Iconic brand tries to sip off Starbucks’ business

Colombia Juan Valdez Cafe
A Juan Valdez coffee shop is seen in Bogota, Tuesday, July 29, 2008. As Starbucks shutters hundreds of stores, the Colombian chain Juan Valdez plans to open hundreds of shops in the next two years across the US and Europe. Fernando Vergara / AP
/ Source: The Associated Press

Starbucks may be struggling, but a Colombian cafe chain built on the fame of the world’s biggest coffee icon is determined to buck the trend with plans to expand worldwide despite the slowing economy that has forced others to scale back.

Even as cash-short consumers cut back on gourmet blends, the Juan Valdez Cafe is selling coffee at 101 stores across Colombia, as well as at outposts in New York, Seattle, Philadelphia, Santiago, and Spain. It plans to add 500 more shops across the U.S., Latin America and Europe by 2010.

The Bogota-based chain has a unique premise: Its shops are owned not by investors, but by 22,600 coffee-growing shareholders who opened them to advertise the beans they sell, not to make a profit.

The slick cafes — which are named for a fictional coffee grower invented as an advertising pitchman nearly 50 years ago — are meant to draw younger consumers, introducing them to Colombian coffee in hopes they’ll start requesting it at restaurants and grocery stores.

“What we’re doing is financing our promotion through a business” — using the stores as tasting shops for customers to sample the product, said Gabriel Silva, CEO of the National Federation of Colombian Coffee Growers. The group created the chain in 2002 and now helps oversee it.

Colombia — the world’s third-biggest coffee producer after Brazil and Vietnam — grows more washed Arabica beans than any other nation. Hand-picked on Andean hillsides, the fragrant beans are considered by many to brew the best coffee, said Rodrigo Alarcon, a professional coffee taster in Bogota.

Yet Colombian growers rely on more than flavor for their success. In 1927, they formed their own federation to stabilize markets by buying up crops when prices fall, guaranteeing demand and growers’ income. The National Federation of Colombian Coffee Growers now buys about 23 percent of its members’ beans, reselling them in grocery stores and cafes around the world and enforcing quality standards to protect the national brand.

Every four years, many of Colombia’s 4 million small coffee growers trek miles to vote for representatives to a National Coffee Congress that brings their concerns to federation leaders. The latest vote in 2006 drew a 64-percent turnout — a higher percentage than voted for U.S. president in 2004.

Responding to those concerns, the Federation has built roads and schools in remote coffee-growing regions underserved by the government, and has opened a research center to breed new kinds of coffee beans.

But marketing has been its biggest success. The Federation has spent hundreds of millions of dollars on advertisements since the 1950s — most starring Juan Valdez, the character created by the New York ad agency Doyle Dane Bernbach in 1959 to give Colombian coffee a distinctive face and separate it from other beans.

Over the years, two different men have appeared in TV spots playing the character. Bags of the gourmet coffee are stamped with a drawing of the mustachioed coffee grower and shipped to stores from New York to New Zealand. In 2005, Juan Valdez even beat Ronald McDonald and the Energizer Bunny to be named to Advertising Week’s Madison Avenue Walk of Fame in New York, a top public relations prize.

And Juan Valdez Cafes are now giving Colombian growers a new way to get the word out.

Although some of its drinks cost the same as those sold by other high-end retailers, many cost less: the chain charges $1.57 for a single espresso at its stores in New York City — about 17 percent less than Starbucks — while a small cappuccino and medium drip coffee sell for 6 percent and 7 percent below Starbucks’ prices.

But CEO Silva says getting fat profit margins isn’t his goal: he just wants a way to bring beans straight from the fields to coffee-drinkers — even if they then brew them for cheaper at home.

“We’ve integrated between the field and the coffee shop,” cutting out the middle man, he said.

That gives the chain something of an insurance policy amid the current financial crisis. Consumers may be cutting back on cafe-made lattes, but they still want coffee, said Judith Ganes-Chase, a coffee analyst at J. Ganes Consulting in the New York City suburb of Katonah, New York.

And as long they buy Colombian beans — in a swanky cafe or at the supermarket — the Federation still gains.

But with plans to open 500 new shops in the U.S., Spain, Scandinavia, Ecuador, Chile and across Colombia by 2010, some analysts wonder if Juan Valdez Cafe is moving too fast.

The biggest risk to the chain, and the Federation’s Procafecol subsidiary that runs it, “is not having the infrastructure to handle what they’ve built,” said Patricia Edwards, a Seattle-based retail analyst for investment advisers Wentworth, Hauser and Violich. “Do they have the expertise?”

For now at least, they do have the cash: While Seattle-based Starbucks reported its first net loss earlier this year, revealing plans to close more than 600 stores, Procafecol posted a small profit, with an 80 percent gain in first-quarter sales, the most recent figure available.

Juan Valdez Cafe isn’t likely to compete with giants like Starbucks, which has more than 15,000 stores worldwide. But thanks to its business model — branding — it doesn’t have to.

While promoting Colombian beans abroad, the chain has also changed consumer habits in Colombia. Selling European steamed-milk specialties alongside traditional Colombian brews, the cafes are drawing a new generation of coffee fans with lattes, cappuccinos, and icy frappes.

Juan Valdez sweat shirts have even become a symbol of national cool, popping up across the country in the last five years.

Many Colombian coffee drinkers are proud of the chain — including Santiago Baron, 18, who said he thinks it’s changing the way foreigners see Colombia, a country more often associated with drugs or violence.

“It’s our national product — coffee,” said Baron, who sat with friends at a Juan Valdez Cafe in Bogota’s trendy Park 93 neighborhood. And, equally important, he added, “It’s a good place to chill out.”