Colombian icon bucks the trend

Starbucks may be struggling, but a Colombian café chain built on the fame of the biggest coffee icon of the world is determined to buck the trend.

Even as cash-short consumers cut back on gourmet blends, the Juan Valdez Café 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 United States, 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 cafés – 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 will 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 flavour for their success. In 1927, they formed their own federation to stabilise markets by buying up crops when prices fall, guaranteeing demand and growers' income. The National Federation of Colombian Coffee Growers now buys about 23 per cent of its members' beans, reselling them in grocery stores and cafés around the world and enforcing quality standards to protect the national brand.

Every four years, many of Colombia's four 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-per cent turnout – a higher percentage than voted for US 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 centre 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 Cafés are now giving Colombian growers a new way to get the word out.

The chain charges $3.24 (Dh11.9) for a 12-oz cappuccino at its stores in New York City, only about seven per cent less than Starbucks. But CEO Silva is not looking for high margins: he just wants a way to bring his 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 café-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.

And as long they buy Colombian beans – in a swanky café or at the supermarket – the Federation still gains. But with plans to open 500 new shops in the US, Spain, Scandinavia, Ecuador, Chile and across Colombia by 2010, some analysts wonder if Juan Valdez Café 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 per cent gain in first-quarter sales, the most recent figure available.

Juan Valdez Café is not likely to compete with giants such as Starbucks, which has more than 15,000 stores worldwide. But thanks to its business model – branding – it does not 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 cafés 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.

Many Colombian coffee drinkers are proud of the chain – including Santiago Baron, 18, who said he thinks it is 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 Café in Bogota's trendy Park 93. And, equally important, he added, "It's a good place to chill out."