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Starbucks Brews Free Coffee, Profits


Giveaways aimed at cementing customer loyalty.

The Ice (Coffee) Man cometh.

That's because there's big trouble in Yuppieville: Starbucks (SBUX) is testing several promotions in an effort to goose sales and counter the slide that led to its decision to close 600 stores nationwide.

Imagine: Market forces slap double frappuccino.

Starbucks won't say how many stores will participate in the promotions, but noted the majority of its 11,000 U.S. stores will offer some incentives between now and early September. The type of promotion and timing will vary by region.

Keep an eye out for the "iced brewed coffee card" - a reusable voucher, good for a free 12-ounce drink, to be passed out in stores and popping up as a newspaper insert.

In selected cities, those who trek to Starbucks twice a day will find the afternoon trip a bit cheaper. Coffee guzzlers with a receipt for a drink purchased that morning can pick up a 16-ounce cold beverage for $2 after 2 p.m. or get a $1 discount on a cold drink after 1 p.m.

On July 1, Starbucks said it would close 600 company-operated stores in the next year, citing the slowing U.S. economy.

The discounts are just ducky, but taste tests suggest Starbucks may offer the best coffee money can't buy.

Consumer Reports found that coffee from McDonald's (MCD) tastes better than the more expensive stuff from Starbucks. The magazine hired trained tasters to sample a medium cup of black coffee from McDonald's, Burger King (BKC), Dunkin' Donuts and Starbucks.

McDonald's "beat the rest," Consumer Reports said. Coffee from the Golden Arches was "decent and moderately strong."

The coffee wars rage in Cambridge, Massachusetts, where blue collar Dunkin' Donuts slugs it out the Starbucks in the $50 billion market. The moral: More expensive may not necessarily mean better.

Some aficionados say nothing beats Peet's Coffee & Tea (PEET), a creation of Berkeley's gourmet ghetto.

Green Mountain Coffee Company's (GMCR) customers include Exxon-Mobil's (XOM) convenience stores and -- behold -- McDonald's restaurants in the Northeast. This is the blend that came out on top in Consumer Reports test.

If you're trying to save money, don't forget Tim Horton's (THI). Or check out Caribou Coffee (CBOU), the second-largest non-franchised coffee chain in the nation behind, yup, Starbucks.

As for that iceman cometh-ing, this isn't really the end of the world - and it shouldn't seem that way. It's just a well-run company getting its balance sheet in order.

For more on Starbucks, check out Hoofy and Boo's always astute report:

No positions in stocks mentioned.
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