Columbia Coffee Study Juan Valdez

1. Procafecol S. A. Basic information 1. 1. Development and History CH2. Participants in international business – Say if Procafecol is Multinational enterprise (MNE), Small and medium-sized enterprise, or the born global firm CH1. Why Colombia trade coffee? Theories advantages, etc. Coffee was introduced in Colombia in the late 1700s and the first commercial production began in the early 1800s. Despite these early developments, the consolidation of coffee as a Colombian export did not come about until the second half of the 19th century.

The great expansion that the world economy underwent at that time allowed Colombian landowners to find attractive opportunities in international markets. Little by little, the United States became the most important consumer of coffee in the world, while Germany and France became the most important markets in Europe. In 1927 the National Federation of Coffee Growers of Colombia (FNC) was created to help the Colombian coffee growers on structuring a very traditional and atomized sector.

In 1959, during a crisis that came about due to instability of the coffee trading price, the FNC decided to work with Doyle Bernback, an advertising agency (ex DDB) with the goal of building a strong symbol, highly identi? able, that would allow them to promote the speci? cities of the Colombian Coffee and sell the production at a higher price than the current market price. Presently, Colombia is the second largest coffee producer in the world (after Brazil). It accounts for almost 12% of the world’s total production. Coffee accounts for 8% of Colombia’s GDP.

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A personi? ed brand since its creation Following the advice of the advertising agency, Juan Valdez was personified since its creation. He would be the symbol of a Colombian coffee grower worldwide. A mere six months after the launch of the campaign, 87% of the American people associated Juan Valdez with Colombian coffee. In 1961, Juan Valdez was launched on the European market with similar success. Since then, a limited number of actors have personi? ed the emblematic coffee grower focused on protecting the traditions that make his coffee the “best in the world”.

Between 1959 and 2000 more than 750 million dollars were allocated to develop the image of Juan Valdez and to promote the Colombian coffee. Transformation into a commercial icon After a particularly dif? cult political and social period it was really important for the FNC to help the Colombian coffee growers in both economic and social aspects. Procafecol SA was created in 2002 by Fedecafe Federacion Nacional de Cafeteros de Colombia, being the major shareholder along with Colombian coffee growers which own 13,000 shares.

Since 2004, the company has been fully responsible for the operation of Juan Valdez® stores in the country and in 2006 began the distribution of packaged coffee in retail and horeca (hotels, restaurants, catering) channels. Juan Valdez is also offered to passengers of Avianca, the most important airline in Colombia. In a coffee market where prices and margins are really low, a diversi? cation strategy is indeed really pertinent considering the gross margins of gourmet coffee houses (Starbucks, Colombus Cafe... and even more if we consider its direct relation with coffee growers as a strong competitive advantage. Positioned as Gourmet Since the beginning of the project it was made clear that the Tiendas Juan Valdez® are a chain of coffee houses focused on selling coffee products to the consumers. These coffee houses were created to be a part of the coffee supply-chain and to strengthen the awareness of the Colombian coffee. This would gradually increase the incomes of Colombian coffee growers, historical mission of the FNC.

Since their launch, the Tiendas Juan Valdez® was designed to reach the up-market, with an ambiance mixing the Starbucks standards and the touch of a Lounge coffee shop of Barcelona. The warm colors symbolize South American tradition, however they also exhibit luxury and a calm atmosphere. The ? rst Tiendas outlets were opened near business centers, high-end malls and trendy sectors of the cities. Since its creation, this ambitious project based its expansion on a 3 step strategy: 1. Colombian Pilot (2003-2006) 2. International Pilot (2004-2007) 3.

International Development (2006 -…) In 2003, year that the project was launched, 10 coffee houses were opened in Colombia. Since 2004, this international expansion made possible the creation of 10 coffee houses in the USA (Washington, New York, Seattle, Philadelphia) and 2 in Spain (Madrid) 3/ Strengthening the brand image and the commercial development Renewal of the icon In order to sustain the international development of the project it was considered as important to renew the image of the Juan Valdez person, taking care of preserving its historical values.

Since 1994, according to the recommendations of the DDB agency, a new advertising campaign was created to conquer the youth segment. Juan Valdez was acting in different TV commercials and Out Of Home formats where his codes (hat, poncho, moustache) were shown in extreme situations (sur? ng, snowboarding, hang-gliding…), with the strong presence of the historical logo, seal of authenticity and quality for the consumer.

This innovative mix had enormous success in the USA and was awarded in 2005, during the New York AdWeek, it was named as top icon of the year in the USA, even before Ronald McDonald or the Nike Swoosh. Diversifying to fashion Propelled by the commercial success of the Tiendas Juan Valdez®, Procafecol decided to develop a line of alternative products around the authentic image of Juan Valdez. From coffee mugs to umbrellas, more than 50 products were created and sold to consumers. In 2006, the ? rst clothing collection based on the historical icon was launched.

In trendy neighborhoods of Bogota you may ? nd executives with a Juan Valdez jacket or women with the latest model of a leather handbag. Gaining the European market When considering the conquest of the European market, the FNC did a thorough analysis of the consumption trends. Two ? gures impacted the directors of the Federation: European consumers are willing to pay 10% more for a product with a European Label and 73. 9% of them consider it as a quality seal. In September 2007, after 33 months of legal procedure, Colombian coffee became the ? st non-European product to obtain the PGI European Label (Protected Geographical Indication). Juan Valdez could now develop its commercial strategy and think of opening new coffee houses. Two were just created in Madrid while Paris and Moscow are now on the list of the international expansion plan of the Colombian Federation. By the end of 2007, the FNC and Procafecol were running more than 100 coffee houses in Colombia, 10 in the USA and 2 in Europe. They are now launching a new coffee house per month and want to make 2008 the year of their European expansion. 1. 2. Juan Valdez Brand

Describe who Juan Valdez, what the brand represents, is and general details about it. Principal characteristic of the brand, why it is known, importance and recognition of Colombian coffee 1. 3. Strength of identity: Colombian Coffee To understand the influence of GI among Colombia the following four elements represent its national advantage in coffee industry. Factor conditions Due to the uniqueness of topographical factors and two rainfall seasons creates strongly national advantages. 6. 4% of total area of Colombia is cultivation zones, and 12% of coffee production area producing “GI coffee”.

It provides 11 to 12 million production possibility per year. In addition, in 2010, there were 990 airports with 196 thousand air transport carriers, 6 ports and terminals with 2 million port container traffic, 874 km railway routes, 141,374 km roadways (CIA 2010 and The World Bank 2010). 18% of total 22. 5 million labour force involving agriculture, there have been an increasing number of producers after joining GI (Figure1) (Gomez, 2007) as well as foreign direct investment with 6. 7 billion in 2010 (The World Bank 2010). Demand conditions

The demand of domestic market is one of important forces for development of industry. Compared to other countries, Colombia had lower needs of domestic market, which has low per capita consumption with 2. 8 kg only 5% of total national coffee production ( Benni, N. E. and Reviron, S. 2009). The domestic consumption did not increase even joining GI system, maintained at 1,400 thousands bags from 2007 to 2010 (Figure 2). Related and supporting industries In this factor, Colombian coffee industry has lower related and supporting industries.

These industries and processes are mostly run by family or small businesses, due to the relatively simple methods and low investments needed. Firm strategy, structure and rivalry As one of well know coffee producer, Colombia has successfully increased its competitiveness via sophisticated marketing strategies of the FNC. It applies trademark and certification mark to protect Colombian coffee. Since registered GI it has increased consumer’s awareness and creates better advantage against other competitors

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