Starbucks to take on Juan Valdez in Colombia


Customers sit in a Juan Valdez cafe north of Bogota on Aug. 28. The Juan Valdez cafe chain, owned by farmers and beloved by Colombians, expects the imminent arrival of Starbucks Corp to help it boost surprisingly low consumption of the beverage in a nation that grows much of the world's tastiest arabica. Hernan Mendez, head of the chain, said the novelty of Starbucks could help turn more Colombians into coffee drinkers. (Jose Gomez/REUTERS)
October 12, 2013

Here in the land of coffee, the Juan Valdez coffee chain has had it easy.

Its souvenir-filled stores number 170 nationwide. There are 68 in other countries, from Spain to Chile to the United States, where a store does business a few blocks from the White House. If anything, the chain named after the iconic coffee farmer — a creation of a Madison Avenue ad firm in 1959 — has faced just one main challenge: getting Colombians, more accustomed to exporting their best coffee beans, to sip white chocolate cappuccinos and iced caramel macchiatos.

But now Juan Valdez has a serious competitor: Starbucks, which has 19,000 outlets in more than 60 countries. The Seattle chain, which in city after city has prompted cafes to close or remake themselves to survive, recently said that it plans to open 50 stores in Colombia in the next few years.

Last week, Starbucks began scouting prime locales in Bogota for its first stores, set to open in mid-2014. The chain has more than 650 outlets in Latin America.

Juan Valdez, which is run by an 86-year-old federation that markets the coffee of 500,000 growers, is putting the best possible face on the impending challenge. Its executives hope Starbucks will boost local consumption. And smaller chains say the move will open up a market dominated by Juan Valdez.

A look at the third quarter 2013 numbers on Starbucks stores around the planet.

“Starbucks created this concept, this business model,” said Hernán Méndez, president of Procafecol S.A., created in 2002 by the Colombian Coffee Growers Federation as the parent company of Juan Valdez Café. “Its entry will be a challenge that will make us better. Right now, we’re working on becoming much better than we are.”

Juan Valdez and Starbucks have a history. When Starbucks went public in 1992, Colombian investors rejected an invitation to invest in the growing company, said Luis Samper, a federation spokesman.

When Starbucks sales slumped in 2008, then-federation head Gabriel Silva urged coffee-growing nations to buy the chain, telling El Tiempo newspaper that such a purchase would “reinforce our fight to defend the origins of coffee.”

“With $200 million to $300 million, the coffee world could control Starbucks,” Silva said.

An unusual market

Now, the two companies will be competing over a coffee frontier whose peculiarities might seem unusual to outsiders, if potentially lucrative. Colombia, with a population of about 46 million, is far bigger than some of the other countries where Starbucks operates. And it’s an increasingly influential country, where a rising middle class can afford a $3 specialty cappuccino.

But chains continue to face an uphill battle. Colombians have only recently begun to enjoy the high-end, high-quality coffee brewed by baristas in New York or Rome. Colombians consume far less coffee than other top coffee-growing nations, such as Brazil. And the coffee they drink is often weak and blended with low-grade beans from Peru and Ecuador.

Méndez said one of Procafecol’s biggest problems was getting Colombians interested in, and willing to pay for, Juan Valdez’s high-end brew.

Starbucks chief executive Howard Schultz has told reporters that Starbucks won’t be selling its coffee cheaper than competitors.

Starbucks is well aware of strife in the industry here, and Juan Valdez hopes its entry helps matters.

Heavy rain and a nasty blight known as coffee rust devastated crop production, leading to a three-decade low of 7.74 million sacks of coffee in 2012. Thanks to better weather and government subsidies for the planting of 2 billion rust-resistant crops, production is rising, with an estimated 10.1 million bags expected by year’s end. But global coffee prices have been plummeting since 2001, and farmers have staged strikes this year demanding extended subsidies and other forms of economic relief.

Starbucks — long one of the biggest buyers of Colombian coffee — has promised that all of the drip, espresso and packaged Colombian coffee it sells will be locally roasted and sourced. The company also says it will invest $1.5 million to help teach coffee farmers more sustainable farming practices.

“People ask why haven’t we been in Colombia yet. We needed to find the right partners and the right time, to be respectful of communities,” said Rich Nelsen, the Starbucks senior vice president and general manager for Latin America. “We believe now is the right time.”

For some in the business, the entry is tantalizing. Carlos Rojas, president of the association that represents Colombian coffee exporters, said it could “be a solid base to create a consumption-based, local-based economy that could support prices even when international prices might be coming down.”

The executives at Juan Valdez have gone out of their way to demonstrate that the company will remain viable with the arrival of Starbucks. On a tour of a sprawling Juan Valdez across the street from federation headquarters, Sandra Garzón, a spokeswoman for Procafecol, showed off a monitor where drinkers can take a sweeping virtual tour of rural coffee plantations, led by “Juan Valdez” and his mule, Conchita.

A point of national pride

Juan Valdez knows its biggest selling point over Starbucks is its direct connection to coffee growers, who have ownership stakes in Juan Valdez Café and receive royalties and other benefits from each cup of coffee sold.

Still, the company says it needs to make sure consumers know that connection. ¨We have to learn to better communicate what we are all about and differentiate ourselves,” Samper said.

At Juan Valdez cafes across Bogota, several drinkers said Colombians view coffee as a tasty source of national pride.

“If I want Colombian coffee, I’m going to go to Juan Valdez, for sure,” said university student Steffany Serebrenik as she sipped coffee with friends.

“No, we don’t support Starbucks. It’s just another multinational coming in.”

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