There is more than one axis on which coffee shops compete, though. Price is one of the least-critical, IMHO -- ambiance, service, and "extras" like a decent menu or late-night hours will earn you a lot more loyal customers than a $0.25 price cut on coffee. Remember, if cost was the major deciding factor, people would be making their coffee at home. Going to a coffee shop is a social act, so the "scene" matters at least as much as the product.

The problems (and attempted solutions) the article's author described sound to me like they all stemmed from a lack of interest in paying any attention to the market. He admits that the most prominent and loyal types of coffee shop customers (commuters who just want to grab a cup for the road, and laptop warriors who want to sit tight and work for several hours) weren't interested in his business, and then seems surprised that he failed to make a profit? Color me unsurprised.

You can make money in the service industry, eventually -- but you have to provide something that people want. Simply being in love with your own clever ideas is seldom a good path to profitability.