Have we gone cold on coffee?

Despite a loathing for fast-food chains, I was in the queue when the first Starbucks coffee shop opened on the King's Road in Chelsea in 1998.

The reputation of Starbucks had preceded its first London coffee shop, and we had all heard about the Seattle phenomenon that had revolutionised American coffee-drinking. Starbucks sold a lifestyle where you could slip from your living room to their high-street outlets without noticing you'd moved - that was the idea anyway.

The company from the Pacific North-West of America had successfully conquered the United States, so why shouldn't the same happen in London? Well, for a start, the last available accounts for Starbucks UK show that, to September 2000, the company lost £5.8 million on a £59 million turnover in its quest for world domination. What is more, paying £1.75 for a cup of coffee is pretty steep - particularly if, like Starbucks, you are trying to attract entire families into the store.

On that first visit, the girl behind the bar asked me my name. With some astonishment I asked her why on earth she wanted it. She then replied she wanted to write it on my cup and would call it out when my coffee was ready. I refused, the very notion of giving my name to someone I didn't know was at odds with my natural British reserve. I noticed that Starbucks pretty quickly dropped its US familiarity and now just writes the order on the side of the cup.

There are two Starbucks on Upper Street, Islington within 200 yards of each other, there are at least three on the King's Road, Chelsea and there are more than 125 in central London - all of which have opened since 1998. In the past four years, there have been no fewer than 275 Starbucks openings in the UK and not one of the stores is franchised - they are all Starbucks-owned and operated. Worldwide, there are more than 4,500 stores and the company has just announced plans for further expansion in Germany, Spain and Austria.

The American coffee revolution began during the final months of the Vietnam war, and the accompanying hippie protest that included a move towards whole foods. American coffee, a thin watery stew with the emphasis on caffeine jolt, not flavour, had an equally filthy reputation. The student generation on the Pacific West Coast had travelled to Europe, and discovered Continental lattes and cappuccinos. Ironic, then, the revolutionary beginnings of these global companies.

Starbucks' success has encouraged others to join in. Not to be caught out, McDonald's bought Aroma for £10 million, has failed to make the business work and is now keen to offload it for a rumoured £8 million. There's been no stampede of interest yet.

But where will it all end? The newest Starbucks on the King's Road is right next to my children's primary school, and the manager of the outlet has been very quick to come forward offering financial contributions for the school library. Twenty yards away, there is a delightful Italian, family-owned coffee bar where parents from the school drop in. It, too, has been open a relatively short time and has done very well. Whether it will continue to thrive now Starbucks has opened remains to be seen.

The coffee wars are all about aggressive marketing and, at the moment, there is a huge raft of branded coffee outlets fighting over market share. It is a little like the dotcom madness of the Nineties - no one seems to be making money but they think that the more they spend, the more they'll make when, finally, that elusive profit comes.

The share prices of the two quoted UK chains are at an all-time low. Caffe Nero has lost more than a third of its value in the past 10 days and is now languishing at 23p a share, while Coffee Republic is priced at 6p. The funny thing is, otherwise sensible investors like Prudential, CGNU and Merrill Lynch believe the story, too. All are large investors in Coffee Republic.