The knee jerk answer is to lower prices to compete. However, you friend may also go out of business doing this.
How about offering something different? like thick Spanish chocolate, or fancy coffees, frapes etc, lovely cakes.
Consider introducing a loyalty card.
or a two pronged attack - below cost stuff (cheap coke and basic sandwich - budget meal) but also the fancy option. Try to upsell once the punter is on the premises.
Also offer free wifi, or other incentives that wont cost you too much.