Juan Valdez Goes After Starbucks With New Cafes in Florida

By Leslie Patton  Jul 21, 2014 5:35 PM ET  

1 Comment Email Print

July 21 (Bloomberg) -- Joe Chief Financial Officer Caroline Barad discusses the impact that Starbuck’s price hike has on smaller coffee shops and chains. She speaks on “In The Loop.” (Source: Bloomberg)

Juan Valdez, the coffee brand backed by the Colombian Coffee Growers Federation, is opening franchised cafes in Florida in a fresh attempt to challenge Starbucks Corp. (SBUX)on its home turf.

The first store opened today in downtown Miami and four more will be added in the area by year-end, according to Hernan Mendez, chief executive officer of Procafecol SA, the company that oversees the Juan Valdez brand. Within five years, Procafecol is planning 60 of the new stores in Florida.

As Juan Valdez cafes take on Starbucks in the U.S., the Seattle-based coffee giant is making its own inroads into Colombia. Starbucks opened a three-story outpost in Bogota last week that could serve as a model for a new line of flagship stores. The moves mean the two companies are increasingly competing for upscale coffee drinkers -- a market that generates $18 billion a year in the U.S. alone.“We are a company that is world-class, that is prepared to compete with a company that is so large,” Mendez said in an interview.

The new Juan Valdez cafes aren’t the company’s first attempt to build a retail chain in the U.S. It has seven stores in New York, Washington and the Miami airport, and a high-profile location in Times Square closed in 2010.

Source: Dana Rozansky/Juan Valdez

As Juan Valdez cafes take on Starbucks in the U.S., the Seattle-based coffee giant is... Read More

With the latest move, the company is working with a Florida franchisee to lessen the risk. The stores will sell 100 percent Colombian Arabica coffee and feature at least four different varieties, Mendez said.

Starbucks’ Shadow

For now, the Juan Valdez cafes will be dwarfed by Starbucks -- even locally. There are about 400 Starbucks in Florida, with dozens in Miami alone. Procafecol’s total sales are expected to reach $85 million this year, up from $74 million in 2013 and $67 million the previous year. That compares with Starbucks’ projected 2014 sales of $16.5 billion, according to analysts’ estimates compiled by Bloomberg.

Procafecol represents 500,000 Colombian coffee-growing families, and 18,000 farmers are direct shareholders. To convey that heritage, the company refers to employees as “baricultores,” mixing the word barista with caficultor -- Spanish for coffee grower. Most of its 270 current cafes are in Latin American countries, though they span as far as South Korea andKuwait.

The Juan Valdez brand is based on a fictional coffee grower -- complete with mustache, mule and wide-brimmed hat -- who was used for decades to promote the Colombian industry. Procafecol was created in 2002 to capitalize on the name and generate more revenue for farmers.

Bogota Cafe

Starbucks, meanwhile, spared no expense in pushing into Colombia. The new 2,700-square-foot (250-square-meter) cafe has a heated patio, concrete columns, mirrors on the ceiling and walls of colorful plants. It makes use of locally sourced wood, antique- and hammered-brass light fixtures, and sells Colombian-inspired food such as cheese sticks and croissants with a sauce similar to dulce de leche. Starbucks declined to disclose how much the new store cost to build.

The Bogota location is an attempt to create a new kind of Starbucks store that showcases the brand, CEO Howard Schultz said in an interview when the store opened last week. “We are in a position to open the kind of stores that are similar to what Apple (AAPL) and Niketown have been able to do,” he said.

Southern Push

There are more than 20,500 Starbucks locations in 65 countries, including about 740 stores in Latin America. Last year, the chain opened a 3,000-square-foot store in Bengaluru, India, and two flagships in China. The two-story cafe in Beijing is decorated with mooncake molds, Chinese blue ceramics and has coffee bars on both levels.

In 2002, Starbucks opened its first location in Mexico. Since then, the chain has expanded to Central and South American countries, including Peru, Brazil, Argentina and Costa Rica. Starbucks also is planning stores in Bolivia and Panama.

For Juan Valdez, Florida is a good testing ground for pushing deeper into North America, Mendez said. There’s a large Latin American community there, including Colombians and Venezuelans, he said. “Those are consumers that know our brand, know our coffees,” he said.

Undaunted by Starbucks’ size, the company will try to gain an edge with service and innovation, he said.“It’s very good to have a competitor of this quality because this makes us better,” Mendez said.