Some Credit Froth at McDonald's

Starbucks has been hurt as consumers, coping with an economic downturn, cut back their spending on premium coffee.

The market turmoil, however, may also be doing Starbucks a favor: Tightening credit markets are apparently delaying the rollout of McDonald's rival premium coffee offering.

Advertising Age says it has gotten a hold of an internal memo from McDonald's saying that the Bank of America's franchisee-loan program has reached funding limits faster than expected, which poses a problem for the 14,000 franchises scrambling to get capital to fund the $100,000 it will cost each location to build coffee bars serving lattes and cappuccinos.

McDonald's planned expansion into premium coffee has already been anticipated for over a year. The initiative, which tested well in select markets, is seen as a potentially big new competitor to the Starbucks offering -- especially as consumers become more and more price conscious.

McDonald's denies that the franchises are having any funding problems. Yet it looks as if the beverage rollout will indeed be delayed to summer 2009 from an originally announced April target, giving Starbucks more time to recapture customer loyalty before a new challenger appears on the scene. And summer, of course, is not an ideal time to introduce a hot drinks lineup.

If McDonald's is in fact having difficulty securing new debt, that in itself is a powerful statement about just how solidly frozen lending is at the moment.

For in other respects, McDonald's is as good as if its arches were really made out of gold. On Friday, the credit markets were treating McDonald's as if it had slightly lower default risk than the U.S. government.

So if Ronald McDonald can't get a loan, who can?

Liz Gunnison

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