Starbucks Corp. is experimenting with a $2.50 cup of coffee that would add a new, premium product to help fight the first drop in U.S. customer visits in its 37- year history.
In its hometown Seattle, Starbucks is testing a 12-ounce (360-milliliter) cup of ``fresh-pressed'' coffee at $2.50 each. The price is $2.25 in a Boston trial. Starbucks charges $1.55 for a regular brew. McDonald's Corp. has been stealing customers with $1.39 coffee and is challenging Starbucks by adding espresso counters.
The new drink, made in a machine that brews each cup individually, may become part of Chief Executive Officer Howard Schultz's plan to increase traffic in the 15,000 stores of the world's largest coffee chain. Starbucks is also experimenting with a $1 refillable cup of coffee and slowing its expansion.
"If they can create a better-tasting product and if they can get people to pay more for it, then you'd have the missing ingredient, which is pricing power,'' said Larry Miller, an analyst at RBC Capital Markets in Atlanta who has a sector perform'' rating on the stock.
At the same time, selling a more expensive drink may be tough as U.S. consumer spending slows, Miller said.
Starbucks has declined 11 percent in Nasdaq Stock Market trading this year after dropping 42 percent in 2007, the worst performance in the company's history. The stock fell 67 cents, or 3.6 percent, to $18.18 at 4:30 p.m. New York time.
Priced Like Lattes
A new brewed coffee would be priced just less than the lattes and cappuccinos that are now among Starbucks' most expensive. A 12-ounce cup of those drinks costs $2.55.
An $11,000 machine known as the Clover generates the new coffee. Inside, a piston rises and creates a vacuum that pulls water through ground coffee, much like a French press. The Clover's maker says it produces a better tasting drink because the grind, water temperature and other parameters can be set for each cup.
"Testing like this is something we do regularly,'' Starbucks spokesman Brandon Borrman said.
Starbucks is also trying out an eight-ounce, $1 cup of regular coffee with free refills in the Seattle area. In addition to McDonald's, Dunkin' Brands Inc. is undercutting Starbucks's $1.55 regular coffee with a 10-ounce cup for $1.39 and a 14-ounce for $1.59.
U.S. customer visits to Starbucks's cafes have declined for two straight quarters. Chairman Schultz, 54, replaced Jim Donald as CEO Jan. 7. He said in a memo last year that the chain had lost sight of the ``romance and theater'' of coffee as it expanded.
Slowing Growth
Since then, Starbucks has said it will open 350 fewer stores than planned through September and stop selling warm breakfast sandwiches, partly because they overwhelmed the aroma of coffee. Schultz also pledged to announce five new initiatives on March 19, declining to give details.
The Clover was designed in 2005 by two Stanford University graduates working from a converted trolley shed in Seattle. Their machine is now used in more than 100 cafes and has gained a cult following among coffee aficionados. The Clover's price compares with $1,000 to $4,000 for standard commercial brewers.
Servers can make cups of Sumatra or Ethiopia Shakisso in 30 to 50 seconds. At one cafe in Seattle, Starbucks offers a choice of six brews, with tasting notes styled after a wine list.
"We have made much progress as we begin to transform and innovate and there is much more to come,'' Schultz said last week in another memo to Starbucks employees. He said he was writing at 6:30 a.m. on a Sunday over ``a spectacular cup of Sumatra, brewed my favorite way -- in a French press.''
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