Biggest Is Not Best

The first is that these companies are coming close to having saturated the U.S. market. There's not much more cost they can squeeze out, so they can't stimulate additional demand through price cuts. And as a result of their relentless expansion over the past two decades, there are no new regions to enter.

At the same time, I sense there's a growing backlash against these models from customers who are dissatisfied with formulaic products and lackluster service. This backlash has provided an opening for competitors offering something different and better, even if it is more expensive.

This is the challenge facing Starbucks and Wal-Mart. And it lies behind the recent success of former "niche" players such as Whole Foods, JetBlue, Coach and boutique hotels such as those run by the Kimpton Group. Indeed, these "middle-tier" companies are so focused on growth that, ironically, they have wound up adopting many of the same characteristics as the industry giants.

But the other reason I see an opening for mid-tier companies is that the good ones are better able to attract employees who have the creativity and initiative key to success in service industries. Those kinds of employees attach high value to autonomy and independence and don't work particularly well in organizations where regimentation is built into the corporate DNA. And because the focus at these companies isn't driving growth by driving down costs, they are able to offer more attractive compensation packages, particularly in the area of incentive pay.

You have already seen this phenomenon in advertising, finance and the law, where many of the brightest people are gravitating to boutique firms. And if I'm right, you are going to soon find it in mid-size retail chains that employ knowledgeable sales people rather than clueless clerks, and health insurers that assign a nurse practitioner with a name and phone number to every customer to handle everything from choosing a doctor to correcting a billing error.

Steven Pearlstein can be reached atpearlsteins@washpost.com.