It's two o'clock when I arrive at Caffè Nero on Long Acre in London's Covent Garden and it is buzzing with activity. Office workers are gobbling down the last bites of lunchtime sandwiches, early Christmas shoppers are warming their hands around cups of steaming latte and tourists are pouring over guidebooks while sipping chocolate-topped cappuccinos.

Britain has come a long way from the days when a request for a coffee would bring a cup of uniformly grey, unappealing liquid that bore little relation to the rich, flavoursome drink we were used to being served on trips to continental Europe. The past five years have seen an explosion on our high streets, as well as at travel locations, of specialist coffee shops that purport to offer more than just a shot of caffeine. They are cashing in on a lifestyle.

I have come to meet Gerry Ford, Caffè Nero's gently spoken, US-born chairman and chief executive, and the driving force behind one of the four main players in the café society revolution.

Ford first conceived the idea for the Italian-style coffee chain back in 1996. Five years earlier, he had co-founded Paladin Associates, a venture capital group that not only invests in, but also operates, businesses in the food, consumer brand and media sectors. 'When we set up Paladin, the intention was that it would be a sort of holding station to go off and run our own companies - a venture capitalist with an operational twist.'

As the son of a college professor based in Germany, Ford had spent much of his youth in continental Europe, and had also studied for his MBA at Insead in France. 'I'd spent a lot of time in cafés working on my PhD. Café society was much more what I was used to as a social alternative rather than the pub,' he recalls.

Ford realised that his personal preference for cafés, which were noticeably absent on the UK social scene, might well prove the business opportunity he was looking for, and when he explored the idea in more detail it became clear that it stacked up pretty solidly. 'The social dynamic was moving away from pubs. There was a new generation coming up that was more cosmopolitan, there were more Europeans in the UK who were used to café society, the Starbucks phenomenon was incredibly successful in the US [it hadn't yet appeared in this country] and the coffee quality that was generated in the UK market was not particularly good.'

From the point of view of a venture capitalist, the model looked particularly attractive. 'As a retail business, there would be cash up front, a low spend so it would not be particularly threatened by a recession and all those people looking for an alternative to pubs for a place to meet in.'

Ford's Paladin partners were equally enthusiastic about the proposition and encouraged him to look for suitable sites. Close to his South Kensington home, Ford had become a habitué of a little coffee shop called Caffè Nero. Chatting with the owner, he discovered that there were two more stores up and running and a further two under construction. In May 1997, Paladin took over all five sites, stripped out everything but the name and began building the brand.

Ford's passion for Italy - he chooses to spend his annual vacation on the tiny peninsula of Argentario in southern Tuscany - meant that this was going to be no Starbucks. Instead, it would have an upmarket, continental ambience. 'Our objective was to create a community dynamic. I wanted a replacement for the pub that would be open all day, with a food element that would change throughout the day [35% of sales come from food], based on high quality coffee and a European atmosphere.'

Alongside the espressos and macchiatos would be specially created pastas and panini, cakes and biscotti, served against a background of Italian-inspired décor and furnishings.

'In 1998, we began our rollout plans,' says Ford. In November of that year the first shop was opened outside London - in Manchester - and the company has been expanding aggressively ever since. In March 2000 it listed on the main London Stock Exchange, raising a net of £7.5m to fund its expansion programme, and is on track for its target of 100 outlets by May 2002. From blank sheet of paper to float had taken three-and-a-half years.

With turnover increasing by 133% to over £15m in the year to May 2001, Ford is more than happy with the company's results. Although the bottom line shows a pre-tax loss of £2.7m, he stresses that this is largely due to depreciation and one-off flotation costs. More important, he says, is the fact that ebitda (earnings before interest, tax, depreciation and amortisation) was not only positive, but beat forecasts.

But the economic climate has changed significantly since May, so how have more recent events affected performance? 'This year is a tougher one but you will still find that our revenue is shooting up, you will still find that the brand is rated very highly and you will find that our ebitda rises. The current downturn does mean that like-for-like store growth is going to be down relative to last year's 11%, but it will still be positive.'

The sharp reduction in tourist numbers is likely to hit central London stores particularly hard, but Ford says that the branches serving mainly local communities are thriving. 'Outside the M25 in particular, growth is very strong.'

As far as Ford is concerned, he is now moving into phase two of his plan. 'Phase one was to take it public. Phase two is to continue as a leading brand in the UK and to take the brand international.' He sees the most promising overseas markets as northern and central Europe, but has no plans to take Caffè Nero to his native US.

He looks forward to a time when the company is self-financing, which he predicts will be at the 150-store level, so that he can concentrate on the bigger picture rather than day-to-day management issues. It might also free up some of his time to look after Paladin's other investments. 'I feel like I'm neglecting my investment side because this business has, at times, taken up 100% of my time. Ideally, I would like to move back to a 50/50 balance.'

But he does express concerns that, when Nero reaches 300 stores, the brand could become diluted. 'The hard part for me would be if the brand ends up not keeping up the quality. We have created a culture based on passion and enthusiasm and wanting to do something different. We don't want to be another Starbucks. The challenge will be to keep that passion alive when we have 300 to 400 stores in the UK.'

Ironically, a recent in-depth survey of the sector produced by independent consultants, Allegra Strategies, suggests that, although Nero is 'overwhelmingly considered to be the industry experts' preferred coffee concept', the main threat to its success could be the very image that Ford has striven so hard to create. Consumers perceive the brand as upmarket and expensive, and, says the report, there is a danger that it could be viewed as too elitist by the mass market.

Ford has grown weary of the pundits and journalists who suggest that the coffee phenomenon is merely a passing fad, and is clearly encouraged by my own enthusiasm for a latte rather than a lager. Although the majority of Nero's new openings will be either outside the M25 or in the London suburbs, four of the newest cafés are in the West End and the City. 'They were all profitable from day one,' he proclaims, and compares coffee shops' ubiquity in central London to the high number of pubs in the capital. 'Your catchment area is only a couple of blocks, so you can go two blocks and reach an entirely different set of people. Just think about how many pubs are out there.

'People point to brands like Aroma and Madisons, which have pulled out of the market, and cite it as an indicator that the market is weakening, but those were not strong brands. That kind of fall-out is to be expected in any segment.'

In fact, it has been widely reported that Caffè Nero is interested in acquiring the Aroma sites, which are being unloaded by their parent company, McDonald's. Ford explains: 'We are looking at a lot of different property opportunities, but it doesn't really matter if it's Aroma or another coffee site. A lot of people are dumping retail sites and we are looking at several of them to buy in groups.'

Ford is equally bemused by the idea that the market is overcrowded. 'How can it be a congested market when four main players control 62% of it?'

The Allegra report endorses Ford's conviction that the designer bean is here to stay. It forecast that the number of coffee-focused bars in the UK would mushroom to 2,400 by 2003. Like Ford, Allegra's Jeffrey Young sees the main potential for growth as being outside London. He comments: 'I believe that the major growth will be in the provinces, where there is nowhere near the penetration per capita that there is in London.'

As I take my leave of Ford, he casts his eye round the bustling Covent Garden store with the obvious satisfaction of someone who has created something where before there was nothing. 'I'm excited to have created something that's new, that not only meets the vision I had at the beginning but something that people now recognise as part of their lives - and it's a nice part.'