Starbucks tests $1 coffee, free refills

January 23, 2008 1:26:42 PM PST
Faced with growing competition from cheaper rivals, Starbucks Corp. is testing offering small cups of drip coffee for $1 with free refills in its hometown.

That's about 50 cents less than the Seattle-based coffee retailer normally charges for an 8 oz. cup of joe, though prices vary from store to store.

Small cups of premium coffee at McDonald's Corp., Dunkin' Donuts and other lower-cost competitors typically cost just over $1, according to The Wall Street Journal, which first reported on Starbucks' new program Wednesday.

But the company said in a statement e-mailed by Starbucks spokeswoman Bridget Baker that the test "is not indicative of any new business strategy."

Starbucks would not say when the test began, how many stores are part of it, whether it's considering a similar promotion for any other brews or whether any new test markets are on the horizon.

"Testing is a way of life for us, as we are constantly looking for new ways to connect with the customer and provide the best Starbucks experience," the statement said.

In the second price hike in a year, Starbucks in July raised the average price of its coffee and other freshly made drinks in most of its U.S. stores by 9 cents, citing the rising cost of dairy products and other essentials. A 5-cent increase had taken effect in October 2006.

Price increases have helped shore up revenue as traffic in U.S. stores flattened and then declined for the first time in the company's history last quarter.

Starbucks Chairman Howard Schultz, who recently returned as chief executive after the company fired CEO Jim Donald as part of efforts to revitalize the company, has acknowledged the faltering economy appears to have contributed to the decline.

Schultz said he believes the company's main problem was it lost its focus on customers in recent years as it concentrated on growth.

Starbucks is the world's largest chain of coffee houses, with more than 15,000 worldwide.

Dunkin' Donuts, based in Canton, Mass., and a subsidiary of Dunkin' Brands Inc., calls itself "the number one retailer of hot regular coffee by the cup" in the United States; it has 7,200 franchised restaurants in 31 countries.


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