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Latte with Fries? McDonald's Takes Aim at Starbucks

As consumers trade down to cheaper, faster food on the go, Mcdonald's has kept up its growth during the downturn. Same-store sales rose 4.3% for the quarter that ended March 29. Profits were up 4%, to $980 million. In this economy, that's an explosion. Mcdonalds didn't know what to do so they took a hit at coffee. Over the past 18 months, McDonald's has been steadily introducing lattes, cappuccinos and mochas in individual markets across the country. Some 80% of the company's 14,000 U.S. stores now sell these drinks, and this week McDonald's will roll out a national advertising campaign trumpeting the McCafÉ section of its menu. The timing of the rollout just happens to coincide with the struggles of Starbucks, whose earnings sank 77% this past quarter, mainly because of charges related to store closures and falling real estate values. McDonald's will gladly kick a double-soy-latte-drinking competitor while it's down. According to West, the new McDonald's drinks are almost $1 cheaper than those at Starbucks. The analyst also conducts bimonthly consumer surveys, and found that over 60% of respondents said they will trade down to McDonald's coffee if the drinks are cheaper and made faster.McDonald's might want to stay aggressive, because Starbucks won't go away quietly. The company is introducing a grande Iced coffee for under $2 this summer, and the company has said it will lower prices on basic drinks in some markets. Starbucks has also just launched print ads taking direct aim at the quality of other coffee brands like McDonald's and Dunkin' Donuts. Thompson of McDonald's naturally disagrees. "We want to be a beverage destination," says Thompson. "For us, growing markets with great margins is the place to be." McDonald's will always have the Big Mac. But does anyone want a latte with their fries?