Howard Schultz, chairman and CEO of Starbucks Corporation (NASDAQ:SBUX) told CNBC today that “I’m not losing any sleep over Dunkin Donuts.” Let’s hope he’s right for his sake, and the chisel wielder that has to work on his tombstone that he’s right. Those words would almost be as memorable as the iconic Fred the Baker’s, of Dunkin’s television commercials of decades past, when he wasn’t getting any sleep because for Fred it was “Time to make the donuts.” Now, Fred the Baker would be considerably more inclined to say, “Time to make the Hot Chocolate Coolattas and espresso drinks.”

Howard Schultz

Let’s face it Dunkin’ Donuts has changed, and changed dramatically. While they still make donuts, they are a shrinking part of its business in these health conscious times.

Howard Schultz dismissive of Dunkin’ success

Dunkin’ reported second-quarter earnings that grew more than Wall Street expected on Thursday, as customers bought more of its higher-priced sandwiches.

“Our traffic is up and people are trading up to more expensive sandwiches,” Nigel Travis, chief executive of Dunkin’ Brands Group Inc (NASDAQ:DNKN), told Reuters.

“Donuts are still a significant part of their business,” says Andy Barish, a restaurant analyst for Jefferies & Co. “But at the end of the day, it’s a coffee company.”

Coffee battle brewing in California

In addition to stronger than expected numbers from Dunkin’ the company announced that it would return to California starting next year. They left in 2002, but they were a different company then. This is what prompted Schultz to address Dunkin’ today.

When asked about California and Dunkin’ Schultz also said that he doesn’t feel, “there’s anything that Dunkin’ is going to do” to challenge Starbucks operations in the state. “California, in a sense, is almost Starbucks Corporation (NASDAQ:SBUX)’ largest country, with almost 3,000 stores,” he added. “We’re still opening stores in California. California is one of the strongest regions for the company.”

While dismissive, he was also riding a high that came from his own company’s numbers yesterday when they reported after Dunkin’.

One of the highlights from Starbucks’ third-quarter earnings report was strong growth in same-store sales, rising 8 percent globally, including 9 percent in the Americas and 9 percent in China and Asia Pacific.

Dunkin’ Donuts plans to have up to 200 stores in California by 2020 and has a long-term plan to have more than 15,000 restaurants in the United States. McDonald’s Corporation (NYSE:MCD) now has more than 14,000 U.S. restaurants, while Starbucks is closing in on 13,000.

Two of those three companies had a good day yesterday. I hate to do it but it looks like a coffee battle is brewing in California.