LAST YEAR Dunkin’ Donuts paid dozens of loyal customers $100 (£54) a week to buy their coffee at Starbucks instead. At the same time the company paid Starbucks’ customers to make the opposite switch.

Dunkin’s coffee has been voted the best in America. It is a favourite of cops and construction workers. Starbucks, with its vanilla soy lattes and laptop-toting customers is the anti-Dunkin’.

By the end of the experiment the two groups were so polarised that researchers dubbed them “tribes”. And each tribe loathed the things the other loved. Starbucks was pretentious, said Dunkin’ fans. Dunkin’ was austere and unoriginal, said the Starbuckians.

It’s almost 20 years since Howard Schultz launched Starbucks, and the competition in coffee land is hotting up.

McDonald’s and Burger King are determined to grab a larger share of the $8.4 billion Americans spend in coffee shops. Of that in 2005, Starbucks accounted for $6.1 billion, up from $3.7 billion in 2003. It may not sell the most coffee but Starbucks’ premium-priced drinks have taken coffee consumption to a new level.

In America over the past few months Burger King, Dunkin’ Donuts and McDonald’s have all come after Starbucks in ads on television, newspapers and magazines and on billboards.

A recent Burger King ad depicts a construction worker refreshed by its ostentatiously plebeian-sounding new coffee, BK Joe. The in-store promotions even take a pop at Starbucks’ coffee-cup sizes — tall, grande and venti. One display in Burger King reads “Comes in three easy-to-say sizes. Small, medium and large.”

With 11,000 branches, Starbucks has become the world’s leading coffee brand. But cup for cup, Dunkin’ is the largest player in America.

It sells 2.7m cups of coffee a day — close to a billion a year. Almost 63% of sales come from beverages, and coffee is the largest part of that. “Coffee is the heart of our brand,” said John Gilbert, vice-president of marketing at Dunkin’ Donuts.

Dunkin’ customers want to “get their coffee and get on their way”, he said. The company is not targeting “affluent middle-class yuppies with their laptops listening to jazz,” said Gilbert. The outlets are not set up as a “third place” — Schultz’s concept for Starbucks as a meeting space for people that is neither work nor home.

But he said Starbucks’ “perceived quality” means Dunkin’ has to make sure its customers know that coffee matters.

“Customers have got a lot pickier. Americans used to have to sacrifice quality for speed. People bought McDonald’s coffee because it was fast,” he said. Now they want — and are prepared to pay for — better quality. But speed is still an important factor.

One of the fastest-growing areas in coffee retailing is drive-through stores, a sector where Gilbert believes Dunkin’ has an advantage over Starbucks.

One factor that is driving the new emphasis on coffee is the change of ownership of two of its biggest sellers: Dunkin’ and Burger King. Both, and especially Dunkin’, languished under the control of Allied Domecq, the spirits group taken over by Pernod Ricard. Dunkin’ is now owned by a collection of venture-capital firms and is planning an aggressive roll-out of stores in the run-up to an expected stock-market flotation. Burger King raised $425m for its venture-capital buyers in a float this year.

Coffee has high profit margins — especially at the prices Starbucks charges — and a huge market. Bob Goldin, executive vice-president of Technomic, a restaurant consultancy in Chicago, said coffee costs a restaurant between 15c and 20c a cup. “And don’t think that changes a whole lot for Starbucks.” And the price of being perceived to have good coffee is invaluable. “Consumers judge the quality of a restaurant by the quality of its coffee,” he said.

In Britain, the coffee market is even more diverse and competitive, said Mark Stretton, editor of M&C Report, the trade paper for the restaurant and pub industry.

At the top end, surveys show that consumers rank Caffe Nero as better quality than Starbucks, and the Italian chain is also perceived as having better food. Whitbread’s Costa chain has also held its own against the America giant. The pub chains have also moved to improve their coffee. JD Wetherspoon recently signed a deal with Lavazza and is offering the Italian firm’s coffee at 69p a cup.

But, said Stretton, at the lower end “McDonald’s has a long way to go to convince people its coffee can rival Starbucks”.

For all this fighting, in the long run the steam may be coming out of the coffee market, according to one expert.

Food-industry guru Harry Balzer is today delivering a lecture for senior restaurant executives. Balzer, vice-president of the NPD Group, an industry researcher, has been studying American eating habits for 25 years. The title of his speech is “Coffee with Harry Balzer”.

“I’m going to ask people what they think about coffee consumption,” he said. “And I assume they are going to say it’s rising. It’s not, it’s falling.”

Balzer said his research showed the percentage of people who start the day with coffee is slightly lower than it was in 1990. Some 38% of all morning meals included coffee at the start of the 1990s. In the first three months of this year that figure was 32%. Restaurants have had a sharper fall, from 49% of breakfasts in 1990 to 38% at the start of 2006, he said.

“People used to get their coffee at old-style coffee shops but those sales are falling,” he said, as the small outfits are swallowed up by the chains.

In fact the fastest-growing sector for breakfast drinks is carbonated soda, he added. Coke is the new coffee. That said, the vast majority of Americans still prefer their caffeine the old-fashioned way. Coffee remains the largest single item that people consume at breakfast. Almost half of all Americans drink a cup of coffee each day.

The long-term trend may be down but right now, said Balzer, “there is nothing that Americans agree on more than their taste for coffee”.

And while that situation continues, there will be a lot more fighting at the coffee bar.

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