Leading the fray is Starbucks, which has staked its claim on nearly all the choice locations in Shanghai, opening 26 outlets this year compared to just five in 2005. The US chain has already opened 13 new outlets this year, bringing its total number of stores in the city to 64. Over the past few months, Starbucks has doubled its presence from three stores to six along a two-mile stretch of Central Huaihai Road, Shanghai's premier commercial district.

"I believe we have this area saturated," says Xie Guohui, vice-president of Starbucks in Shanghai, which is a joint venture with Taiwanese and local partners including Shanghai Tobacco, the city's tobacco monopoly with diversified interests in food processing and distribution. "Newcomers will find it difficult to get a foothold in that area," he adds.

But brutal business tactics don't seem to have deterred challengers. Last month large British coffee chain Costa threw down the gauntlet by announcing it planned to open 300 outlets in China. It will open its first stores in Shanghai and eastern China as early as next year.

Costa is part of British leisure group Whitbread. At a press conference in Shanghai, Whitbread's chief executive Alan Parker said his company has formed a joint venture with Shanghai's Yueda Group. "There is an established coffee culture and increasing interest in drinking coffee out of the home (in Shanghai and other major cities)," Parker said.

The crowd at one Starbucks in an office building on Central Huaihai Road gives credence to Parker's enthusiasm. Declining to provide exact figures, Starbucks' Xie said a busy cafe sells hundreds of cups of coffee on an average day not small change considering a "short" cappuccino at Starbucks costs 23 yuan (US$2.90).

Low material and labour costs in the drinks service industry, especially for coffee and tea, mean the sector offers extremely attractive profit margins.

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