McDonald's Head of Steam

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Around this time next year, you might have another choice when you're contemplating where to get your lattes. McDonald's (NYSE: MCD) just isn't giving Starbucks (Nasdaq: SBUX) a break, although judging by current speculation, it's giving it a little extra time.

Crain's Chicago Business reported that McDonald's is planning to have specialty coffee drinks like lattes and cappuccinos available in all of its domestic stores by the end of 2008. Many of us probably already knew that McDonald's planned this eventually, but it's interesting to have a possible time frame, and Crain's said Mickey D's believes these new drinks could add more than $1 billion in annual sales. On the other hand, McDonald's said that while it is indeed testing such drinks, it won't comment on such rumors, according to the Associated Press.

McDonald's has already had great success with premium coffee; in some stores, it offers Newman's Own, which is co-branded with Green Mountain Coffee Roasters (Nasdaq: GMCR). My Foolish colleague Kristin Graham vouched for the quality of the Golden Arches' coffee; today, in fact, she made a special point to get a cup of McDonald's java.

There's been a lot of coffee conversation at the Fool lately. For example, Nathan Parmelee recently admitted that he's part of Starbucks' problem; even though he's a shareholder, he's been hitting Dunkin' Donuts. I have my own dirty little secret: When I was on vacation in California last week, I had lattes from both Peet's (Nasdaq: PEET) and Tully's. The Tully's was in the same strip mall as a Starbucks -- gasp! I feel a little bit like a cheater, but let's just call it market research (and yes, both those lattes were good).  

Starbucks certainly has increased our collective appetite for a fine cup of coffee, but that has spawned aggressive competition. I'm still long Starbucks and generally optimistic about its prospects, but I can't argue that it seems to be facing its most significant competitive challenges right now. It sounds like Starbucks may have some time before the McDonald's megalith puts the express into espresso, and the very best companies thrive in spite of competition. It's arguable Starbucks is one of the best companies out there; shareholders can only hope it's primed for this caffeinated face-off.  

Pour yourself a cup of related Foolishness:

• McDonald's is charming Europe.
• Last spring, it was clear that McDonald's was working up a thirst for power.
• Consumer Reports lauded Mickey D's coffee in February.