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Extra7/11/2008 12:01 AM ET

Free coffee among new Starbucks deals

The chain is slashing its afternoon prices in some cities and giving away coffee in others as it tests promotions to lure back cost-conscious consumers.

By The Associated Press

Starbucks (SBUX, news, msgs) is testing several types of promotions in stores across the country, a move it hopes will help counter the decline in domestic store traffic that led to a recent decision to close 600 stores.

"One of the things we're consistently hearing in this day and age (is), even though budgets are tight, they still don't want to give up life's little luxuries," Brad Stevens, vice president of customer relationship management, says of the coffee chain's patrons. "They consider Starbucks one of those luxuries."

The promotions vary by region and timing.

Starbucks would not say how many stores are planning promotions, only that the majority of its more than 11,000 U.S. stores will offer some sort of deal between now and early September.

For example, through July 23, Starbucks is giving away 12-ounce iced coffees on Wednesdays to customers in New York City, Philadelphia, Washington, Boston and Detroit who present an "iced brewed coffee card," a reusable voucher distributed in stores and newspaper inserts.

Through July 14, coffee drinkers in Atlanta and Indianapolis can get a free 12-ounce hot or iced coffee every day with a similar card.

In other cities around the country, Starbucks is making twice-a-day customers' afternoon coffee easier on the wallet. Depending on the city, customers with a morning receipt can buy a 16-ounce cold beverage for $2 after 2 p.m., or get a $1 discount on a cold drink after 1 p.m.

And elsewhere, the company is selling discounted drinks throughout the day on Fridays, Saturdays and Sundays.

The different deals are meant to reflect regional differences in the way people take their coffee, said Stevens, and to draw in new customers at a time when Starbucks is struggling with falling traffic in U.S. stores.

In its fiscal second quarter, which ended March 30, Starbucks' profit sank 28% as customers made fewer trips to its stores, especially in areas hit hardest by the housing market's collapse, including Florida and California.

On July 1, the company announced it would close 600 company-operated stores in the next year, up from its earlier forecast of 100 closings, citing ongoing U.S. economic troubles. The company also indicated that store density was part of the problem, and said the vast majority of unprofitable stores to be shuttered had been opened too close to an existing location.

Dollar menu a nonstarter

Starbucks will wait to see if the promotions prove popular before deciding which, if any, it might extend.

"With the economy the way it is right now, people want value, but they want value that is relevant to them," Stevens said.

He said Starbucks will only go so far in its drive to make its expensive coffees more affordable, and it has no plans to join the likes of McDonald's (MCD, news, msgs) and Burger King (BKC, news, msgs) by offering a dollar menu that could clash with Starbucks' luxury image.

Stevens would not say whether or how much the promotions would eat into Starbucks' profits, but William Blair analyst Sharon Zackfia said in an interview that it's unlikely they would be detrimental.

Zackfia said vouchers and discounts could help get people back into the habit of buying a coffee at Starbucks, and she was particularly encouraged by the company's focus on afternoon deals.

"Starbucks in particular seems to have been more susceptible in the afternoon. That's probably not the necessary beverage to get you through the day," Zackfia said.

But, she added, whether the promotions are "a game changer or not, who knows."

This article was reported and written by Jessica Mintz for The Associated Press.

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