Starbucks tests $1 cup, free refills

Faced with growing competition from cheaper rivals, Starbucks Corp. is testing offering small cups of drip coffee for $1 with free refills in its hometown.

That’s about 50 cents less than the Seattle-based coffee retailer normally charges for an 8-ounce cup of joe, although prices vary from store to store.

Small cups of premium coffee at McDonald’s Corp., Dunkin’ Donuts and other lower-cost competitors typically cost just over $1.

But Starbucks said in a statement e-mailed by spokeswoman Bridget Baker that the test was “not indicative of any new business strategy.”

The company would not say when the test began, how many stores were part of it, whether it was considering a similar promotion for any other brews or whether any new test markets were on the horizon.

“Testing is a way of life for us, as we are constantly looking for new ways to connect with the customer and provide the best Starbucks experience,” the statement said.

In the second price hike in a year, Starbucks in July raised the average price of its coffee and other freshly made drinks in most of its U.S. stores by 9 cents, citing the rising cost of dairy products and other essentials. A 5-cent increase had taken effect in October 2006.

Price hikes have helped shore up revenue as traffic in U.S. stores flattened and then fell in the last quarter for the first time in company history.

Starbucks Chairman Howard Schultz, who recently returned as chief executive after the company fired CEO Jim Donald, has acknowledged that the faltering economy appears to have contributed to the decline.