Juan Valdez Cafés

by

By Bethany Haye

Establishing a global chain of Juan Valdez shops has been a recurring project for the FNC (National Federation of Colombian Coffee Growers) since the 1960s. Now in its third and most ambitious incarnation, the 326-strong international Juan Valdez Café chain is once again ready to take on the world.

Will it succeed?

The brand is strong, the quality of service and coffee served is among the very best in the world. Coffee connoisseurship is thriving globally. Colombia has returned to a level of stability and growth after decades of civil war and is seeing a rise in production, contrary to other premium-growing countries. But the challenges are daunting.

Will this new chapter in the Juan Valdez Cafés story be its breakthrough moment? Will all the FNC’s innovative, pro-active work pay off this time?

Lucky for them, Colombia’s growers have FNC, and FNC has Procafecol. 

A brief history: FNC was started in 1927 by the country’s coffee growers and the government in response to the growers’ demands for better prices and more logistical support. 

Procafecol was created as its promotional arm in 2002 to manage and commercialize the Juan Valdez brand. This was in response to the coffee crisis of the late 1990s when prices fell so low that most of the activities of FNC were effectively defunded and growers were thrown into poverty. Procafecol is a private company based on the then revolutionary idea that Colombia’s 560,000 coffee-growing families should not be hostage to commodities markets and should share in added value.

By the 1950s, coffee beans made up 80% of Colombia’s exports and accounted for 27% of GDP. Beans from Colombia were a mainstay of ground coffee sold in the US and Europe, but prices were low, and the flavorful varieties were often blended with lesser quality non-Colombian beans to make them more palatable and saleable. Unlike Brazil, Colombia’s coffee farms were almost all small (averaging under four acres) and family owned – most still are. The beans continue to be hand-picked in a constant daily process as they ripen a few at a time all year round. Yet, practically no one – 4% of those surveyed in the US in the 1950s – knew where their coffee came from or even that Colombia produced coffee. FNC hired New York ad agency DDB to make it famous. The character of Juan Valdez was created for the occasion, the words “100% Colombian Coffee” were trademarked. The fight was on to protect and promote the newly-minted brand, and Colombia became the first coffee-producing country with an active strategy for differentiating and marketing its unique product.

Proof that the campaign was successful, beyond yearly increases in gross sales, came in steadily mounting consumer awareness. By 2004, a market research survey showed that 91% of consumers in the US and other major markets knew their coffee was Colombian.

The idea of selling the brew itself to consumers in branded cafés was always seen as a necessary and congenial way to make direct contact with consumers and bring some of the margins back to the growers. This sum averages 4% of each cup sold.

After an initial foray into Spain and Argentina that ended in 1985, the newly Juan Valdez-branded coffee shop chain re-launched in 2002, with Procafecol behind it. Procafecol is 90% owned by the FNC, with the remainder of its shares owned by growers who choose to buy in. It is funded by growers’ contributions (the 5% fee on each bag sold to the FNC) and licensing agreements. Its mission is to promote the Juan Valdez brand internationally and stimulate its profitability by participating in more added-value activities including the coffeehouse chain.

In 2002, the plan laid out by Gabriel Silva, FNC’s president at that time, was intended only for foreign outlets, to profit from the brand’s strength and visibility in supermarkets in the US and Europe. This because, with all previous effort having been directed at export, Colombians (much like Brazilians and Guatemalans) were left with, well, the dregs. Out-of-home consumption was even further behind the rest of the world, at less than 1 cup per capita per week.

After the 2008 global slowdown, which saw several Juan Valdez coffee shops in Spain and elsewhere close, Procafecol turned to providing a much-needed awareness campaign at home, where coffee consumption was still among the lowest in the world 4.6 lbs. (2 kg) per capita per year, compared to 10 lbs. (4.5 kg) in the US and /11.06 lbs. (4.5 kg)  in Europe. Rates of out-of-home consumption remained dismal. The strife and violence that had wracked Colombia for decades had taken its toll not only on growers, but on consumers, economically depleted and not inclined to spend a lot of time outside. But though the peace deal still seemed a mirage, the toppling of the drug cartels made life more normal in Colombia. Between 2009 and 2014, internal coffee consumption soared 33% in Colombia, compared with 15% globally.

In 2013, Procafecol’s president Hernan Mendez announced a new expansion of the Juan Valdez chain, concentrating on the internal market. Today, 276 of Juan Valdez ’s 400 cafés are in Colombia. The next greatest concentration is in Miami, Florida (nine locations), with cafés in Chile, Bolivia, Peru, Ecuador, Panama, Costa Rica, El Salvador, Mexico, United States, Aruba, Spain, Japan, and Malaysia. In the short term, expansion will continue to concentrate on Colombia (15 more owned-stores are planned for Bogotá, Medellin, Cali, Montería, Pereira, and Villavicencio).

In 2014, 45% of Juan Valdez Cafés were located in shopping malls, 23% were street cafés, 19% were located in airports, and the rest in department stores, large supermarkets, corporate cafeterias, and universities.

Procafecol’s new approach to an increasingly crowded field is to emphasize and promote single origin coffees. Chief marketing officer Alejandra Londoño explains the mission of the Juan Valdez Cafés as more than just a profit-making enterprise that shares its margins directly with growers. There is the notion of connoisseurship “on the model of wine” explained Londoño, “Coffee is crafted, and each cup differs depending on the bean variety, the region, the soil, the climate, they all have an impact on flavor, nose, front of mouth, back of mouth, aftertaste, etc.”

As the world economy improved, and with the cease-fire and subsequent peace agreement with most but not all other rebel groups, Juan Valdez Cafés started to do better at home, breaking even for the first time in 2012 and showing double-digit growth every year since (23% in 2014, 27% in 2015, 18% in 2016 dipping to still-positive +13% growth for 2017). Stability has attracted foreign visitors and investors, businesses like Ikea and H&M – and competitors like Dunkin’ Donuts and, in 2014, the behemoth Starbuck’s.

Perhaps surprisingly, both Procafecol president Mendez and Londoño were upbeat about the Starbucks incursion. “Consumers will go into a Starbucks because it’s new, but our model is much closer to Colombian preferences,” Mendez affirmed. “Every effort that other premium café chains have made has helped us.” And it is true that specialty coffee consumption in Colombia has skyrocketed, (up 33% between 2009 and 2014) because of FNC’s relentless work, and, Mendez is quick to acknowledge, because of the appeal of the social environment of premium chains.

Yet, it is hard to reconcile the notion of premium and connoisseurship with venues that have consistently scored low with consumers on comfort, ambiance, and service. In about a dozen online amateur video blogs that asked customers in Juan Valdez, Starbucks, Tostao, and OMA shops to rate and compare them on quality, price, environment, and service, similar patterns emerged from Bogotà to Lima. Juan Valdez was consistently seen as overpriced, even compared with the more expensive but much larger Starbucks cup. Several customers noted a lack of comfort, with one speculating that it was meant to discourage lingering. Even the choice of sweeteners was questioned: Starbucks offers four types, including panella, Colombia’s other go-to artisanal agricultural product, while Juan Valdez did not, (it has since been added). And almost to a person, the clients gave Tostao Pan y Café higher value-for-money ratings.

With of 76% of Juan Valdez cafés located in Colombia at a moment of uneven economic growth, higher sales tax and with 89% of people saying they feel financially stressed, the high road is bound to be a steep journey.

Procafecol is aware of the challenge and is gearing up to meet it, modernizing the café’s image with make-overs at 30 stores this year, stressing hospitality and providing “incentives” to staff for better service. New menu items include a wider variety of snacks both sweet and savory, including special items from the respected “Andrés Carné de Res” (beef turnovers), bottled teas, and new flavors to attract young consumers, including coffee with rum and fresh fruit cocktails. “We’re not going to lower our prices,” Londoño states. “We will offer a very good value proposition,” with breakfast and lunch promotions, and showcasing three of Colombia’s 91 registered single origins every three months. Tastings have begun in the flagship café in Bogotà and will expand.

Londoño emphasizes, “Starbucks is about the experience. We’re about the coffees. Through the Juan Valdez Cafés, people will be able to learn about the tradition, the culture, the extreme diligence, and skill of the 563,000 coffee-growing families in Colombia.” As Londoño points out, the emphasis will be on distinct single origin brews, on “telling the growers’ stories,” and she further stresses that “it’s not Colombian coffee, it’s Colombian coffees.”

Will this be enough? Can Procafecol’s didactic approach take hold before US-inspired consumerism barrels in full-throttle? Will “It’s about the coffees” win out over “It’s about the consumer?”

Time will tell. 

How Procafecol spends its revenue:

- Purchase guarantee. Producers receive payment for all hand-washed arabica that meets FNC certification standards. They are not required to sell to Procafecol, but the entity pays 20% above market rate.

- Scientific research via Cenicafé, the world’s top coffee research center for improving coffee quality and production methods.

- On-site technical assistance: About 1,000 coffee specialists and technicians regularly visit, train, and update Colombian growers on the latest agricultural technologies.

- Quality control: To protect its hard-earned reputation, Colombia has established minimum quality standards for the marketplace. Growers must meet these standards to be labeled Colombian coffee.

- Promo and advertising: creating a clear, global brand identity for Colombian coffee.