McDonald's latest move should terrify Starbucks

The company first launched its coffee brand, McCafe, eight years ago, and it now generates about $4 billion annually, or about 16% of sales per year.

Next year it's relaunching the brand by upgrading its espresso machines and kicking off a marketing campaign that will highlight its competitive prices, Bloomberg reports.

For the first quarter of the year, McDonald's will offer a promotion for $1 drip coffee and $2 small specialty beverages, according to the report.

That's about half the price of Starbucks.

Starbucks Pike Place brewed coffee costs $2.10 for a grande, and specialty beverages cost upwards of $4.25 for a tall.

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McDonald's is also hoping to improve its specialty coffee beverages with new $12,000 espresso machines. The machines are better at steaming milk than the restaurants' current equipment, according to the Bloomberg report.

But the new machines will likely draw some ire from franchisees, who almost always foot the bill for new technology.

The original McCafe machines cost about $13,000.

McDonald's is making changes to its coffee line in the face of growing pressure from falling food prices, which has resulted in more people eating at home over restaurants.

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