Starbucks, Juan Valdez, and the Brewing Battle in Bogota

Last week, while walking from my hotel to Nextant's office in Bogota's Parque 93 neighborhood,

I witnessed a most interesting international business battle that is literally "brewing" across an attractive park no bigger than a football field.

At one end of the park, is something that we all have come to expect in almost any busy urban area in the world: a Starbucks. But what makes this Starbucks special is that it is the first-ever Starbucks' in Colombia, the country where Starbucks sources so many of the dark, rich blends served at Starbucks 20,000+ stores around the world. The Parque 93 Starbucks is a three story beauty with multiple coffee bars and attractive art work. And, despite having waited so long (or perhaps because of it), the newly opened store received long lines of customers at its grand opening this last summer as well as a good amount of press both in Colombia and internationally. See here.

Directly across the park sits a Juan Valdez Cafe, to date, Colombia's largest and best-known coffeemaker. While nowhere near the international giant that Starbucks has become, Juan Valdez has enjoyed its own prosperous growth both at home, through a chain of approximately 200 outlets in Colombia, and in foreign markets through dozens of stores in the US, Europe, the Middle East, and Asia. Unlike the Starbucks across the street, which has only limited outside seating, patrons at the Juan Valdez in Parque 93 mostly sip their coffee while sitting around the perimeter of the store where, if they look across the park, they can get a glimpse of Juan Valdez's new rival from the North.

What is at Stake

At first blush, one might think that the battle being played out across Parque 93 is simply a competition to attract the hundreds of busy workers walking to and from their offices and local stores. But there is much more going on here. For Starbucks, the expansion into Colombia may be the ultimate test of the power of its brand. Colombians have never had either a shortage of rich, delicious coffee or the appetite to consume large quantities of it. So, if Starbucks can enter Colombia and win over market share without sacrificing its premium pricing, it will speak volumes about everything else that Starbucks does around the coffee -- its creative combinations of drinks (like the insanely popular Pumpkin Spice Latte), its many comforts and conveniences (like those really comfy chairs), and its dedication to customer service. In essence, if Starbucks can win in Colombia, it can win anywhere and everywhere.

Parque 93; Where Starbucks and Juan Valdez are Battling

The stakes for Juan Valdez may be even higher. Juan Valdez is synonymous with superior Colombian coffee. Their stores are reasonably comfortable and, like Starbucks, they promote their brand in multiple ways ranging from coffee mugs to clothing, but the focus of Juan Valdez is and always has been about the coffee itself, its history, and the Colombian growing community that owns the brand. Starbucks' arrival might challenge this model and cause Juan Valdez to shift away from its roots. But, if Juan Valdez can defend its turf and continue to grow against an impending wave of Starbucks openings (they plan to open 50 stores across Colombia in the next few years), it will show the world that the most discerning coffee drinkers in the world -- Colombians themselves -- prefer a superior product over the more luxurious (and expensive) experience that Starbucks offers.

What We Can Learn So Far

During my visit to both stores, I could not detect a decided advantage in terms of customer traffic. Both stores had lines and most of their tables were filled. By all outward appearances, it looked like a tie so far.

But, a little more digging and analysis reveals three early winners:

1. The big expansion winner may turn out to be Juan Valdez

According to multiple reports, sales at the Juan Valdez store at Parque 93 have increased 30% since the Starbucks opened. This initial spike in sales is likely to add to the recent bullishness at Juan Valdez about their own expansion plans which will no doubt accelerate following an IPO planned for 2016. (See this Bloomberg article on recent store openings in the Miami area). While these renewed expansion plans would need to fare better than Juan Valdez's initial efforts last decade to expand in the US -- plans that ended with the closing of their flagship Times Square store due to high rent costs and a stagnant US economy, see here, -- success in the Parque 93 battle just may turn out to be watershed moment for Juan Valdez's transformation into a true "Global Latina" company. The irony may come full circle if and when we see another Juan Valdez in Seattle! (prior ones there closed a few years ago, see here)

2. Starbucks' carefully planned expansion strategy

Whatever its arrival means for Juan Valdez (and other local companies), Starbucks is following a carefully crafted expansion strategy that will no doubt maximize its chances of success. The main feature of Starbucks' strategy is to adapt its stores and offerings to feature what is special about Colombia, rather than try to make Colombians bend too much to Starbucks' standard formula. As this fact sheet shows, Parque 93 is Starbucks first and only store that serves only 100% local Colombian-sourced coffee. It also features a second story bar where local baristas provide customers insights into how the coffee is sourced and blended. Finally, Colombian artists designed the beautiful decor and artwork. In sum, Starbucks may be bringing higher prices to Colombia but is otherwise going to great lengths to avoid imposing a foreign formula.

In developing this strategy, Starbucks sought out and listened to the advice of its joint venture partners --- Alsea SA de CV of Mexico and Grupo Nutresa SA of Colombia -- firms that have helped several other major brands that have successfully entered Colombia. While this may be a rather obvious approach, Expansion Insights readers will recall huge failures by companies that did not listen to their local partners (see Home Depot's Failure in Chile) or just simply sought to impose what worked in the US to the local market. (see Target's Cold Canadian Bath).

3. Colombia is becoming a key expansion market

While it is too early to tell who will ultimately prevail in Parque 93, it is quite apparent that the location of the battle -- the Colombian market -- is becoming a major international expansion player . Companies such as Starbucks are increasingly drawn to Colombia's booming economy -- projected recently to grow almost 5% in 2014 -- and the increased spending power of its almost 50 million citizens.

And, as the Juan Valdez story shows, Colombia is not only a target of expansion but also home to companies intent on taking market share in new markets near and far from home. Stay tuned for future posts on other Colombian companies winning in and outside Colombia, like the burger chain, El Corral.

In the meantime, we will continue to watch and update our readers on the coffee battle brewing in Parque 93.

For a downloadable pdf version of this article, please see here.

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Andres Snaider is a founding partner of Nextant, a consulting firm specializing in assisting companies expand their businesses in international markets, with a strong focus on Latin America. With a degree in law and experience working as an international attorney and businessman, Andres has advised clients on a range of commercial matters and investments across the Americas. He is a graduate of the Harvard Law School and currently lives and works in Boulder, Colorado.

Email Andres at : asnaider@nextant.com

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