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Ex-Colombian diplomat launches chain of Juan Valdez coffee shops
The Washington Diplomat / October 2004

By Larry Luxner

WASHINGTON — Juan Valdez is easily the world's best-known coffee farmer. Since 1959, he and his trusty mule Conchita have been appearing in newspaper, magazine and TV ads promoting 100% Colombian cofffee from washed mild arabica beans.

Thanks to Juan Valdez — considered one of the most successful marketing campaigns of any commodity in history — more than 75 brands and 500 major customers carry 100% Colombian coffee product lines, including Maxwell House, Folgers and Sara Lee.

Now Juan is going upscale.

On Sept. 14, the nation's first Juan Valdez Cafe opened at the Washington headquarters of the Organization of American States (OAS) at 19th and F Streets. It's the first of what promises to be a chain of up to 300 Juan Valdez coffee shops throughout the United States, Latin America and Spain.

The outlets are the brainchild of the National Federation of Coffee Growers of Colombia, a powerful Bogota-based farm cooperative that for the last two years has been run by Gabriel O. Silva, Colombia's former ambassador to the United States.

"With this coffee shop, we will take advantage of the past to make sure Colombian coffee has a future," Silva told the Diplomat in an interview the day after the inauguration party, which attracted about 120 dignitaries including former Colombian President César Gaviria and the current Colombian ambassador in Washington, Luís Alberto Moreno.

At the event, federal government employees, OAS staffers and college students from nearby George Washington University lined up to have their picture taken with Juan Valdez and his mule. Waiters strolled among the crowd, offering salmon delicacies, chicken fingers and champagne. Once Silva, Gaviria and other VIPs cut the ribbon, the store officially opened for business and coffee suddenly became available.

And what a variety of coffee Juan Valdez is coming up with these days. In a direct challenge to Starbucks, the new Juan Valdez Cafe boasts no less than seven distinct blends: Sierra (organic), Volcán (espresso), Cumbre, Colina, Pico, Macizo and Maragogipe. Ranging from acidic to mild, the only thing these blends have in common is that they all come from Colombian coffee beans, grown from 2º to 12º north of the Equator, in 86 distinct coffee microclimates.

The variety of beverages derived from these beans is equally impressive; these include Tinto Cardamomo, Ristretto, Macchiato, Café Latte, Capuccino Vienes, Nevado Chocolate and Café Moka Frio.

"If you look at this cafe from the outside, you can tell that it doesn't look like Starbucks. This highlights the fact that we are different," said Silva. "Their value proposition is based on providing a social experience. Ours doesn't reject that, but we're concentrating on coffee. We want the consumer to have the best coffee experience ever."

Silva, born and raised in the Colombian port city of Barranquilla, is a political scientist by training. He did graduate studies at Johns Hopkins University and became a national security adviser to President Virgilio Barco in 1986. He later served Gaviría as international affairs adviser and was named Colombia's ambassador to the United States in 1993 — a job he held for two years.

Upon leaving his ambassadorial post, Silva and some U.S. partners launched a $160 million private equity investment fund. He was involved in that fund as well as another venture called Global Education Group until joining the National Federation of Coffee Growers of Colombia two years ago as CEO.

At present, the federation — established in 1927 —has over 560,000 members and ranks as one of the largest rural NGOs in the world. Its funds are derived from a 5% tax on all coffee exported from Colombia.

"Our commitment is not to profits but to providing social services to coffee growers," he said. "The Colombian coffee industry went through a huge crisis. In 2002, we had the lowest prices for coffee in 100 years. There's been some improvements, and real prices have grown by 10% in the last two years, but you have to compare that to a loss of 60% a decade ago. Trends change, but we're very far from a sustainability level. So we need to find solutions."

This year, Colombia's coffee crop is projected at 11 million 60-kilogram bags. Of that, 1.5 million bags will remain in Colombia for domestic consumption, while 9.5 million bags worth $900 million will be exported, representing 7% of Colombia's foreign-exchange earnings. Between 25% and 30% of those coffee exports go to the United States. Other large customers include Germany, Japan and Great Britain.

"The relevance of the coffee industry is not so much in terms of foreign exchange, but in jobs. Four million people live off coffee, representing 30% of rural employment. The social significance is even higher," explained Silva. "The coffee we sell here was purchased at a 20-30% premium over regular prices. The royalties and dividends will be invested back into social development."

Fortunately, he said, the coffee-growing areas have escaped much of the political violence that has plagued Colombia for the last 40 years. "That has to do with the fact that the coffee-growing areas are very democratic in terms of ownership; 95% of the farms are less than three acres in size," he said. "These are very small farms run by families, so there's a lot of social equilibrium."

Under the federation's direction, profits from the export of all Colombian coffee are reinvested in a variety of programs that have significantly improved the standard of living for more than two million people in Colombia's coffee-growing regions.

Thousands of miles of access roads, a safe and adequate water supply, new schools, electrification, housing and health clinics as well as modern coffee processing facilities have all been developed with money earned from the sale of Colombian coffee beans.

"The Juan Valdez stores are just one leg of a strategy which is basically aimed at capturing added value throughout the coffee chain and bringing it back to the producers," Silva told the Diplomat. "If you look at the way in which the coffee industry is structured, 85-90% of the income generated by the industry is lost to the producer. A coffee bag that's sold for $10 here is worth only 70 cents in Colombia."

Silva added that the recent announcement that the United States is rejoining the International Coffee Organization "is very good news for the coffee industry and for us. We think it will help ease the dialogue and accelerate solutions to the crisis."

The United States withdrew from the ICO in the 1990s to protest what it regarded as an effort to use quotas to control prices. The change in attitude may have been influenced by the ICO's more market-oriented approach of recent years.

At the same time, coffee drinkers in the United States — the world's largest coffee-consuming country — these days seem to care not only about quality, but about where their coffee comes from as well.

"We see a new interest both in quality as well as traceability," said Silva. "We offer the consumer a guarantee that he'll get very high quality, and that every cent he pays will benefit the producer."

To that end, the new Juan Valdez Cafe — along with a second cafe scheduled to open Sept. 28 at 140 East 57th St. in New York — will soon be joined by as many as six more by year's end. These include new locations in Seattle, Chicago, Los Angeles and possibly Miami.

In addition, there are are already 12 Juan Valdez outlets in Bogota and other major Colombian cities; four more are to open at international airports throughout Argentina, "where there's a high recognition of Colombian coffee," says Silva.

"We're also planning to open in Spain next year, and have 50 more stores in the United States in 2005," he said. "We're doing an IPO among the coffee growers, and if everything goes well, we will have other IPOs both in Colombia and the United States. When we get to our goal of 300 stores by 2007, we'll have sales of around $350 million."

Locally, Silva said the federation plans to employ a 'clustering strategy,' meaning that "this store will have a management and training center, and we'll expand around it. In the Washington, D.C., metro area, Bethesda and Alexandria are our prime targets."

Simultaneous with the launch of the Juan Valdez Cafe concept will be an advertising blitz for Colombian coffee not seen since 2001, when the effort went on hiatus due to the crisis sparked by record-low world coffee prices.

The new ads refresh and update the approach of the famous Juan Valdez advertising of years past with a bold new look to appeal to a "new generation" of coffee drinkers. Two-page spreads and single-page ads will appear throughout the fall in People, Entertainment Weekly, US Weekly, InStyle, Food and Wine, Gourmet and Rolling Stone magazines.

In addition, the federation has entered into a joint venture with Salton Inc., the creator of the popular George Foreman Grill, and Italian coffee equipment manufacturer Rossi to develop a single-cup coffee maker featuring the Juan Valdez label.

The sleek new machine, designed by Rossi, is expected to attract a younger set of coffee drinkers, those looking for variety and innovation to spice up their daily coffee routines. It will feature exclusive Colombian specialty coffee pods, in what the federation says will "for the first time bring Colombian coffee directly to consumers' kitchens from the growers' farms — from the tree to the cup."

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