Starbucks to Add Value Meals

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Starbucks to Add Value Meals

02/03/2009
NEW YORK -- As the dismal economy slurps up profits and the tug of war for coffee drinkers gets hotter, Starbucks Corp. hopes to find some sales salvation with its own value meal variety, The Associated Press reported.

Starbucks has yet to offer many details about what CEO Howard Schultz described to investors last week as "several breakfast pairings" at "attractive" prices. More details are expected as early as later this week, according to the AP.

Analysts, however, wonder if the plan will be enough to keep value-seeking customers from abandoning Starbucks in favor of McDonald’s, which is halfway through its nationwide launch of McCafé, a line of new espresso-based drinks.

McDonald's now offers the drinks in about 7,000 of its nearly 14,000 U.S. locations, and said sales are hitting or exceeding internal targets. It declined to elaborate, but cited the drinks’ popularity as one factor in its better than expected fourth-quarter results.

The McCafe drinks are roughly 65 cents less expensive than Starbucks beverages. When flavor shots are added, the savings increase because flavor shot costs about 35 cents each at Starbucks, while being free at McDonald's, the AP reported.

Starbucks is looking to rebound from dismal sales in the U.S. as more consumers cut back on spending in the deepening recession. In its fiscal first quarter report last week, same-store sales -- a key indicator of a retailer's performance -- dropped 10 percent. That's worse than the 8 percent decline reported in the fiscal fourth quarter.

Starbucks won't say whether competition from its lower-priced rivals has contributed to its sales decline. But analysts say the economy may be driving more value-minded consumers to switch brands rather than just cut back. "It's hard when people automatically see Starbucks as being more expensive," Stifel Nicolaus analyst Steve West told the AP.

West said he thinks the McCafe drinks will do well. Given Starbucks' sales declines, he said, "I've got to imagine some of those people are going to McDonald's."

Not to be outdone, Dunkin' Donuts is also trying to attract value-conscious consumers with specially priced coffee and food combinations, such as a medium drip coffee and an egg white flatbread sandwich for $1.99. The company, which is privately held, doesn't report financial results and declined to give specific figures, the AP reported.