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Should Starbucks acquire OpenTable?

  • This is a sister question to: And was triggered by OpenTable's entry into mobile payments: http://blog.opentable.com/2014/pay-your-check-with-opentable-mobile-pilot-payment-program-launches-in-san-francisco/ Starbucks stated interest in mobile retail payments along with its likely overlapping retail locations with OpenTable restaurants makes for an interesting strategic discussion.    http://news.starbucks.com/news/starbucks-strengthens-senior-leadership-team   Starbucks Coffee Company (NASDAQ: SBUX) today announced a new leadership  structure that positions the company to leverage its assets and  operations, and gain maximum benefit from the retail, consumer, mobile  and digital shifts currently underway in the global marketplace.

  • Answer:

    A "Should" question is hard to answer because there is no correct answer. As an outsider, it is even more difficult because I don't really know the pulse of the company (happy to have some Starbucks folks chime in). However, I think the the answer is NO. Starbucks Strategy; In March, 2014, Starbucks CFO presented the following presentation at the Bank of America Merrill Lynch Consumer and & Retail Conference. Of the key drivers of growth, it didn't talk about payments, but "World-Class Digital / Loyalty Programs" - which is already has one. Compare that to what OpenTable says are key problems it's working on: I thus don't think the two companies are aligned to appropriately use any synergies. OpenTable is trying to modernize restaurant investor management, especially with thousands of independent restaurants all servicing different needs.  Starbucks has over 20,000 company owned stores trying to sell the same experience regardless if your in Seattle or Beijing. So, if the Starbucks was to acquire OpenTable for the sole reason to get some "new technology", acquiring OpenTables basically also opens up an entirely new business line, something very different from what Starbucks does today. Why take on this hassle and work? Starbucks - Square Partnership (why not just build on this?) If payments is what Starbucks is looking to innovate in, then it already has a partner (Square). It will be much cheaper for Starbucks to seek innovation from Square than via acquisition of OpenTable. Sure, everyone right now is saying that Square isn't innovating anymore, its losing tons of cash, Howard left the board seat.  But from Starbucks perspective, it doesn't need the most innovative technology to be innovative. Basically, my point here is that it doesn't make sense for Starbucks to do any such type of acquisition, be it OpenTable, Square, etcs. And for Starbucks, its acquisitions tend to be much closer in alignment with its strategy (http://investor.starbucks.com/mobile.view?c=99518&v=203&d=1&id=1702299, http://news.starbucks.com/news/starbucks-closes-teavana-acquisition Tazo Tea, Hear Music, Seattle Coffee Company, Ethos Water, Coffee Equipment Company, Evolution Fresh). Just looking at the history of the acquisitions paints a picture of acquiring other food companies with a clear connection to its in-stores business. If I was to make a bit, it's focus on payment is to improve the in-store experience. Does OpenTable make it better? Making Paying Easier while Dinning There are now a couple more players in the dinning/restaurant payment space. Besides the entry of Square and OpenTables, you have http://www.paywithcover.com and http://dashwith.me/. How this space plays out is interesting as I hear many people wanting to become the "Uber" of restaurants.  But how difficult will it be to change consumer habits on how they pay and eat? Is the experience of having a waiter/waitress bringing your bill always a bad one? Do we lose some form of personal connection? I think 'Uber' really solved the "find me a cab" problem and payments was just a piece of it.  I think OpenTable will have a better chance of solving the "need to pay" after I've found it difficult to "make a reservation."  But the problem of getting a cab and making a reservations are different. - There is no "demand pricing" for reservations (at least not that I've seen on OpenTable) - If you want to get into your fav restaurant, it doesn't matter if there are others open nearby.  There isn't a comparable product, unlike cabs which are basically all the same. So how will this place play out?  I'm very interested in following and seeing the results. Source: Starbucks: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTM2MjkyfENoaWxkSUQ9MjI0NDMzfFR5cGU9MQ%3D%3D&t=1 OpenTable: http://investors.opentable.com/common/download/download.cfm?companyid=ABEA-2TKK09&fileid=750629&filekey=09e2ff42-91ea-4b5f-845e-350faecc8fd0&filename=OpenTable+Corporate+Presentation+(Q1+2014)+FINAL.pdf

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Probably No. OpenTable is a good acquisition target for companies that recognize the asset (and more valuable I'd argue) that OT has beyond it's reservation booking system- penetration into all these restaurants POS. Starbucks doesn't need that - they already own the store and the POS. The reservation/payment system is interesting software but in my mind not worth an acquisition - they can either build it or white label a 3rd party solution.

Kris Zanuldin

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