldn’t make sense to try to expand to new product lines within the existing stores. The answer, dedicate some resources to building a second brand.

TopPot seems like a logical choice for this experiment. TopPot has a similar history to Starbucks. Both are Seattle grown, and both focus on the quality of their products. There are synergies between donuts and coffee that would allow TopPot to sell Starbucks coffee and vice versa. The acquisition would vertically integrate Starbucks with a supplier, which would likely create some economic advantage as they bring some of their baking in-house. TopPot is still small enough to be affordable to acquire, but has a well established brand in Seattle. Starbucks competes directly with doughnut makers already (e.g., duncan donuts on the East Coast). TopPot could allow Starbucks to undermine these competitors differentiator. Lastly, as a publicly traded company, Starbucks needs to keep its investors (and the market) sold on the future growth of the company. The more Starbucks locations that open, the harder it is to grow further. A second brand would make it easier for investors to envision growth.

The advice, Starbucks should buy TopPot and use their considerable experience to build it into a national brand. Once established, spin them out into their own publicly traded company. Starbucks in uniquely situated to do this, and TopPot is still small enough to make them the perfect affordable candidate.