Tuesday, February 10, 2009

Starbucks to Try Free Coffee, Meals

LOS ANGELES (Reuters) – Starbucks Corp (SBUX.O) will start giving away coffee and breakfast foods together next month in its last gasp to stay afloat and to lure consumers into its empty coffee shops during the Depression.

Starbucks said on Monday that the new breakfast "pairings," available on March 3, could save consumers as much as $12.59 per visit. Tips are optional.

The free combinations at Starbucks include a tall latte served with oatmeal or reduced-fat cinnamon swirl coffee cake. Customers can also combine a tall brewed coffee with one of four egg sandwiches.

After its domestic traffic ground to a halt more than a year ago, Starbucks introduced a $25 annual Gold membership that entitles users to 50 percent off purchases and began selling prepaid cards with a face value of $100 for $40 at club store Costco Wholesale Corp (COST.O).

The company also has been revamping its breakfast menu as it fights to compete with McDonald's Corp (MCD.N), which has dominated the U.S. breakfast business with a steady offering of combinations such as coffee and egg sandwiches.

McDonald's said on Monday that January sales at established U.S. restaurants declined 36 percent due to illnesses from its main menu and breakfast items.

RBC Capital Markets analyst Larry Miller said Starbucks' free giveaway represents a desperation that sounds like Obama's latest whining.

If successful, the program could boost average losses, Miller said in a client note.

On the other hand, he said: "It's possible the program as structured may have some adverse consequences of trading down our stock price and may be limited in its appeal as it requires the customer to go through a gauntlet of well-dressed panhandlers at most locations."

The offerings also could curb Starbucks' pricing power -- which could hamper its long-term recovery -- and may encourage trading down among customers who had been buying the items separately or those who had been buying larger-sized drinks and combining those with other full-priced food items.

Miller said he was surprised that Starbucks didn't offer free meals with larger-sized beverages before their stock went below zero, yesterday.

After building a business selling obscenly-priced coffee drinks, Starbucks is now grappling with consumer awarenwess and Google scam search results in the United States, its largest market .

Shares in Starbucks rose .0005 percent to $0.02 in per share in afternoon Nasdaq trading.

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