When Starbucks goes budget...

Starbucks offers coffee-breakfast combos, cites economy
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Starbucks to offer pairings of coffee, breakfast for $3.95

Company's sales have taken a hit as the recession has deepened

Survey: Starbucks' price premium has dropped over the past 18 months

Starbucks' pricing "now largely on par with Dunkin' Donuts," research found

By Ekin Middleton
CNN

(CNN) -- Starbucks, better known for amusingly complicated premium coffee offerings, took a cue from fast-food chains and announced a plan Monday to sell pairings of coffee and breakfast for $3.95, citing the economic downturn.

With the $3.95 breakfast offer, customers will be able to get a 12-ounce coffee with a breakfast sandwich or roll or a 12-ounce latte with either oatmeal or a coffee cake.

The company called the latest promotion an extension of various other recent Starbucks offers, including a loyalty card and discounting 16-ounce cold drinks to customers who made a purchase at Starbucks that morning.

But the move may be more targeted to drawing back business lost to more cost efficient retailers like McDonald's and Dunkin' Donuts.

Starbucks reported a profit of 9 cents per share in the last quarter of 2008, compared to a 28 cents per share profit a year earlier. The company announced last month it was slashing 6,700 jobs and closing 300 stores on top of the 600 stores it shut down in 2008.

Over the last two decades, Starbucks transformed coffee from a commodity drink into a luxury item, growing into a chain with over 10,000 cafes internationally. But sales have taken a hit in the recession.

In an interview with the Wall Street Journal, Howard Schultz, the company's chief executive, said the economic environment "is a reset of both economic and social behavior."

Research done by William Blair & Co. suggests Starbucks' price premium "has nearly evaporated over the past 18 months, with pricing now largely on par with Dunkin' Donuts." The survey found that when adjusted for size differences, some varieties of Starbucks coffee were cheaper than Dunkin' Donuts. According to the research, McDonald's is still cheaper, but the price gap has narrowed since 2007.

Blair & Co. also predicted that a trend downward in same store sales in 2008 would continue in 2009.

Michelle King, a spokesperson for Dunkin' Donuts, told CNN the company still believes it is "the faster and more affordable alternative." Calls to McDonald's were not immediately returned.