Starbucks stock falls after analysts say McDonald's poses threat to coffee sales

Starbucks shares fell Wednesday after Deutsche Bank downgraded the stock from hold to sell, saying McDonald's is gaining momentum with its McCafes — espresso counters inside the burger chain's existing stores.

McDonald's is taking the concept national this year. It has about 13,900 U.S. locations, compared with Starbucks' roughly 11,500.

"The threat is real, and it has yellow arches," Deutsche Bank's analysts wrote. "[W]e expect MCD will extract a significant toll on SBUX performance, beginning this summer in earnest."

Two of the 21 analysts who cover Starbucks rate it a "sell."

When McDonald's decided to get into the espresso business a few years ago, it approached Starbucks about being the supplier. It already had a relationship with the Seattle coffee company, which until a couple of years ago supplied some McDonald's stores in the Pacific Northwest with brewed coffee through the Seattle's Best Coffee brand.

Starbucks declined to supply the espresso for McDonald's.

"We passed because it simply was not a good brand fit, and we're confident that was the right decision," said Starbucks spokeswoman Deb Trevino.

McDonald's turned to Distant Lands Coffee, of Renton, which sources green coffee for the McCafes through its La Minita subsidiary in Vermont, according to La Minita President Russell Kramer.

Distant Lands is one of three roasters of the McCafe coffee, through its roasting plant in Tyler, Texas. The others are Gaviña Gourmet Coffee in Southern California, which roasts the coffee for McCafes in the Pacific Northwest, and S&D Coffee in North Carolina.

Starbucks shares fell as much as 6 percent on Wednesday before ending the regular trading session down 21 cents, or 1.8 percent, at $11.66. In after-hours trading, it lost a penny to finish at $11.65.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

This article was originally published April 16, 2009, and was corrected the same day. The caption with the photo showing a McCafe worker originally said it was taken Monday afternoon, but the photo was actually shot a year ago.