What Happens When Starbucks Wants to Sell Your Baked Goods?

What Happens When Starbucks Wants to Sell Your Baked Goods? photo

On July 12, you can get jam-filled, icing-topped four-square-inch hand pies made with love in Brooklyn at coffee shops across the country.

Okay, at Starbucks.

The strawberry or brown sugar-flavored tarts will be labelled Megpies, because they’ll be Megpies.

Owner Meghan Ritchie started selling baked goods from her New York City stoop once a week in 2011—“I was waiting tables at the time and working in theater,” she says—and that grew into a collaboration with jam company Anarchy in a Jar in 2012. “I did some work for them and the owner said, ‘Oh, you bake? Make something that includes the jam and we can sell it at our Smorgasburg [food fair] booth,’” says Ritchie. Megpies, hand pies filled with preserves instead of the more traditional stewed, chopped fruit, were born. Think of them as Pop Tarts that went to finishing school. The idea for the final touch came courtesy of Ritchie’s grandmother: “She was a bit of a sugar addict, and we partook in a lot of after-school frosting projects,” says Ritchie, though the icing recipe is her own.

megpies-jamPhoto: Starbucks

Soon after, with the help of her life and business partner, Paul Jones, Ritchie started selling Megpies to a number of independent coffee shops and markets in Brooklyn and Manhattan. “They’re extremely labor intensive,” says Jones, “You’re taking a sheet of pie dough, cutting out pieces, filling them, crimping them, baking them and then hand-frosting them. Plus Meghan was careful to use really good ingredients, and good ingredients cost a little bit more. So I sought out places that put a premium on craft.” At 61 Local in Carroll Gardens, Brooklyn, a Megpie sells for $3.00.

Then came the giant green goddess.

Starbucks’ retail branded partnerships department was formed in 2015, and its entire purpose is to seek out small producers whose goods are as tasty as Ritchie’s pies and bring them into Starbucks stores. There are Bantam Bagels, those stuffed pastries made with bagel dough and cream cheese, Rip van Wafels, a stroopwafel company that got its start in a Brown University dorm room, and Moon Cheese, crunchy snacks made from “100 percent cheese,” among other offerings. The Megpie was added to the roster because it “is everything that mass-market toaster pastry ever wanted to be when it grew up,” says Deb Hannah, director of the department. Starbucks will sell them for $3.95 each.

megpies-starbucks-counterPhoto: Starbucks

Not all of these items make it to national status—many are sold regionally—but all must have “a clean ingredient list, attractive packaging, and a story,” according to Hannah. “We do an initial tasting, and for the products we love, we do an evaluation: Does it fit with the brand? Do we love the story?” Those that are green-lit get tested in anywhere from 10 to 50 Starbucks stores for a limited time in order to gauge success.

“I take a look at the bottom 25 percent each quarter,” says Hannah. “Let’s say we think it’s a flavor issue, then we work with the supplier to test out a new flavor.” Moon Cheese’s gouda didn’t sell, for example, so Hannah switched it to pepper jack. Now Moon Cheese is out of the bottom boat. “We probably have about 20 items in test right now and we rotate those through every eight to 12 weeks.” Though Hannah wouldn’t reveal numbers related to Megpies’ performance during its recent test phase, it’s safe to say that they were comparatively high.

The branded partnerships department is only a year old, but it’s not the first time Starbucks has done business with the little guys. Madeleines and croissants still line Starbucks pastry cases even though the bakery that developed them, La Boulange, no longer exists. Starbucks purchased all 23 of the San Francisco haute bakery chain locations in 2012 and shuttered them three years later. Left in La Boulange’s wake, and Starbucks’ hands, are all those recipes. The company’s food sales rose 16 percent that year.

Consider what The New York Times called the Whole Foods Effect: The consumer-driven demand for locally grown food has led to opportunity for small producers, but it can also put them in panic mode. When the first batch of Marin County-based Cowgirl Creamery’s organic triple-cream cheese was delivered to Whole Foods, a shift in production that required $200,000 for new aging rooms, it was covered in black mold. “The excitement of the ‘Whole Foods effect’ can quickly turn to fear as [companies] face producing and distributing their recipes at larger volumes while maintaining quality and consistency,” the Times article, published in April, read. “And most critically, they have to find the money to pay for the expansions.”

“We have to be very, very careful when we work with smaller companies to make sure our giant size isn’t overwhelming,” says Hannah. Her team even helps those companies think about how to build their business outside of the Starbucks relationship.

Ritchie says she makes about 7,000 hand pies a week for her current needs, which, for a year, has included those Brooklyn and Manhattan bakeries and the test run she’s been doing in about 30 New York-area Starbucks locations. For this next step, Ritchie will be making enough for the 7,670 company-owned stores and select licensed stores across the country, together estimated to be around 10,000 Starbucks stores.

brown-sugar-megpies-starbucksPhoto: Stabucks

“Paul and I are treating this like a big, huge purchase order, and if we get more, then great,” says Ritchie. “We’re trying not to count our eggs before they hatch.”

With the help of “a co-manufacturer” whose name Ritchie would not reveal but is “a family-run bakery with a sizable facility and staff,” Ritchie has tweaked her recipe for larger-scale production. She’ll flash freeze the pies upon baking them and ship them frozen. Then each Starbucks location can defrost in small batches as they sell. Plus, “working in their facility has allowed us to make all of our own fillings, which is something we always wanted to do.”

While Ritchie focuses on filling the Starbucks orders, which account for 85 percent of Megpies’ current output, Jones will simultaneously build the business in smaller outlets across the country. Slowly. “We’re trying to go about this is in a really smart, slow way,” he says. “The Starbucks aspect of it is the only really fast-moving part.”

Jones hopes that over the course of 2017, he will have added enough new distribution channels to match the Starbucks business. “Our goal is to have grown to the point that Starbucks is approximately 50 percent of total production,” he says.

Still, it’s a lot.

“Oh, yeah. This is an MBA on the fly.”

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