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RudieCantFail

RudieCantFail

Baton Rouge, LA
January 2006

JAN 07, 2008 03:06 PM

McDonalds to open chain of Coffee Bars


LOS ANGELES (Reuters) - McDonald's Corp's (MCD.N) plan to expand the beverage lineup at its U.S. restaurants with cappuccinos, lattes and other drinks is expected to add $1 billion to annual sales, a spokeswoman said on Monday.

The espresso-based drinks, which are currently in 800 of McDonald's nearly 14,000 U.S. locations, mark the newest effort by the world's No. 1 restaurant company to upgrade its coffee offerings and take on rival Starbucks Corp (SBUX.O).

McDonald's has even added a "barista" position in its restaurants and dedicated a section of counter space to the automated espresso machines so customers can see the drinks being made, spokeswoman Danya Proud said. Those details were first reported Monday in the Wall Street Journal.

But though McDonald's expects the coffee drinks, smoothies and new bottled beverages to add $1 billion to its annual revenue (the company recorded $21.6 billion in sales in 2006), investors and analysts said they do not expect much of that to be at Starbucks' expense.

"People don't go to McDonald's for their coffee, they go for their food," Friedman Billings & Ramsey analyst Howard Penney said in an interview. "It's ridiculous to think that McDonald's is going to take all of Starbucks' business. Even McDonald's doesn't think that's going to happen."

In the last year, Starbucks shares have fallen 48 percent on investor fears about slowing U.S. sales growth, soaring dairy prices and increased competition from McDonald's, Dunkin' Donuts and other fast-food rivals. McDonald's stock, meanwhile, has climbed 33 percent as extended hours, demand for breakfast offerings and other new products have fueled U.S. growth.

One McDonald's investor said the Golden Arches' foray into espresso-based drinks would still not provide the choice that many die-hard Starbucks customers have come to expect. As a result, McDonald's could end up taking market share from other relative newcomers to the latte field.

"If you want a half-caf, no-whip, low-fat, sugar-free, raspberry syrup latte you are probably not going to get that at a McDonald's," said Janna Sampson, co-chief investment officer at OakBrook Investments in Lisle, Illinois. "But you aren't going to get that at Dunkin' Donuts either. It's a more direct hit at Dunkin' Donuts' business."

Still, fears about competition have helped drive Starbucks' multiple below that of McDonald's. The stock trades at about 17.6 times analysts' average 2008 earnings estimate, compared with a multiple of 18 for McDonald's shares.

In a note to clients on Monday, Penney said Starbucks shares are "severely undervalued," adding that the current multiple does not reflect the value in its fast-growing international or consumer products businesses.

Starbucks' biggest opportunity to reassure investors, however, is to slow the rate of its domestic store growth, Penney said.

"They shouldn't be growing as fast," he said. "The biggest thing they can do to improve their rate of growth is to slow the domestic unit growth."

McDonald's shares were up 99 cents, or 1.7 percent, at $58.04 on the New York Stock Exchange. Starbucks shares rose 25 cents, or 1.4 percent, to $18.37.



Crotch-guards sold separately.

punk

punk

Phoenix, AZ
January 2004

JAN 07, 2008 03:39 PM

Most of the people I've spoken to like the McDonald's iced coffee. It's cheaper than Starbucks, for sure.

But I heard an interesting story about the new iced coffee endeavor: those fuckin' machines cost a lot of money, and the franchise is forcing chain stores to buy them. Since the coffee is cheap, there isn't a very quick return on the investment. There's a guy down here who owns quite a few McDonald's who is looking at a cool million or so to outfit all of his stores. He isn't happy. frown

Roethke

Roethke

SUICIDEGIRL

California, USA

JAN 07, 2008 03:51 PM

Ew.

Cassiel

Cassiel

Aurora, CO
September 2004

JAN 07, 2008 05:21 PM

puke

Rhys

Rhys

SUICIDEGIRL

Florida, USA

JAN 07, 2008 08:48 PM

i still wanna know what happened to that "starting to sell breakfast all day" story.

i was so excited!

i hate most everything about mcdonalds, but goddamn if i don't eat me some egg n cheese biscuits.

_DictionaryGirl_

_DictionaryGirl_

NEWSWIRE

San Diego, CA

JAN 07, 2008 10:34 PM

Rhys said:
i still wanna know what happened to that "starting to sell breakfast all day" story.

i was so excited!

i hate most everything about mcdonalds, but goddamn if i don't eat me some egg n cheese biscuits.



Dude, yes. I would clean the McD's by my work completely out of their McGriddle stock. And then I would explode. But it would be worth it. Perhaps.

Thistle

Thistle

SUICIDEGIRL

California, USA

JAN 07, 2008 10:53 PM

This can't possibly aggravate people more than the proliferation of regular MacDonald's restaurants, can it?

Tallboy66

Tallboy66

Chicago, IL
January 2005

JAN 07, 2008 11:07 PM

I was in a McDonalds the other day and it had a side section with stools and a counter kinda like a diner.
I'm not sure how it works if you sit down to order or just sit after going to the counter.

PaulNikon

PaulNikon

Palm Bay, FL
February 2003

JAN 08, 2008 11:41 AM

Mmmmmmoney.

TaoAndCoffee

TaoAndCoffee

Stoney Creek, ON
June 2007

JAN 08, 2008 01:05 PM

Figures Starbucks stock would drop as I finally qualify to start buying discounted shares. mad

Country Style coffee shops up here have been offering "premium" beverages for a while. Their espresso bars are pretty lonely and dusty objects behind the counter. Maybe McLattes will fare better.

sillyokio

sillyokio

Fort Worth, TX
January 2005

JAN 08, 2008 04:53 PM

I like how just about every major chain claims to have "premium" coffee nowadays.
Sure, I like "gourmet" coffees and flavored caffeine, but is it necessary to compete with something that wasn't even in your spectrum to begin with?

sitar

sitar

Philadelphia, PA
June 2004

JAN 09, 2008 10:45 AM

dammit, I've used up the 30 seconds of attention per year that I allow mcdonalds so early!

Cash

Cash

USA
OLD SKOOL

JAN 09, 2008 03:53 PM

Yucky McYuckerson!

Seriously though...I wouldn't go into a McDonalds even if they were giving away $100 bills & blowjobs.

Cassiel

Cassiel

Aurora, CO
September 2004

JAN 09, 2008 03:55 PM

_DictionaryGirl_ said:

Rhys said:
i still wanna know what happened to that "starting to sell breakfast all day" story.

i was so excited!

i hate most everything about mcdonalds, but goddamn if i don't eat me some egg n cheese biscuits.



Dude, yes. I would clean the McD's by my work completely out of their McGriddle stock. And then I would explode. But it would be worth it. Perhaps.



bacon egg n cheese FTW

dufsmash13

dufsmash13

USA
August 2007

JAN 09, 2008 04:19 PM

McMoney