Coffee clash at McDonald's

Dunkin' Brands added espresso beverages to Dunkin' Donuts shops in 2003 and credits the full-line of coffee drinks with helping its aggressive growth plans.

And Canadian coffee chain Tim Hortons (THI, news, msgs), which is expanding its own U.S. presence, said customer demand for one-stop food and coffee shopping is growing.

"I think we're all now competing in the same space," said spokeswoman Rachel Douglas. "I think the lines are blurring, and I think consumers are demanding that."

Starbucks is struggling

A full-court press by McDonald's couldn't come at a worse time for Starbucks, the world's largest chain of coffeehouses, which is struggling with rising dairy prices, growing competition and flattening store traffic in the United States.

In a conference call with analysts earlier this month, Starbucks executives said they welcomed the competition. Then they threw in a subtle jab.

• Video: Costs less, tastes better

"We understand all too well that we have built a very attractive business for others to look at and try and take away, whether it's 1% on the margin or big companies that are trying to take more," Starbucks Chairman Howard Schultz said. "We are up for the defense, and we are going to get on the offense."

McDonald's first launched its so-called premium coffee about 18 months ago, followed by limited tests of sweet tea and iced coffee. Since then, it has added the specialty coffee drinks at about 800 of its restaurants in the United States, and it announced Nov. 13 that it intends to add the beverages to locations nationwide by early 2009. A Starbucks spokesman declined to comment on the news, offering a company statement that it remains "focused on exceeding . . . customers' expectations."

In a seemingly coffee-saturated society, there's little chance of a full-fledged coffee war between McDonald's, Starbucks and the myriad of other coffee purveyors like Dunkin' Donuts and Caribou Coffee (CBOU, news, msgs).

"I think that they appeal to two different types of customers," said Morningstar analyst John Owens. "I think there's room for both McDonald's and Starbucks to be successful in selling coffee. This isn't something where one is going to be completely victorious over the other."

This article was reported and written by Ashley M. Heher and Elizabeth M. Gillespie for The Associated Press.

< previous |  1 | 2 |