And you thought we had too many coffee houses...

London is said to have the highest concentration of Starbucks in the world, with more branches in the capital than in Manhattan. Yet Britain's colonisation by cappuccino culture has not yet run its course, with analysts predicting that the leading operators might double in size within the next decade – an expansion that could mean the days of the local tea shop and greasy spoon are numbered.

Just over 10 years after Starbucks opened its first British branch, the nation now boasts more than 3,000 branded coffee shops. The research group Allegra Strategies predicts the store count will keep growing at 9 per cent a year, rising above 6,000 outlets within a decade, creating an industry that generates an annual turnover of more than £2.5bn. Some in the industry are even more ambitious, with management at Whitbread, the owner of Costa Coffee, saying there is scope for the chain to grow to more than 1,000 outlets by 2010, from 560 currently.

Those projections are at odds with the views of many commentators, who have long been claiming that the capital's premium coffee market is nearing saturation point. More than half of Starbucks' 540 UK coffee shops are in the Greater London area, with new ones opening at a rate of one a fortnight.

While industry insiders dismiss that concern, they concede that companies will have to start looking further afield for growth. "Much of the future expansion will come from rural areas, where independent operators still have the upper hand. The next battleground will be in population centres of around 30,000," says one.

That prospect has alarmed campaigners who fear Britain is becoming a nation of clone towns with identikit high streets.

Customer research suggests those independents will have to work a lot harder to survive. They continue to have a bigger slice of the market than any of the chains, with a combined 38 per cent share against Starbucks and Costa Coffee on 24 per cent each. But Allegra's survey reveals that just 12 per cent of consumers picked an independent as their vendor of choice.

Jeffrey Young, Allegra's managing director, says that small operators should be in a strong position to fight their corner, as convenience of location is the biggest single factor on where consumers choose to drink their lattes. But he argues that they have been naive, believing that personal service alone will be enough to keep the market leaders at bay.

The big brands, meanwhile, have created a totally new market in the last decade simply by cutting out the clutter.

"When trading head-to-head, there's an enormous amount of brand pull from the chains," says Mr Young. "The large operators tend to be better run and better managed, so an independent needs to be offering something exceptional to stand out."

That view is echoed within the industry, where there have been some notable success stories at the artisan end of the market. Flat White, an award-winning café in London's Soho that opened two years ago, has carved out a niche by specialising in a no-expense-spared version of the Antipodean-style frothy coffee from which it takes its name. The company is now looking to expand.

"What we offer over the chains is a much higher attention to detail and more of a community feel," says Cameron McClure, the New Zealander who was one of Flat White's founder baristas.

"The big guys are really just making coffee drinking more widespread, which ends up creating demand for us.

"Those people who can tell the difference end up searching out something better. Our business works by taking an artisan approach that's much more labour intensive than the competition are able to offer."

Flat White buys its beans from The Monmouth Coffee Com-pany, another small, London-based operator that has thrived in the face of competition by adopting an approach more akin to fine wine than coffee.

Such successes, the multinationals claim, are proof that the market is big enough for everyone to thrive. A Starbucks spokesman, highlighting research showing that 20 per cent of all independent coffee shops in Britain started less than a year ago, claims this shows how the domination by the main chains is not stifling competition.

It is no secret why new entrants are trying their luck. The gross profit margin on the average cup of chain coffee is estimated to be around 85 per cent, with sensitivity to price rises extremely low. Accounting for the gradual move from medium to grande, the price for an average cup has risen by some 40 per cent since 1999, nearly twice the rate of inflation.

Yet the leading companies are still struggling to keep their investors happy. Shares in Starbucks, which posts quarterly results on Wednesday, have fallen more than 20 per cent so far this year on worries about weaker discretionary spending and rising dairy and labour costs.

There has also been renewed talk of competition within Starbucks' home market, as fast-food restaurants and doughnut shops invest in proper brewing equipment and introduce higher-quality blends. "While we view the direct competitive domestic threat as being limited, it is not non-existent," Citigroup analyst Glen Petraglia said in a recent research note.

Arguably, the main source of competition in the UK is coming from pub operators. JD Wetherspoon launched its gourmet coffee product last year with a publicity campaign deriding the "rip-off" prices of its rivals. It claims to have picked up 6 per cent of the UK chain market already, with volumes matching the third-place operator, Caffè Nero. However, analysts doubt whether these sales have been at the expense of the multinationals.

"They are making no real inroads in the branded market, because they are selling a different proposition," says Mr Young. "Overwhelmingly, customers consider where they drink their coffee as a lifestyle choice. McDonald's, despite all its investment in improving its coffee, has not been able to replicate the same lounging experience, while pubs are still viewed first and foremost as places for drinking."

The ever-expanding market has also turned the spotlight on the industry's environmental credentials, with some claiming that the multinationals operate a buying cartel. Starbucks alone accounts for around 14 per cent of total global Fairtrade coffee imports, but in common with its biggest rivals, the beans used for basic espresso are purchased under its own code of conduct.

While customers rate environmental concerns down the list of priorities, that situation is unlikely to change, according to Mr Young. "Fairtrade has become a must-have on your menu, but it has little influence on consumer decisions," he says. "People do not make a decision based on ethical credentials. While they like seeing the Fairtrade logo, they're simply not prepared to pay any more for it."