If the only thing that can compete with the premium brews at Starbucks (NASDAQ:SBUX) is free coffee, then Chick-fil-A may pose a challenge to the baron of baristas.
From now through the end of the month, Chick-fil-A is offering free coffee -- either a 12-ounce hot brew or a 16-ounce iced version -- to every customer. Chick-fil-A is promoting its new Farmer Direct model, zapping out the middlemen with a specialty-grade blend that's sourced directly from the coffee bean farmers.
Chick-fil-A is bigger than you think. There are 1,850 locations across the country, topping $5 billion in annual sales. The chain's claim to fame is that it invented the boneless chicken breast sandwich, but these days it's a strong player serving breakfast, lunch, and dinner.
Never underestimate the allure of free or the convenience of drive-thru windows. Chick-fil-A is going to be busier than usual this month as a result of the promotion, and the morning commuters that it wins over are folks that won't be pulling up elsewhere for their caffeinated fuel. Some may argue that Starbucks will be challenged by a highly visible chain pouring out free java through the next few weeks, but it also wouldn't be a surprise to see Starbucks get through this month in fine fashion with positive comps and a head full of steam going into March.
It's not just that Chick-fil-A is closed on Sundays or may have polarized half of the potential coffee sippers with its politicized stances. The real reason why this won't leave a dent is that Chick-fil-A just isn't going to start serving cinnamon dolce lattes or caramel macchiatos. There is no fast food chain that can duplicate the Starbucks in-store experience. Yes, Chick-fil-A may win over a few hurried drivers that would've just ordered a cup of traditional coffee at Starbucks this month, but it won't be enough to move the needle.
The only real chain that has to worry about Chick-fil-A's free coffee promotion is McDonald's (NYSE:MCD). It's the one fast food giant that owns the breakfast market. Chick-fil-A already has the addictive Chick-n-Minis on the menu. If free coffee is what gets drivers to check out Chick-fil-A's morning offerings it can result in a hit to the traffic of a chain that's already sputtering after five quarters of negative comps.
Starbucks, on the other hand, can ignore the promo. It survived Taco Bell making a lot more noise last year when it began serving breakfast nationwide. In fact, it thrived. Taco Bell has a lot more outlets than Chick-fil-A and it spent a lot of money promoting its springtime entry and the uniqueness of the Waffle Taco, but Starbucks still managed to keep its impressive streak of positive comps going through the Taco Bell marketing push. Comps at Starbucks rose 7% for its domestic stores during the first full quarter of Taco Bell's breakfast availability. With momentum in Starbucks' corner as an improving employment picture and low gas prices ramping up the supply of potential customers, expect it to coast through February with another strong showing.