Starbucks tests $1 coffee at some Seattle stores

— -- Struggling Starbucks sbux is testing in some Seattle stores something once deemed unthinkable: a $1 cup of Starbucks coffee.

With free refills to boot.

Who'd a thunk? That's 7 cents less than the average price of the smallest cup of Premium Roast coffee at McDonald's.

Starbucks has never sold any coffee or non-coffee beverage for $1, spokeswoman Valerie O'Neil says.

So, why do it now? "We're always looking at ways to connect with the customer," she says.

That may be an understatement. Starbucks is searching for ways to reconnect with a customer who is less willing to fork over $2 to $4 for a cup o' joe. Its feisty rival, McDonald's mcd, just unveiled plans to open coffee bars in stores. Meanwhile, revenue at Starbucks' U.S. stores declined last quarter for the first time ever. Its stock value is tanking. And its CEO got the boot last month. Chairman Howard Schultz took the reins again and plans to announce major changes later this month.

"How ironic that the same company that convinced us that we could spend $2.50 on a cup of coffee is now saying, 'Hey, now you can spend $1,' " says Mary Chapman, editor of trade publication Chain Leader.

For that dollar, folks get not only a "short" cup of brewed coffee, but also a free refill. Also, any customer in the test stores who buys a larger "tall," "grande" or "venti" brewed coffee also receives a free refill, O'Neil says.

Starbucks officials declined to say how many Seattle stores are selling the $1 coffee. The chain has about 300 stores in the Seattle area. Until now, so-called short coffees at Starbucks have fetched $1.40 to $1.60. Short coffees at Starbucks are 8 ounces. The smallest Premium Roast size at McDonald's is 12 ounces.

Asked for his response to the price-cutting move by Starbucks, McDonald's spokesman William Whitman says, "McDonald's customers are always looking for great taste, convenience and value." With the expanded coffee options coming to McDonald's over the next year, he says, "They'll be able to get even more value."

With the $1-a-cup test, Starbucks may be harming the very brand image that it's worked so hard to build, says Robert Passikoff, president of Brand Keys, a consulting firm. "This cheapens the brand," he says. "It says they're scared as hell about the 14,000 McDonald's coffee bars about to open up."

The move comes just six months after a price increase. In July, Starbucks raised the average price of a cup of coffee in its U.S. stores by about 9 cents, citing the rising cost of dairy products and other essentials.

"It's hard to be a price leader and then turn around and discount," Passikoff says. "It's a panic move."

Chapman says she expects Starbucks to announce later this month that it also will scale back on its lunch offerings. "When you walk into Starbucks, you want to smell coffee — not food."