Fast-Food Coffee Gaining Ground During Recession
AP Story Posted at Forbes

A Stifel Nicolaus & Co. analyst said Friday fast-food and other quick-service operators will likely continue to take customers away from specialty coffee retailers as consumers search for more affordable options.

Analyst Steve West said in a note to investors that Peet's Coffee & Tea Inc., Dunkin' Donuts and McDonald's Corp. could be big winners in the "coffee wars" through 2009.

"Just as Starbucks is trying to turn around its U.S. business ... McDonald's is rolling out McCafe, arguably one its largest national initiatives in company history," he said.

McDonald's has now added new espresso-based drinks to more than half of its U.S. restaurants. The drinks are slightly cheaper than those at Starbucks Corp., which has struggled lately with slow U.S. same-store sales, or sales at stores open at least a year.

To boost sales and profits, Starbucks has been cutting jobs, closing under-performing stores and offering customers more deals.

West also said he expects more consumers will brew their coffee at home using espresso coffee makers and other inexpensive home appliances - a trend that could help Peet's and the privately owned Dunkin' chain.

West noted that in February, both Dunkin' and Peet's saw sales grow in their grocery business while Starbucks Corp. reported a "significant decline" in year-over-year sales for the month.