One buck may get you Starbucks drip, free refill

Faced with growing competition from cheaper rivals, Starbucks is selling small cups of drip coffee for $1 with free refills as part of a test in its Seattle market.

That's about 50 cents less than it normally charges for an 8-ounce cup of joe, though prices vary from store to store.

The suggested retail price for a slightly larger 10-ounce cup of premium roast at competitors like McDonald's and Dunkin' Donuts is $1.07 and $1.39, respectively, the companies said Wednesday.

In a statement e-mailed by spokeswoman Bridget Baker, Starbucks said the test "is not indicative of any new business strategy."

Starbucks would not say when the test began, how many stores are part of it, whether it's considering a similar promotion for other brews or whether new test markets are 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 its second price increase 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. A 5-cent increase had taken effect in October 2006.

Price increases have helped shore up revenue as traffic in U.S. stores last quarter flattened, then declined for the first time in the company's history.

Starbucks Chairman Howard Schultz has acknowledged the faltering economy appears to have contributed to the decline. But Schultz said he believes the company's main problem was that it lost its focus on customers as it concentrated on growth.

He has downplayed the threat from a growing cadre of rivals, saying the company has always faced tough competition.