Marketing

Why a Snack Bar Maker Turned Down a Deal With Starbucks


Starbucks store in Amsterdam on Sept. 16

Photograph by Jasper Juinen/Bloomberg

Starbucks store in Amsterdam on Sept. 16

Back in 2009, Kind Healthy Snacks founder Daniel Lubetzky was profiled in the New York Times. The story described how Starbucks (SBUX) had started selling Kind snack bars, the fruit of Lubetzky’s many efforts to connect up with the coffee behemoth. The small company, which was founded in 2004 to fill what Lubetzky saw as a void for snack bars made with natural ingredients, set to work lining up additional manufacturing capacity.

Kind hit $120 million in sales last year, up from $15 million in 2008. At various points along the way, Lubetzky says Starbucks expressed interest in acquiring his company or having Kind produce a private label snack bar. Earlier this year, “we got to a breaking point where they said, ‘If you’re not willing to be acquired or do it private label, let’s agree that we’re going to end the relationship.’”

Lubetzky refused. Starbucks accounted for about 3 percent of Kind’s sales, but Lubetzky says that manufacturing private-label bars would compromise the quality of Kind’s product. Kind isn’t the only brand affected by Starbucks’s ongoing push to expand its product offerings. On the subject of quality, Starbucks spokeswoman Linda Mills says the company’s Evolution Harvest line “offers high-quality, naturally delicious and nutritious bars, trail mixes, and fruit snacks made with real ingredients.”

I spoke with Lubetzky recently about why he walked away from a company he worked hard to land—and which he says he continues to admire. Edited excerpts of that conversation follow.

When Starbucks asked you to produce a private-label snack bar, were you at least tempted by the idea?

Not for a second. I’ve had years to internalize the question, and for me the answer is that building a brand that’s obsessed about quality is inconsistent with offering people private-label solutions. If you start competing in the private-label business, it’s all about cost. A competitor might offer to do something for 5¢ less, and now you have to start cutting corners. It’s our reputation.

So you’ve been asked to make a private label before?

We’d been approached in the past. A lot of these brands are thinking of products as commodities; some of the things that are important to you aren’t as important to them. For us, providing a nutritiously rich product that delights your taste buds is the No. 1 thing. Two national groceries chose to replace us with their own private-label brand. These were more important accounts in terms of sales than Starbucks. Eventually, the accounts reversed the decision.

If your company’s name isn’t on the private-label product, what difference does it make?

We couldn’t see ourselves running two businesses. If you’re training a team to obsess over quality, do you blow the whistle and say: Now we’re going to run a shift where we’re going to focus on cutting costs? If you’re in a volume-driven business, it’s probably OK. But if you’re building a brand and an experience, it’s incompatible.

But from a branding perspective, there doesn’t seem to be much impact.

Imagine if we’re doing private label, and someone found out, and the two products aren’t quite the same. I can’t imagine being happy about that. We have a unique selling proposition: If they want a Kind bar, they can only get it from Kind. It would hurt our brand to start making variations.

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

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Companies Mentioned

  • SBUX
    (Starbucks Corp)
    • $79.68 USD
    • -0.53
    • -0.67%
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