(Adds analyst comment, background, share activity; changes
dateline from CHICAGO)
LOS ANGELES Feb 9 Starbucks Corp (SBUX.O) will
start selling coffee and breakfast foods together for $3.95
next month in its first combination discount, to lure consumers
into its coffee shops during the recession.
Starbucks said on Monday that the new breakfast "pairings,"
available on March 3, could save consumers as much as $1.20.
The discounted 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 started slowing more than a year
ago, Starbucks introduced a $25 annual Gold membership that
entitles users to 10 percent off purchases and began selling
prepaid cards with a face value of $100 for $80 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 rose 5.4 percent due to demand for its main
menu and breakfast items.
RBC Capital Markets analyst Larry Miller said Starbucks'
pairing price of $3.95 represented a discount ranging from 14
percent to 23 percent off current prices and that the program
had its pros and cons.
If successful, the program could boost average sales,
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
and may be limited in its appeal as it requires prescribed
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
options with larger-sized beverages and that it chose a pairing
with oatmeal, which is reported to be one of the most
successful food options it has ever introduced.
After building a business selling premium-priced coffee
drinks, Starbucks is now grappling with overexpansion and a
deep recession in the United States, its largest market.
Shares in Starbucks rose 1.5 percent to $10.70 in afternoon
(Reporting by Jessica Wohl and Lisa Baertlein; Editing by
Derek Caney and Lisa Von Ahn)