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The battle for market share among coffee shops is highlighted this morning in stories running in both the Los Angeles Times and USA Today. The difference between the two stories is that one focuses specifically on retailers jousting for the second position in LA, while the other looks at the Starbucks-McDonald’s-Dunkin’ Donuts battle for morning dominance.

The LAT writes that in the City of Angels, there has been a tacit admission that “in the coffee business, there is Starbucks Corp., and then there is everybody else.” So the battle is taking place among players that include Coffee Bean, Peet's Coffee & Tea, Caribou Coffee, Diedrich Coffee, and franchiser It's a Grind.

There are two basic coffee realities in the Los Angeles market, according to the Times. One is that Starbucks simply is too ubiquitous to be seriously challenged. The other is that while everybody else is fighting to be second, almost everybody else seems to be making money by finding ways to differentiate themselves.

Coffee Bean, for example, has signed a deal with Kroger’s Ralphs chain to open mini-cafés in a number of its stores. (Starbucks has a similar deal with Safeway’s Vons chain.)

USA Today writes that McDonald’s decision to improve its coffee and making a real marketing push for morning sales has generated some push-back by Starbucks and Dunkin’ Donuts. Just yesterday, “to get consumers to wake up and smell their brands, Starbucks poured an estimated half-million 12-ounce cups of (free) coffee at its 7,500 stores nationwide and Dunkin' Donuts provided free taxi rides in Boston and New York and sample shots of its Hot Turbo coffee, a regular cup with a shot of espresso.

Meanwhile, old discounting habits die hard for McDonald’s – which decided to hype its upscaled coffee with coupons that were available in newspapers all over the country last Sunday.
KC's View:
The great lesson here is that the competition is forcing everyone to raise the level of their games. It’s the great thing about consumers that sometimes is ignored by marketers – they usually respond to efforts to educate them and give them better products and services.

Too many retailers keep pursuing the lowest common denominator, forgetting that aspirational retailing usually is a far better path to differentiation and profit.