Coffee's Weird War Yields No Winners

OAK BROOK, Ill. (TheStreet) -- Forays into instant beverages, front-office shakeups and forced emphasis on the last syllable in "latte" have turned the coffee wars into a strange brew.

Starbucks(SBUX Quote), Dunkin' Donuts and McDonald's(MCD Quote) spent more than a year pushing for a bigger share of a coffee market that has all the definition of an amoeba. The results of this very public jostling are similarly ambiguous.

A superficial glance shows Starbucks getting hammered over the past year. There have been store closures; layoffs; dabbling in low-end, low-priced Pike Place coffee; attempts at breakfast sandwiches and combos; and the launch of its Via instant product. Despite the hubbub, Starbucks' shares have more than doubled since last November.

"They're still the dominant, No. 1 coffee chain globally," says Nicole Miller Regan, an analyst at Piper Jaffray. "What's different today is the environment and the competitive nature, and I would suggest that its brand equity probably pays dividends in a recession."

Where Starbucks took a hit early and recovered, McDonald's had some early-morning coffee and crashed. The 800-pound gorilla of the coffee klatch spent much of last fall and a big chunk of its 2008 ad budget comparing Starbucks customers to knuckle-dragging poseurs who hated reading, jazz and countries with multiple vowels in their names. As a result, it saw its sales rise 3.5% in the second quarter with a boost from coffee. However, after overhauling some stores to look like cozy fireside cafes and giving any size of its Newman's Own coffee away for a buck, McDonald's has missed revenue estimates for three quarters.