McDonald's offers 'free latte Fridays' as coffee wars steam ahead

By ANDREA JAMES
P-I REPORTER

McDonald's will up the ante in the coffee wars Friday by offering free small lattes during breakfast hours in the Seattle market.

The 112 restaurants in the Seattle region are the latest to offer McCafe espresso drinks. Prices range from $1.59 for an Americano to $3.29 for a large mocha. A small 12-ounce latte costs $1.99.

To correspond with the Western Washington launch, McDonald's has created a Web site: unsnobbycoffee.com.

"No crazy names or sizes. No second language required," the site advertises. "Hang out. Have fun. And don't leave without your free espresso coupon."

Consumers can play an ad-lib game, using phrases such as "trust fund," "highfalutin," and "hoity toity" to fill in sentences and get free coffee coupons that can be used anytime until Thursday.

"Free latte Friday" will last four weeks, every Friday morning until 10:30 a.m.

"The average person is so busy that you've got to give them the incentive to try something new," said Alan Finkelstein, owner of four McDonald's restaurants in Maple Valley, Sammamish and Kent.

The promotion coincides with Starbucks Corp.'s offering of its latest brew, Pike Place Roast. Starbucks launched the roast nationwide with free coffee Tuesday. Starbucks executives said that was the company's largest product launch.

Starbucks' promotion of a brew, after years of focusing on espresso, is the flip side of McDonald's new focus on espresso, after years of offering brew.

The launch timing is coincidental, said Kelly Hoyman, Northwest region marketing director for McDonald's.

"We've just been working on our own plan and put together the best possible launch," she said. McDonald's has also offered free burritos recently, she said.

McDonald's is pushing all types of beverages, which the company says could generate an extra $1 billion in sales, said John Owens, an equity analyst at Chicago-based Morningstar Inc.

And it's not the only chain working the unpretentious angle, he said.

"Dunkin' Donuts has been doing that for some time -- trying to appeal to the blue-collar audience," he said. "That's a good strategy. McDonald's is playing to their core customer base."

Owens said that the Starbucks-vs.-McDonald's coffee war is overhyped. McDonald's will grow fastest by upselling to existing customers and drawing in the marginal customer, not by directly stealing market share from Starbucks, he said. The chain is more likely to steal customers from Dunkin' Donuts, or convenience stores, Owens added.

Plus, some franchise owners are wary of having to buy equipment and remodel stores to accommodate the new beverages, he said. "McDonald's has a big opportunity here, but by no means is it a slam dunk."

Also, McDonald's and Starbucks appeal to different customer demographics, said Patricia Edwards, a retail analyst with Wentworth, Hauser & Violich.

"The average fast-food buyer is usually a single male who eats there seven times a week or something like that," she said. "In the downtown Seattle area, I don't see people going out of their way to go to (McDonald's) when they can go to Starbucks."

Where McDonald's may be able to steal market share will be in neighborhoods that Starbucks had expanded into with a slightly lower-income base than usual, Edwards said.

"When the economy starts to recede, those are the people hit hardest first," she said.

More than 800 McDonald's restaurants -- almost 6 percent -- now sell espresso drinks. They are in Raleigh, N.C.; Kansas City, Mo.; Bakersfield, Calif.; and all of Michigan, Hoyman said. Seattle and Spokane are the newest markets.

Oak Brook, Ill.-based McDonald's Corp. began outfitting its stores in 2007 with espresso machines made by Franke, a company founded in Switzerland. Trained baristas can serve up a full line of cappuccinos and lattes with whole and nonfat milk, and vanilla, hazelnut and caramel flavors.

"We're taking this seriously, and we built out our restaurants with specific areas to do this," Finkelstein said. "We grind the beans fresh for every individual drink."

Iced mocha and vanilla lattes are the most popular, he said. The beans come from Central America, South America and Indonesia.