# LongBench v2 / 66f39aa7821e116aacb2da76

task_id: cffd5666-257d-5ee4-9c69-e5279ea710bf
task_key: train--66f39aa7821e116aacb2da76
task_revision_id: 3

{"choice_A":"Despite the strong brand recognition in Colombia, U.S. consumers exhibited a pronounced preference for experiential over product-oriented purchases, prompting Procafecol to contemplate an expansion into experiential marketing initiatives centered around coffee culture.","choice_B":"The disparity in average spending patterns revealed that U.S. consumers not only spent less on branded merchandise but also demonstrated a different consumption frequency, which led Procafecol to evaluate an approach that highlights sustainable practices and direct farm-to-cup narratives to resonate with U.S. consumers’ values.","choice_C":"Differences in disposable income levels between the two markets indicated a need for tailored pricing strategies; however, Procafecol’s exploration of dynamic pricing models was complicated by consumer perceptions of value, leading them to consider a dual-brand strategy that caters to both budget-conscious and premium segments.","choice_D":"Initial consumer feedback highlighted that the café ambiance in the U.S. was perceived as misaligned with local expectations, leading Procafecol to reassess its branding strategy by integrating localized decor themes while still maintaining a narrative that honors Colombian heritage.","context":"Juan Valdez: Innovation in Caffeination \n \nThe meeting had run longer than expected, and the coffee server—or señora del tinto—had just \nmade her third appearance bearing a tray of small cups. Catalina Crane was initially inclined to beg \noff the third cup, but thought better of it. That kind of thing was rarely done in the halls of the \norganization that guided the coffee industry of the country of Colombia. \nCrane and her team at Promotora de Cafe Colombia (Procafecol) were the stewards of the famous \nJuan Valdez brand. While Juan Valdez had been used to endorse other giant coffee brands for \ndecades, in recent years Procafecol had rolled out its own product lines and even a chain of cafes—\nand Juan was finally front and center. \nProcafecol had experienced many successes since its creation in 2002, but a few dark clouds were \nlooming by the late summer of 2009. Crane was preparing her presentation to Gabriel Silva, the CEO \nof the Federcación Nacional de Cafeteros (mostly referred to as the “Colombian Coffee Growers \nFederation” in English-language publications). Silva, the main architect of the brand expansion \nstrategy that had led to the creation of Procafecol, served as the chairman of the board of the \norganization. The numbers from many of the U.S. locations of the Juan Valdez Café were running \nbehind projections, and the Procafecol team was considering a significant retrenchment. Given the \nimplications for the high-profile Juan Valdez brand and the coffee industry of Colombia, Crane knew \nthat the caffeine from that third cup might come in handy as she nailed down the numbers.  \nEstablishing a Federation and Building a Character \nIn the late 19th and early 20th centuries, Colombia’s coffee sector was dominated by large \nplantations (see Exhibit 1 for background information on Colombia). Instability in the global coffee \nmarket, however, wounded many of these large players. During the 1920s and 1930s, smaller farms \ncontrolled by resident planters came to dominate Colombia’s coffee industry, a structure that proved \nmore capable of adjusting to the vagaries of the international coffee market.1 Still, leaders in \ngovernment and business felt that they needed to invest even more in the stability and growth of this \nsector, which was critical to the economy of Colombia yet vulnerable to the effects of weather, plant \ndisease, changing tastes and wild swings in commodity markets.  \nIn 1927, the Federacion Nacional de Cafeteros (FNC) was established to promote the interests of \ncoffee growers, conduct scientific research in disciplines affecting the cultivation of coffee, and \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n2 \ndisseminate information on effective agricultural and business practices. Exporters at the time paid a \ntax of 10 cents on each 60-kilogram bag of Colombian coffee beans to support the federation.  \nIn the following decades, the FNC promoted quality standards for exported coffee, attempting to \nenhance the image of Colombia’s coffee in an international market dominated by Brazil. Though \ncoffee was viewed largely as a commodity in important markets like the United States, consumers \nwere beginning to develop views on the quality levels of coffee from different regions. In 1959, due in \npart to early promotional efforts by Brazil, 71% of Americans believed Brazil produced the highest-\nquality coffee in the world, with only 3.7% citing Colombia.2  \nThe FNC formulated a strategy to boost the demand levels for Colombian coffee while positioning \nit as a superior product worthy of a price premium in key markets. They created marketing programs \nthat attempted to deepen relationships with coffee roasters3 that would emphasize “100% \nColombian” brands, products with coffee beans solely from Colombia. As part of its promotional \ncampaign, the FNC sought to develop a character to represent Colombia’s coffee producers. The \nAmerican advertising firm, Doyle Dane Bernbach (DDB), created a fictional Colombian farmer to \nserve this purpose. Adorned with an aguadeño hat and a satchel known as a carriel—accessories \ncommonly worn by farmers in the country’s coffee growing regions—the new character was meant to \nconvey a sense of pride, humility and hard work. Thus was born Juan Valdez. \n“Colombia was in the midst of yet another coffee industry crisis in the late 50’s, so we needed this \ndifferentiation strategy. But there was intense debate within the federation, as some asked, ‘How can \nwe sell our industry to the world by projecting ourselves with the image of a peasant?’,” said Silva. \n“A lot of people wanted to sell our industry to the world by showing we were modern and \nsophisticated.” Others within the FNC felt that it was risky to raise the profile of Colombian coffee \nthrough such a campaign given its potential to create conflict with major coffee brands – the buyers \nof Colombia’s beans.  \nBut the FNC began to reap major benefits from the awareness generated by the advertising \ncampaign built around the humble campesino, or farmer. In 1959, only one minor American coffee \nbrand was tagged with a Colombian origin. By 1963, 26 brands boasted a label of “100% Colombian” \nand by 1970 that number had jumped to 53.4 Within just a few years of the launch of the Juan Valdez \nTV and print campaign, 21% of Americans viewed Colombian coffee as the best in the world.5 \nBecoming an “Ingredient Brand” \nIn the 1970s, coffee consumption was on the rise in many countries around the world and \nColombia responded with increased production. One important country ran counter to the general \nconsumptions trends: the United States, the most important market for Colombian coffee. Soft drinks \nhad supplanted coffee in many occasions for beverage consumption, and they were the drink of \nchoice for consumers in younger demographic segments.  \nBut the era also presented opportunities for the FNC. During the “Me Decade” of the 1980s, \nconspicuous consumption of high quality offerings was all the rage—and buyers were willing to \nspend more for these products. In order to deepen its relationships with top-selling brands in the U.S. \nand to support price premiums for products containing Colombian coffee, the FNC introduced a new \nelement to the marketing program built around the now-iconic Juan Valdez. The character’s \nmustachioed face had become ubiquitous on television and in print advertisements in the U.S. and \nother selected markets, generating high awareness levels (see Exhibit 2 for 1980s promotion and \nadvertising expenditures by country). The image of Juan Valdez (along with that of his trusty mule, \nConchita) would now be incorporated into a new logo that coffee brands could place on their \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n3 \npackaging to denote that their products contained 100% Colombian beans. Some in Colombia’s coffee \nindustry were worried that the new “ingredient brand” program might sow the seeds of conflict with \nlarge customers. “In our archives, I’ve seen the letters from the head of Maxwell House [one of the \nlargest U.S. brands] from the 1980s saying, ‘We will never use this 100% Colombian brand’,” said \nLuis Samper, director of the FNC’s Intellectual Property group. \nThe ingredient brand program significantly impacted several parts of the FNC’s marketing \nprogram. By 1989, 66% of American consumers stated that Colombia produced the best coffee, while \n16% cited Brazil.6 (See Exhibit 3 for historical statistics on the recognition of Colombian coffee in the \nUnited States.) When compared with competitive products from South and Central America, the \nprice premium enjoyed by Colombia’s standard export green coffee beans—referred to as “Usual \nGood Quality” (UGQ)—was significant, but varied by year depending on market conditions.7 “The \ningredient brand strategy was a major success, but it was really limited to the big cans of coffee that \nwere sold in the supermarkets,” said Silva. “That kind of product represents one mode of \nconsumption. The program was not as conducive to capitalizing on growth in other, newly emerging \nforms of coffee consumption.”8 \nThe New Coffee Revolution \nAlmost 4,100 miles to the north, in Seattle, Washington, another rising coffee brand began to \nimpact the fortunes of Juan Valdez, the FNC and the world coffee industry as a whole. Throughout \nthe 1990s, Howard Schultz worked to transform Starbucks, for years a local haunt near Seattle’s Pike \nPlace market, into a national and then global coffee powerhouse. Schultz sought to reinterpret the \nItalian coffee bar experience for the modern consumer. Though most Americans seemed content for \ndecades with drip-brewed coffees in a very limited variety of flavors, Schultz banked on the notion \nthat people would pay double or triple normal coffee shop prices for high quality espresso-based \ndrinks served in a welcoming environment.  \nIn the course of a decade and a half, Starbucks essentially created a “coffee culture” in the United \nStates and transformed coffee purchase and consumption patterns in dozens of countries. After going \npublic in 1992 with 165 stores, Starbucks grew to over 6,400 locations by 2003 and around 16,000 \nstores by 2009, reaching sales of $9.8 billion.9 The ubiquitous cafes were where the action was in the \ncoffee industry—and Juan Valdez was on the outside, looking in. Starbucks educated consumers \nabout coffee from other regions in Latin America, Africa, and elsewhere, even featuring premium \nblends that connoisseurs could take home to brew in their own kitchens. “Starbucks left Colombia an \norigin relevant for the ‘mainstream’ segment of the coffee market and not for the specialty segment, \nbut it was obvious that the profitable segments of the market were specialty and gourmet,” said \nSamper. “Our coffee seemed less exotic and fashionable.” \nThe changing demand-side of the burgeoning specialty coffee market had some surprising effects \non the supply-side of the industry. With the expansion of Starbucks and other high-end chains, \ncoffee-growing countries increased the amount of land under cultivation for both the bulk beans and \nthe specialty varieties needed to serve the growing base of aficionados. Starbucks could be selective \nabout which varieties it featured on its menu since its brand had become the main endorser of taste \nand quality. “Our industry and our coffee farmers became less important parts of the value chain in \ncoffee,” commented Alejandra Londono, Marketing Director for Procafecol. “In 1997, coffee was sold \nat retail for $4.80 per pound and producers received 28% of that price and roasters got 61%. By 2003, \ncoffee was selling for $3.70; producers got 13% and roasters made 76%. This was not a good trend for \nColombian coffee farmers.” \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n4 \nAnother Crisis, Another Opportunity \nColombia’s coffee federation had built a dominant ingredient brand and partner network in \nmarket segments that were stagnant at best and showing signs of contraction. Though their beans \nwere viewed as the highest quality for decades, hundreds of thousands of Colombia’s farmers were \ngrowing coffee varieties that were approaching commodity status. In the early 2000s, these new \nindustry dynamics—combined with the lowest green coffee prices on record—were inflicting pain \nthroughout the coffee-growing, processing and marketing sectors in Colombia. The FNC, and indeed, \nthe country, needed a new approach. \nIn 2001, the Colombian government assembled a commission composed of leaders from the public \nand private sectors to examine the competitive situation of the coffee industry and map out new \npotential strategies. Gabriel Silva, a former presidential advisor, a former Ambassador to the U.S. \nand, at the time, a private equity investor, was asked to serve on the commission. “We had a \ncollection of people with close relationships to the industry, but no one with interests in the \nindustry,” stated Silva. “Over a period of six months, we had beautiful debates . . . wonderful \ndiscussions. The process was quite convergent. In the end, our recommendations were quite precise. \nWe didn’t just assemble general views of a mission or a vision.” \nThe group’s strategy was captured in “The Green Book,” an expansive strategic analysis and \naction plan that called for a significant revamp of the FNC and the entire Colombian coffee industry. \nSome major tenets of the plan included capitalizing further on the Juan Valdez brand, seeking out \nopportunities to create new value-added products, and taking a role in parts of the value chain and \ndistribution channel traditionally left to other players. \nEven though the commission had developed a strong consensus on the federation’s strategic \ndirection, it remained to be seen who would lead the FNC as it executed its new plan. “The previous \nCEO had resigned. No one wanted the position because the crisis was so big. The only one ready, \nwilling, and motivated—and convinced we could implement this vision effectively—was myself,” \nsaid Silva. By the time Silva assumed the helm of the FNC, many of the board members and officers \nof the organization had also departed. Silva wanted to test the commitment of the managers and \nstaffers who remained. “I used a little trick to measure people’s capacity to change. I immediately cut \nmy pay by 10% and then asked others to take a similar pay cut to show their belief in the future of the \norganization. It was a good indicator of the depth of their commitment,” he recalled. “I had to ask \nthree of the top 15 executives to leave because I didn’t fully believe the sincerity of their willingness \nto change and innovate.” Before Silva arrived, the average service time for executives in the top tiers \nof the federation was almost 30 years. Within a few years, the average tenure of managers in the top \nranks had decreased by nearly two decades, with new leaders such as Crane (who had previously \nserved as a Vice-Minister of Finance in Colombia’s government) and Samper occupying key posts. \nSilva also streamlined the FNC by selling businesses he viewed as not core to the mission and \nstrategy laid out in “The Green Book.” Over a few decades, the FNC had channeled resources into \npurchasing and/or developing an airline, a shipping company, ports, insurance companies and \nbanks. Though they kept a small investment in port operations, Silva and his team profitably \ndisposed of the other ventures within a few years, focusing the FNC onto the evermore-challenging \ntasks of creating and marketing coffee products within the international marketplace. \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n5 \nUp to the Challenge? The FNC and Colombia’s Coffee Industry \nPart industry association, part marketing company, part public works organization, the FNC was \na unique not-for-profit hybrid (see Exhibit 4 for the FNC’s income statement). The FNC at times \ncollaborated with and at times competed against the likes of roaster/retailers such as Starbucks and \nconsumer products giants like Sara Lee and Nestle. Its roots in Colombia were deep, without \nquestion, but leaders in the coffee industry and government hoped the organization could extend its \nreach as well. \nThe Grassroots Level: Serving the Coffee Farmers \nIn the midst of the FNC’s sales of non-core assets, Silva tried to drive home his philosophy to any \nwithin or outside the organization who had forgotten about the key mission of the federation. Said \nSilva, “We created a lot of goodwill with our constituency by simply saying, ‘First come the coffee \ngrowers’.” Samper emphasized why this simple mantra was so critical to the FNC’s organizational \nvalues, branding and strategy. “Of course, you want to be great at innovation, distribution and brand \ncreation in the coffee industry, but there is one thing we can’t get away from: we represent \nColombian coffee growers. They are the ‘manufacturers’ and they have to be the ‘manufacturers.’ You \ncan’t outsource the growing of coffee to China. It will be done on our small farms by our farmers.” \nWell over half a million cafeteros were engaged in the cultivation of coffee in Colombia, a country \nof 44 million. Most Colombian coffee farms were small scale; 95% of plots under cultivation were \nbelow five hectares (around 12.5 acres) and were usually developed on hillsides, making them not \nvery conducive to modern, mechanized agricultural techniques. “Only 4,000 of our growers have \nmore than 10 hectares in coffee. In some areas of Brazil, the plantations have 10 hectares in their \nbackyards and then the farm starts,” quipped Samper. Almost all of Colombia’s cafeteros picked their \ncoffee beans by hand. The proximity of Colombia’s coffee growing zones to the equator meant that \nthe country experienced optimal growing conditions—in terms of temperature, hours of sunlight and \nprecipitation—twice a year, according to the FNC. One branch of a coffee plant might have ready-to-\nharvest coffee “berries,” immature berries, flowers and buds simultaneously. A Colombian farmer \nmight have to pick from an individual plant eight or more times throughout the year in order to \nmaximize production. Coffee plantations in countries located in tropical latitudes a few thousand \nmiles north or south of the equator experienced one main growing season. Large, flat plantations \nwere prevalent and mechanized harvesting was much more common in leading exporting nations \nthan it was in Colombia (see Exhibit 5 for coffee production by country). \nOnce a Colombian farmer had harvested the ripe berries from his fields, he would process them \non his property in a machine that removed the reddish skin and thin layer of fruity pulp from the \nhidden bean. The beans were then dried—usually in the sun—and another thin layer of material \ncalled “parchment” was stripped away from the bean, at this point in the production cycle called \n“green coffee.” Though experienced cafeteros would often spot and discard in the field coffee berries \nthat had been compromised by pests, they would also conduct a quality check of the dried product \nand separate out any disfigured beans (which might be roasted in a farm family’s oven for personal \nconsumption). The FNC enforced stringent quality standards on any green coffee meant for export. \nOnce they had dried their beans, farmers would transport their products to the nearest city or \ntown. Large operators might make this trek with many 60-kilogram bags, but small farmers might \njourney to the market with less than one bag, especially if they needed cash urgently. “Once they are \ndown the hill and in town, the farmers are price-takers. This is a cash business for them and most \nneed to sell their products quickly,” said Juan Restrepo, the Federation’s Commercial Manager. “That \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n6 \nis why it is so critical that the FNC be a credible market actor and set a predictable floor for the \npricing.” The FNC operated in around 500 locations for raw coffee bean sales scattered throughout \nthe country. The federation purchased approximately 30% of the country’s coffee to deliver a \n“minimum price signal” to farmers and private purchasers alike.  \nThe FNC had 15 regional offices in the major coffee growing zones. These offices supervised a \n1,500-person agricultural extension service—through which experienced farmers and other educators \nwould pass on farming and environmental management techniques to cafeteros—and administer \nother aid, service and infrastructure programs supported by the FNC and government agencies. For \nexample, Pereira, a city of 576,000 located 109 miles west of Bogota, hosted the FNC office that \nsupported Colombia’s seventh largest coffee-growing region, accounting for around $170 million in \ngreen coffee sales. The Pereira office represented approximately 21,000 coffee-growing families with \nits staff of 80, including 50 field-based extensionists. The Pereira office utilized $2.9 million in FNC \nfunds, but also received the equivalent of several million dollars in additional resources from national \nand local government entities as well as international non-governmental organizations in order to \nhelp administer other programs. \nThe Politics of Coffee \nThough on one hand the FNC aimed to be a nimble and sophisticated player in the competitive \ncoffee market, at its base it was still a democratic institution composed of over half a million coffee \nfarmers. And whether the farmer measured his production by the ton or by the bag, the FNC adhered \nstrictly to its values of “one man, one vote.” Indeed, a 2005 promotional video geared toward \nattracting new roasters to the “100% Colombian” program trumpeted the role of the FNC as a \n“democratic stronghold” for all of Colombia.  \nFarmers elected representatives to local and regional boards that oversaw on-the-ground \nprograms such as coops, extension services and aid programs. The cafeteros also voted for candidates \nto represent them in the National Coffee Growers Congress, a 90-member body charged with \nselecting the FNC’s CEO, approving strategic plans and reviewing yearly budgets. The Board of \nDirectors of the FNC was composed of individuals submitted by the local boards of each coffee-\ngrowing region and then approved by the Congress. While most Board members were coffee farmers, \nsome were esteemed individuals from the region—such as former cabinet ministers—whom the \nmembers of the regional board thought would best represent the interests of growers in that area. The \nBoard of Directors was responsible for overseeing most of the outward-facing aspects of the \nColombian coffee industry, including international sales, partnerships with leading coffee roasters \nand the Juan Valdez branding campaign. \nThe Board also oversaw the Fondo, a reserve of monies collected via a six-cent fee on every pound \nof Colombian coffee shipped overseas. The FNC administered the Fondo, investing a portion of it on \nbehalf of the cafeteros and also using it to support its coffee bean purchase operations and rural \ndevelopment programs. Over the last several decades, these funds had enabled significant \nenvironmental, road-building and electrification projects in rural areas. The FNC also supported \neducational programs for the children of cafeteros and the spread of information technology into the \nhinterlands of the coffee-growing zones. The tens of millions of dollars allocated by the FNC were \nfurther leveraged by additional contributions by the Colombian government, private foundations \nand NGOs. \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n7 \nSelling the Beans \nThe FNC played various roles in the marketing of Colombia’s green coffee all over the world. It \noperated offices in cities including New York, Amsterdam, Tokyo and Beijing. For instance, FNC \nrepresentatives would encourage major coffee brands to participate in the “100% Colombian” \nprogram and develop local marketing campaigns. Restrepo’s group brokered deals with major coffee \nplayers around the world for beans procured by the FNC through the purchase guarantee program. \nTrends such as the rise of Starbucks had made end-consumers more discerning, and roasters needed \nnew tailored solutions to please them. “We used to sell coffee by the shipping container, now we \noften have to sell it by the bag,” said Restrepo. Brands around the world sought certain taste profiles \nfor their proprietary blends, balancing levels of acidity, robustness and flavor undertones to create \ndistinctive products. Some roasters sought beans grown via certified organic methods or from a \ncertain region of the country to differentiate their brands within the “100% Colombian” program. In \n2002, around 4,000 Colombian coffee farms had received some sort of environmental or other \ncertification; by 2009, the number was nearly 80,000. Restrepo and his team used their expansive \nknowledge of the country’s coffee-growing regions and even individual farms in order to help buyers \ndevelop unique blends and build marketing programs.  \nEven though these efforts led to price premiums for Colombian green coffee and deeper \nrelationships with roasters, these tailored marketing and sales programs were not without their \ndetractors within the FNC. “Our board was used to a simple concept: ‘100% Colombian Coffee.’ \nPeriod. It was difficult for some to acknowledge that there was more value to capture,” said Restrepo. \n“We had a successful, unified marketing message for decades. But, some thought that if Colombia \nwas touted as a ‘land of coffees’ rather than a ‘land of coffee’ we risked the effort we had already \nexerted on branding.” \nThe Art and Science of the Coffee Industry \nThough the average consumer might not know it, there was a great deal of science behind a cup of \nColombian coffee. The FNC had supported research into agricultural best practices and \nenvironmental trends since its earliest years. Its Cenicafe research complex near Pereira managed \ndozens of programs on the science of growing and processing coffee. The 12,500 square-meter \ncomplex housed over 180 professionals, including biologists, chemists, agronomists, meteorologists \nand geologists—and even a few “cuppers,” coffee tasters with some of the most discerning palates in \nthe world. Since protecting the value of the “100% Colombian” mark was so critical to the federation, \na number of researchers focused on analyzing the distinctiveness of Colombian coffee. Cenicafe \nscientists employed chromatographs to break down the chemical composition of beans from around \nthe world and genetic research tools to analyze the genome of Colombian coffee plants. \nEnvironmental issues were also of paramount concern to Cenicafe researchers. Climatic changes had \nalready impacted the Colombian coffee industry, turning some traditional growing regions into \nzones of marginal productivity. Cenicafe investigated new strains of coffee that were more tolerant of \nthe evolving climatic conditions and studied how the environment affected pests, plant diseases and \nother flora and fauna in coffee-cultivating zones. \nThe FNC’s Intellectual Property group also spearheaded many research projects designed to \nshowcase “our profound knowledge of our product,” according to Samper, the leader of the group. \nThe FNC had created “bean track” software that helped roaster clients and consumers ensure that \nthey were getting coffee from the Colombian regions or communities they intended to buy from. \nConsumers, for instance, could type a code from a package into an FNC website and learn more \nabout the beans that went into their coffee. For some of the coffee-growing regions, Samper’s group \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n8 \nhad commissioned multimedia virtual tours that allowed coffee connoisseurs to see working farms \nand learn more about growing practices in those areas. “Viewing this kind of content would appeal \nto people in the same way learning about the wine-growing regions of France or Napa Valley is \ninteresting to wine-lovers,” commented Samper. He envisioned a network of terminals that would \nallow consumers to view these vignettes in cafes and gourmet food shops. The Intellectual Property \ngroup also investigated issues such as the carbon footprint of the Colombian coffee industry and \nstudied strategic trends in the global coffee industry.  \nAs a part of its attempt to add value to Colombia’s coffee exports, in the 1960s the FNC developed \na facility to freeze dry coffee. Expanded many times in succeeding decades, the facility, in Caldas \nprovince west of Bogota, had become one of the largest producers of soluble coffees in the world and \na leader in R&D on products and manufacturing techniques. Though the FNC did produce its own \nniche soluble coffee brand called Buendia, nearly all of the plant’s capacity was committed to export \nproducts, primarily private label coffees for retailers such as Walmart and other players in Europe, \nRussia and Asia.  \nThe New Juan Valdez \nIn 2006, the man who had portrayed Juan Valdez for 37 years, Carlos Sanchez, handed over the \nConchita’s reins to a new Juan. Sanchez had appeared in nearly 100 commercials and even made a \ncameo in the Jim Carrey movie Bruce Almighty, delivering the perfect cup of coffee to the God-like \nBruce. During Sanchez’s tenure, Juan Valdez had become one of the most recognized brands in the \nworld, receiving a citation in 2005 from Brandweek as the top U.S. advertising icon, sharing the honor \nwith the Geico Gecko and beating out the likes of Ronald McDonald and the Energizer Bunny. Like \nSanchez, the new Juan Valdez, Carlos Castaneda, was a real working cafetero before stepping into \nthis role of a lifetime, representing his profession, an entire industry, and, indeed, his country (see \nExhibit 6 for photos of portrayals of Juan Valdez). \nProcafecol: Raising Juan’s Profile \nThe FNC had successfully managed one of the world’s iconic advertising characters for decades, \nbut Silva felt even stronger marketing capabilities would be needed if Colombia were to achieve the \nambitious goals laid out in “The Green Book.” In 2002, a new legal entity called Promotora de Cafe \nColombia (Procafecol) was created to manage all consumer-facing branding and marketing activities \ninternationally (see Exhibit 7 for financial information on Procafecol). Procafecol was initially staffed \nalmost entirely by FNC veterans and was co-located in the office complex with the remaining \nelements of the FNC. Shares in Procafecol were offered to members of the federation in 2007; 22,567 \nindividual coffee growers bought stock in the new entity, raising a total of approximately $9 million \nat a valuation of around $60 million.10 The remaining shares were held by the World Bank’s \nInternational Finance Corporation and the FNC. \nSilva aimed to have Procafecol accelerate the evolution of the Juan Valdez brand. He hoped Juan \nValdez would soon be a full-fledged product and service brand linked to offerings developed, owned \nand marketed by Procafecol. The expanded use of Juan Valdez products would allow Colombian \ncoffee to “conquer every occasion,” according to Silva. “We can’t compete on price with other \nproducers. We’ve needed differentiation and innovation. We recognized we had created a huge asset, \none of the most well-regarded brands in the world,” he said. “But our differentiation was no longer \nsufficient to capture the margins we needed. Our ‘ingredient brand’ was associated with limited \ntypes of consumption in the middle tiers of the market.” By owning a larger portfolio of products and \nservices, Colombia would participate in more parts of the industry’s value chain. Samper \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n9 \ncommented, “Our coffee growers need to benefit more from the use of their coffees. We need to \ncombat what we call ‘The Cartagena Syndrome,’ where our coffees suddenly command huge margins \nonce some other industry player has bought the beans from us and shipped them out of the Port of \nCartagena.”  \nCreating Cafes \nThe familiar face of Juan Valdez was about to become even more familiar to coffee lovers in key \nmarkets. In 2002, Procafecol opened the first “Juan Valdez Café” at a location in Bogota’s \ninternational airport. At the ribbon-cutting ceremony, Alvaro Uribe, the President of Colombia, \nannounced to “Juan” (Carlos Sanchez) and an assemblage of Procafecol and FNC officials, “Juan, you \nthought that you had left a legacy . . . [but] now you have to start growing again.” President Uribe \nalso expressed a hope that the cafes would become a huge business opportunity for the Colombian \nDiaspora all over the world. “We received about 4,000 applications from Colombian expatriates after \nthat,” said Londono. \nProcafecol planned to site Juan Valdez Cafes primarily in developed, western nations with \nentrenched coffee-drinking cultures. Markets that had been exposed to Juan Valdez through \nsignificant advertising campaigns, such as the United States and Spain, would be at the top of the \npriority list. Though most consumers in Colombia were not familiar with the Juan Valdez brand—the \ncharacter had not been used in major domestic marketing campaigns—the team planned to develop \nthe first ten cafes in Colombian cities in order to test and refine the concept. \nExecutives within Procafecol believed that though they had much of the expertise needed to make \nthe Juan Valdez Café successful, they would have to partner with outsiders to bring in key \ncapabilities. “We knew how to sell green coffee, but we didn’t know how to sell cappuccinos,” said \nCrane, who transitioned from being the CFO of the FNC to the CEO of Procafecol in 2008 upon the \ndeparture of the previous CEO, who had come from the Colombian beer industry. An experienced \ninternational retail consulting and architecture firm designed the identity and floor plans for the early \nstores. Procafecol also planned to partner with retail and restaurant operators in international \nmarkets who knew the economics of food and drink operations and also possessed specific \nknowledge of local regulations, culture and tastes.  \nJuan Valdez Cafes would be “American-style cafes,” which meant they would emphasize speedy, \ndependable service and deliver their products in convenient paper cups that could be taken on-the-\ngo. They would be situated mainly in high-traffic, prestige commercial and retail districts, sometimes \nincorporated into existing developments and sometimes built as standalone facilities (see Exhibit 8 \nfor photos of early locations). Commenting on the design of the cafes, Londono said: “We wanted \nrepeat consumers, so we had to avoid a decor that would be perceived as ethnic, a type of ‘poncho \nand sombrero ambiance’ that would justify only a one-time visit. We had to be modern, but at the \nsame time we wanted to show consumers our roots, that this is the Colombian coffee growers’ \nbusiness owned by the growers themselves.”  \nThe menu for a Juan Valdez Cafe was similar to that of a Starbucks, though a bit more focused. \nThe Juan Valdez Cafe would offer several varieties of distinctive Colombian coffees and other drinks \nlike cappuccinos, mochas and hot chocolate, but not teas. The stores also offered a limited food menu, \nincluding some hot breakfast sandwiches. \nThe drink menu utilized only beans grown in Colombia, which required a bit of tweaking to \ntraditional barista techniques and recipes. Colombia’s coffees were exclusively of the mild Arabica \nvarietal, while espresso was customarily brewed from the stronger Robusta family of coffee beans. \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n10 \nSince drinks like cappuccinos, mochas and macchiatos were traditionally based on espresso, Juan \nValdez baristas needed to take some special measures in order to have the milder Arabica grind \nemulate regular espresso in these drink recipes. \nEverybody Loves Juan \nThe rollout of the initial Juan Valdez Cafes in Colombia was very successful, surpassing the \nprojections of Procafecol management. The average ticket in the stores was higher than anticipated, \nwith robust levels of food orders and impressive sales for Juan Valdez branded merchandise such as \nT-shirts and mugs. “Even though Colombians weren’t very familiar with the Juan Valdez brand \npreviously, they really came to view these cafes as a source of national pride,” said Crane. The \npositive results encouraged Procafecol to dramatically bolster their domestic expansion plans even as \nthey laid the groundwork for their international thrust.  \nGoing it alone in the café business had not always been the plan for the Colombian coffee \nindustry. Before the advent of the Juan Valdez Cafes, some within FNC had hoped that Starbucks \nwould be the venue to promote Colombian coffees at the retail level in major markets. “I went to \nStarbucks and offered them an alliance, a ‘Colombia Corner’ in their stores,” recalled Silva. “We \nneeded to get the message about coffees of Colombian origin to this new consumer without \nintermediaries.” The talks with Starbucks proved unfruitful. \nProcafecol launched its first stores in the United States in 2004. It planned to develop around 50 \ncafes in a three-year period, capitalizing on Americans’ familiarity with, and affinity for, the Juan \nValdez brand. Times Square was selected as the site for the U.S. flagship store. The café contained 20 \ntables and was built with premium fixtures and materials, contributing to a build-out expense that \nwas probably 20% higher than that of a prestige Starbucks location, according to Crane. Other early \nU.S. locations—including Philadelphia, Washington DC, Miami, and Seattle—also featured premium \ndécor and fixtures. \nIn Spain, another large, high-income market with a great deal of familiarity with the Juan Valdez \nmarketing program, Procafecol assessed several interested candidates and eventually decided on an \noperating partner that ran quick-service restaurants throughout the country. Latin America also \nemerged as fertile ground for cultivating the cafes. In Chile and Ecuador, Procafecol decided to \nopportunistically launch Juan Valdez Cafes after experienced partner candidates approached them. \nIn Chile, the owner of a chain of department stores became the local operating partner. Ecuador, \nthough not a high-income country, presented an intriguing opportunity because of the interest of a \nparticularly capable local operating partner, a firm that ran dozens of KFC franchises. “Our early \nLatin American expansion opportunities presented unique challenges because consumers in those \ncountries were not familiar with the character. The Juan Valdez brand was born there as a cafe, not \nthrough an ad campaign,” commented Londono. \nThe cafes not only provided a venue to earn revenues via the direct sale of prepared drinks, food, \npackaged coffee and other merchandise, they also afforded the opportunity to promote Colombia and \nits unique coffee industry. “Each location was like a billboard for our industry. Even more than that, \nwe saw real opportunities to educate customers about the importance of knowing the place of origin \nof the coffees they consume and the growing practices of the farmers,” said Samper. “We could really \nuse the cafes to disseminate information through point of purchase displays, point of sale \npublications or even interactive, Internet-enabled kiosks.”  \nIn the early years of the Juan Valdez Cafes, Silva was pleased with the growth trajectory and the \nhalo effects of the shops. “If you measure from the time Schultz took over Starbucks, Juan Valdez \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n11 \ncafes actually grew faster. But, our goals are stated in terms of numbers of stores, not profit. We want \na sustainable operation, but most of all, we want a ‘footprint.’ We have to combine a business mission \nwith an origin-branding mission,” Silva commented. The FNC’s Fondo received a direct financial \nbenefit from the cafes: a five percent royalty on all products sold. According to Silva, the FNC also \nattributed several beneficial spillover effects to visibility created by the expansion of the cafes. All \ntold, according to the FNC, interest in premium Colombia coffees grew and exports of specialty \ncoffee beans increased nearly fivefold in five years, leading to millions of dollars in incremental \nrevenue for growers.  \nComing to a Supermarket near You . . . \nWith its café development strategy underway, Procafecol launched a line of Juan Valdez-branded \nground coffees to be sold within the outlets. Though the face of Juan Valdez had been a part of the \n“100% Colombian” mark for years, this would be the first time that a coffee product would bear the \nfamiliar visage in large form on the front of the package and employ the popular character’s name as \nthe product brand (see Exhibit 9 for branding elements utilized by FNC and Procafecol). Three and a \nhalf years after its launch, the “Juan Valdez Signature” brand of premium coffees also started to \nappear on supermarket shelves in select countries, next to brands from consumer product companies \nthat were major purchasers of Colombian coffee beans. \nThough television commercials featuring the character Juan Valdez were ubiquitous in the 1970s \nand 1980s (see Exhibit 10 for advertising spending levels on the Juan Valdez character/brand and \nCafé de Colombia as a whole), Procafecol needed to count on a different kind of promotional plan to \nsupport the new Juan Valdez Signature line of packaged coffee. “We plan on developing a feedback \nloop to create demand for the coffees. Our coffee shops will drive awareness for the brand and for \nour packaged products, and vice versa,” said Crane. \nIn 2007, Walmart, the largest retailer in the world, approached Procafecol about placing the \nproduct on the shelves of some of its stores. “The line we launched for them is doing reasonably well, \nbut it frankly does not help the positioning as a premium brand,” stated Crane. “It’s difficult for us to \nmaintain the right price level in the Walmart system.” By 2009, roughly 2,300 outlets in eight \ncountries carried the Juan Valdez Signature line of packaged coffees. \nProcafecol experimented with another beverage product in their cafes and other retail channels in \n2006. A line of coffee-based colas seemed like it would be a strong fit with the brand and resonate \nwith customers, given the growth of both ready-to-drink coffee products and energy drinks such as \nRed Bull. However, Juan Valdez Cola did not take off like expected in Colombia. “This was a ‘baby’ \nthat I really loved a lot, but it had to be sacrificed,” said Silva. “I was enamored with the idea of \ntaking part of the market from major soft drink brands. We played with it for about three years, but \ncouldn’t make it work.” \nTwo main issues surrounding the future of the Juan Valdez Signature brand concerned some \nwithin Procafecol and the FNC. First, some felt that if the Juan Valdez brand and the 100% Colombian \ncoffee program both continued to expand, consumers might experience a great deal of confusion. The \nbrand symbol for the Procafecol-controlled product was very similar to the mark employed by \ndozens of coffee companies around the world to show that their offerings contained only Colombian \nbeans. Samper’s IP Group issued a style book to all participants in the 100% Colombian program, \nguiding them on the use of the mark, including size, color and placement in packaging, displays and \nadvertisements. However, the FNC tried to be as flexible as possible since allied brands often spent \nmillions of dollars to support sales of products containing Colombian beans. Some brands’ labels \nfeatured renderings of Juan Valdez almost as large as that on the Signature line’s packaging. “You \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n12 \nmay see a premium brand like Juan Valdez being sold for $7–$10, and then nearby a mass-market \nbrand with a large picture of Juan, but it sells for $3. This is a challenge we need to sort out,” \ncommented Londono. Samper echoed that the 100% Colombian program made positioning in the \npremium market more difficult. “Our research shows that our 100% Colombian descriptor plus the \nsmall Juan Valdez mark boosts customers’ views of quality by 17% in the mainstream market,” he \nstated. “However, at the high end, it lowers that perception. People say, ‘This makes me think of a \nnormal supermarket brand.’” \nA second complicating factor with the rollout of the packaged coffee line was the reaction of some \nof the partners in FNC’s 100% Colombian program. Some roasters came to view the Juan Valdez \nSignature brand as a potential competitor for their own offerings. Restrepo recalled that some of the \nmost difficult moments in his two years at the FNC had come when he was challenged by brands \nwho saw Signature line’s packages encroaching on valuable territory: supermarket shelf space. \n“These are important customers of the FNC and they use much, much more coffee than does the Juan \nValdez Signature brand,” he said. “I need to tell them that we are exercising our right and our \nmandate to move up the value chain. We believe coexistence is possible because it is a huge market \nwith room for everybody. But we in Colombia cannot keep just keep being green coffee exporters.” \nCarlos Ignacio Velasco, a direct report to Restrepo in the commercial sales group, said that the \nintroduction of Signature coffees makes dealing with some roasters a more difficult, but not \nimpossible, task. “It is, I’ll say . . . ‘material for interesting conversations’ . . . right now. But, we \nhaven’t lost any accounts, yet,” Ignacio Velasco said.  \nThe Coffee Harvest: Picking the Right Opportunities \nThe notoriety of the Juan Valdez brand led to no shortage of interested partners approaching \nProcafecol about possible product development and distribution deals. As they assessed potential \ngeographic expansion opportunities for both the cafes and the packaged coffee line, Crane and her \nProcafecol team needed to decide if they should stick closely to their well-researched prioritization \nplan or if they should pursue new partners and ideas opportunistically. \nProcafecol’s original plan for the rollout of the cafes, crafted about five years earlier, emphasized \ndeveloping locations in rich countries with entrenched coffee drinking cultures and with significant \nexposure to the Juan Valdez and/or “100% Colombian” marketing programs. This list of markets \nincluded the United States, Canada, Spain, Germany and the Scandinavian countries. However, the \nearly performance of the cafes in the United States and Spain had not met expectations, leaving some \nwithin Procafecol to question the opportunity prioritization schema as well as the tactics they \nemployed for market entry.  \nExpansion: Planned or Opportunistic? \n“Our original thinking was that it was best to develop cafes where Starbucks already had \nprepared the ground, so to speak,” commented Crane. “But now, some of our analysis says that it \nmight be best to go where Starbucks isn’t.” Juan Valdez cafes dominated the Colombian coffee \nlandscape and Procafecol’s very capable operating partner in Ecuador had built a successful \noperation in that country. “Now we are being flooded with all kinds of business proposals for café \ndevelopment in Latin American countries,” said Crane. \nMost Latin American countries could be classified as middle-income or developing nations; the \nmajority of consumers in this region did not have the kind of disposable income typical of buyers of \npremium coffees in American-style cafes. Many countries were also cultivators of coffee themselves, \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n13 \nalbeit on a smaller scale than Colombia. “These markets might not have the highest potential for \npackaged coffee sales, either via the Juan Valdez brand or the 100% Colombian program, so the FNC \nwould not be as excited about the ‘billboard effect’,” Crane said.  \nCrane’s team had recently received an inquiry about marketing packaged coffees from a country \nthat could not be further off Procafecol’s strategic roadmap—almost literally. A major South Korean \nretailer wanted to carry Juan Valdez Signature coffees in nearly 1000 locations. While South Korean \nconsumers did, indeed, possess among the highest recognition levels of Colombia as a country of \norigin for high quality coffee, they scored at zero in terms of their recognition of Juan Valdez. Still, \namong the countries with 20% or higher growth in annual coffee consumption—South Korea, Brazil, \nChina, India, Indonesia, Mexico, Poland, and Russia—South Korea had by far the highest per capita \nGDP and disposable income. Procafecol officials wondered if this country—which possessed a fairly \nhigh concentration of Starbucks—should be elevated much higher on the list of territories for possible \nexpansion of the Juan Valdez cafes. \nEast Asia stood out as a tremendous potential market in the opinion of some in the FNC and \nProcafecol. “The big enemy of coffee in the future is the tea culture of Asia. Our next frontier is to \nreally defeat the tea culture, as we did in Japan…as you may know Colombia is the largest provider \nof specialty coffees in Japan. People think that tea is so wonderful and healthy, but for us coffee \ngrowers, tea is evil,” Silva chuckled, tongue firmly in cheek. But there was no doubt that the rising \nincomes and huge populations of Asian countries could make them extremely attractive markets. \nThose managing Colombia’s coffee future debated how opportunities here and in other new markets \nwould best be exploited. Procafecol could invest in developing the Juan Valdez brand or Procafecol \nand the FNC could seek out roaster and distribution partners via the 100% Colombian program, a \nmuch less resource-intensive path. Ignacio Velasco, for one, was dazzled by the potential for \nColombian coffees in Asia. “In a place like China, we could make instant soluble coffee a priority \nsince it is much more economical. I would say we should go it alone and build our own Juan Valdez \nbrand there,” he said. Ignacio Velasco cited the huge impact two medium-sized players—California-\nbased Coffee Bean & Tea Leaf and the UK’s Costa Coffee—seemed to be having on the embryonic \nChinese coffee market. “There’s plenty of room to develop a brand still. We could paint on a white \ncanvas.” \nProcafecol was also assessing the potential of instituting a franchise model. To date, all expansion \nefforts outside of Colombia had been pursued in collaboration with local-market corporations with \nexperience in restaurants and/or related industries. Some thought that opening opportunities for \nindividual entrepreneurs to develop sites could accelerate the proliferation of the cafes and the \ngrowth of the Juan Valdez brand as a whole. But, as they discussed a possible change, planners \nwithin Procafecol knew they had to balance the potential of this strategy with the possibility that \nfranchising might compromise the respect for the Juan Valdez brand and the quality of the café \nexperience. \nNew Product Development: Which Direction?  \nTop executives in the ranks of both the FNC and Procafecol were almost unanimous in the view \nthat the Juan Valdez brand should be affiliated with more coffee products of various types. But they \nsometimes emphasized different paths, both strategically and technologically, in the development of \nnew offerings.  \nSome favored an approach which would keep the Juan Valdez brand and FNC/Procafecol \nexpansion projects closely tied to familiar food and beverage product segments. “There is so much \nroom to grow…so many categories we could move into,” said Samper. He saw many opportunities \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n14 \nwith products like coffee-flavored ice creams and liqueurs. “These could be developed under the \nJuan Valdez brand, or we could pursue co-branding deals in ways that could expand the prestige of \nJuan Valdez and the partner brand. Our pursuit of opportunities like these would also not be viewed \nas threatening to key partners in the coffee industry.”  \nOthers within FNC/Procafecol supported investing in different sorts of development initiatives—\nprojects that emphasized creating new technical competencies. “With resources like Cenicafe and \nothers, we have such amazing knowledge of coffee, but, for the most part, it is on the growing and \nprocessing side,” Londono commented. “Why aren’t we leaders in new formulations for products or \nin innovative packaging or in new brewing technologies?” That sort of path had proven lucrative to \nother players in the industry. For example, over the previous decade, Nestle, the global consumer \nproducts giant, and Keurig, an American startup, had built successful businesses in portion-pack \nbrewing for the home and office environments. The FNC entered this arena later when it decided to \nlicense the Juan Valdez brand to a mid-sized maker of portion pack brewers based in France for \ncoffeemakers sold in Colombia and Chile. However, the possibility of being a leader in new \ntechnologies by creating more innovations in-house was intriguing to some within FNC and \nProcafecol. \nFlagship or Experiment? \nMost of the Juan Valdez Café locations in the United States and Spain had been struggling for \nnearly two years. Procafecol had opened the cafes only to see its first two high-income markets \nbecome mired in recession while prices for green coffee were spiking. The Juan Valdez Cafes were \nnot alone in feeling the pinch of an economic downturn, global in scale. In 2009, Starbucks closed \nhundreds of locations around the world and reassessed its pricing levels. “Basically, the ‘out of home’ \ncoffee industry has been hurt pretty badly everywhere,” said Samper. \n“We bet heavily on Spain, but with the economic crisis and high unemployment there, no one \nwants to spend a Euro more on any goods than they have to,” said Silva. Procafecol was considering \nclosing down most of its six cafes in Spain and instead developing small kiosks within the floor plans \nof some of the restaurants run by their Spanish operating partner.  \nAttempting to stem the flow of red ink in the U.S. market, Procafecol had already shuttered stores \nin Seattle and Philadelphia. Throughout their short history, the U.S. cafes had exhibited very different \ncustomer behavior and purchase patterns than the Colombian locations. The average ticket in the U.S. \nsites was significantly less than the purchase per visit in the Colombian outlets. Customers bought \nslightly less food and spent significantly less on clothing and other branded merchandise. Sales of \npackaged Juan Valdez branded coffees represented 18% of sales in the Colombian locations, but just \n5% in U.S. stores. In addition, the design scheme and theme of the cafes did not seem to resonate with \nAmericans in the same they did with Colombians. “Colombians became familiar with the brand of \nJuan Valdez as a symbol of our country and a point of pride,” said Londono. “Americans had a very \ndifferent experience; the brand equity there was rooted in a simple, hard-working cafetero. When they \nwent to the cafes, they expected to see the mountains . . . the greenery . . . not a modern, hip place. \nThey wanted the donkey.” \nProcafecol’s early experiences in the American market showed they might have missed an \nopportunity to increase the appeal of the stores by not focusing the theme more around the coffee \ngrowers—especially how the Juan Valdez cafes directly impact the livelihoods of hundreds of \nthousands of self-employed farmers. “U.S. consumers like to help; it’s a cultural thing. In Chile, they \nwon’t care about the cafeteros. ‘Giving back’ is a big thing for the American buyer, it’s really \nrewarding for them, but it’s not the same with our Latin American consumers,” commented \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n15 \nLondono. “The story we’ve had thus far in Latin America has been about being the highest quality, \nthe top brand in the world of coffee.” Procafecol managers were considering some adaptations of the \nU.S. strategy and store plan to take advantage of this insight. \nThere was some good news on the American front, though; airport kiosks recently opened in \nMiami and New York’s JFK had performed relatively well in spite of the recession. Some in the \norganization felt that that an expanded franchising program might boost the growth prospects in the \nU.S. as well. Procafecol was assessing this possibility. But right now Crane and her team had to deal \nwith a very pressing—and high-profile—matter in the American market. \nJuan Valdez’s global flagship store in New York’s Times Square was hemorrhaging cash. The café \noccupied expensive real estate in a neighborhood dominated by high-profile tourist attractions and \nthe flagship outlets of firms many times the size of Procafecol and the FNC. Procafecol signed a \nmultiyear lease to secure the location. “This store is very expensive to keep open, but it would also be \nvery expensive to close,” lamented Crane. \nIn spite of the uncertainty around the Times Square store, one thing was certain: the Colombian \ncoffee industry was committed to and dependent on the U.S. market, historically by far the largest \nforeign market for Colombia’s coffees. Procafecol would develop a new plan for the Juan Valdez \nCafes in the U.S., potentially concentrating on smaller formats. The Juan Valdez brand of packaged \ncoffees would continue to expand its presence in the country’s retail food outlets. Should Procafecol \nseek to overhaul and streamline the Times Square operation, so that it could continue to serve as a \ncenter of learning about the U.S. market, as well as a “billboard” for the brand, Colombian coffees \nand Colombia as a whole? Or should they view the flagship store as an experiment that they needed \nto wrap up, having lost money, but having gained knowledge about local tastes and the economics of \nrunning a café in the world’s largest coffee market? \nDecisions to Make . . . \nAfter completing their analysis on the state of the international locations of the Juan Valdez Cafes, \nCrane and her team were among the last to leave the office complex that housed the FNC and \nProcafecol. As they exited the office, they passed the Juan Valdez Café just outside. For Crane, the \nsight of the café—bustling, as usual—was a welcome break from her work assessing the \ndisappointing results from the U.S. market. She knew there were many pathways to growth open to \nthe Juan Valdez brand—a point she would drive home in her meeting tomorrow with Silva on her \nturnaround strategy and growth plan for the Juan Valdez Cafes.  \n \n \n \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n16 \nExhibit 1\nColombia Fact Sheet \n \nPopulation: 44,205,293, ranked 28th in world (July 2010 est.) \nUrban population: 74% of total population (2008) \nLiteracy: 90.4% \nArea: 1,138,914 sq km (roughly twice the size of the U.S. state of Texas) \nGDP (purchasing power parity): $401 billion, ranked 29th in world (2009 est.) \nGDP per capita (purchasing power parity): $9,200, ranked 110th in world (2009 est.) \nExports: petroleum, coffee, coal, nickel, emeralds, apparel, bananas, cut flowers \nExports–Partners: U.S. 38%, Venezuela 16.2%, Ecuador 4% (2008) \nImports: industrial equipment, transportation equipment, consumer goods, chemicals, paper \nproducts, fuels, electricity \nImports–Partners: U.S. 29.2%, China 11.5%, Mexico 7.9%, Brazil 5.9% (2008) \n \nRecent economic developments:  \nColombia experienced accelerating growth between 2002 and 2007, chiefly due to improve-\nments in domestic security, rising commodity prices, and to President URIBE's promarket \neconomic policies. Foreign direct investment reached a record $10 billion in 2008. A series of \npolicies enhanced Colombia's investment climate: President URIBE's pro-market measures; \npro-business reforms in the oil and gas sectors; and export-led growth fueled mainly by the \nAndean Trade Promotion and Drug Eradication Act. Inequality, underemployment, and \nnarcotrafficking remain significant challenges, and Colombia's infrastructure requires major \nimprovements to sustain economic expansion. \n \nSource: \nhttps://www.cia.gov/library/publications/the-world-factbook/geos/co.html. \n \n \n \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n17 \nExhibit 2\nFNC Marketing Expenditures, 1985 \n Country \nBudget \n($US) \nPercent of \nTotal Budget \n    \n \n \nUnited States \n11,200,000 \n52.8% \nWest Germany \n2,865,000 \n13.5% \nSpain \n1,500,000 \n7.1% \nCanada \n1,050,000 \n5.0% \nJapan \n1,000,000 \n4.7% \nFrance \n747,000 \n3.5% \nArgentina \n677,000 \n3.2% \nDenmark \n545,000 \n2.6% \nScandinavia \n540,000 \n2.5% \nOther \n1,080,500 \n5.1% \nTotal \n21,204,500 \n100.0% \n    \n \n \nSource: \nJuan Valdez: The Strategy Behind the Brand, FNC, 2008, p. 159. \n \n \n \nExhibit 3\nHistorical Statistics on the Recognition of Colombian Coffees in the U.S. \n \n1959 \n1960 \n1961 \n1993 \n2005 \n    \n \n \n \n \n \n“Colombia grows the best coffee” \n4% \n11% \n21% \n59% \n53% \nRecognition of Colombia as a coffee origin \n45% \n64% \n75% \n96% \n92% \n    \n \n \n \n \n \nSource: \nJuan Valdez: The Strategy Behind the Brand, FNC, 2008, p. 197. \n \n \n \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n18 \nExhibit 4\nFNC’s Profit and Loss Statement (in thousand $US) \n \n2009 \n2008 \n    \n \n \nINCOME  \n614,196 \n646,654 \nCoffee Grower Contributions and brand royalties  \n63,397 \n74,721 \nSales of Coffee and Services  \n550,799 \n571,933 \n    \n \n \nCOST OF GOODS SOLD   \n521,606 \n489,081 \n    \n \n \nGENERAL EXPENSES AND CONTRIBUTIONS \n178,495 \n176,790 \nAdministrative Expenses, legal and consulting fees \n37,368 \n38,034 \nResearch and Others  \n7,221 \n6,659 \nCoffee Grower Support and Social Development  \n50,068 \n53,063 \nPromotion and advertisement \n6,172 \n2,595 \nOther Selling Expenses  \n27,387 \n28,506 \nQuality control   \n4,889 \n6,003 \nTaxes and Contributions paid  \n18,576 \n20,534 \nProvisions and Depreciation  \n21,363 \n16,042 \nMiscellaneous Expenses  \n5,452 \n5,354 \n    \n \n \nOPERATIONAL PROFIT \n-85,906 \n-19,216 \n    \n \n \nOTHER NET INCOME (EXPENSES)  \n28,829 \n-25,931 \n    \n \n \nSURPLUS (DEFICIT) OF THE PERIOD  \n-57,077 \n-45,147 \n    \n \n \nSource: \nFNC. \n \nExhibit 5\nGlobal Coffee Exports \nTop Exporting Nations, June 2008–May 2009 \n \nExports by Variety, June 2009–May 2009 \nNumber of 60-kilo bags \n \nNumber of 60-kilo bags \n    \n \n \n \n \nBrazil \n30,933,256 \n \nColombian Milds \n11,093,696 \nVietnam \n17,615,741 \n \nOther Milds \n22,255,849 \nColombia \n9,910,287 \n \nBrazilian Naturals \n29,936,699 \nIndonesia \n6,032,111 \n \nRobustas \n35,225,687 \nPeru \n3,827,398 \n \n \n \nGuatemala \n3,574,598 \n \n \n \nIndia \n3,256,217 \n \n \n \nUganda \n3,217,944 \n \n \n \nHonduras \n3,109,634 \n \n \n \nEthiopia \n2,061,476 \n \n \n \n \n \n \n \n \nOthers \n14,973,269 \n \n \n \n \n \n \n \n \nTotal  \n98,511,931 \n \n \n \n    \n \n \n \n \nSource: \nInternational Coffee Organization, http://www.ico.org/prices/m1.htm. \n \n \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n19 \nExhibit 6\nJuan Valdez in FNC/Procafecol Promotions \n \nAds featuring Carlos Sanchez as Juan Valdez \n \n \n \n \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n20 \nExhibit 6 (continued)\n \nFNC promotional photos featuring Carlos Castaneda as Juan Valdez \n \n \n \nSource: \nFNC. \n \n \n \nExhibit 7\nProcafecol Profit and Loss Statement (in millions of $US) \n \n2006 \n2007 \n2008 \n2009 \n    \n \n \n \n \nNet Sales \n10.35 \n24.35 \n38.47 \n36.87 \nCOGS \n4.95 \n11.65 \n17.51 \n15.95 \nGross Margin \n5.40 \n12.70 \n20.95 \n20.91 \nOperational Expenses \n3.85 \n9.59 \n14.52 \n14.65 \nAdmin Expenses \n4.40 \n6.66 \n6.40 \n5.13 \nEBITDA \n-2.85 \n-3.55 \n0.04 \n1.13 \n    \n \n \n \n \nSource: \nProcafecol. \n \n \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n21 \nExhibit 8\nJuan Valdez Cafes \nBogota, Colombia \nManizales, Colombia \n \n \nInterior of Juan Valdez Café, Washington, DC, USA \nTimes Square, New York City, USA \n \n \n57th Street, New York City, USA \n \nSource: \nFNC. \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n22 \nExhibit 9\nBranding Elements Utilized by FNC and Procafecol \n \n100% Colombian ingredient brand employed by participating roasters \n \n \n \n \nJuan Valdez Café logo \nJuan Valdez signature soluble \n(instant) coffee \n \nSource: \nFNC. \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\nJuan Valdez: Caffeination in Innovation \n513-090 \n23 \nExhibit 10\nAdvertising Spending Levels \n \nAdvertising for Juan Valdez brand and 100% Colombian Programs ($US million) \n \nSource: \nFNC. \n \nThis document is authorized for use only by Zhuojun Yi in BUSN 37000 03,02,01 (Autumn 2023) Marketing Strategy at University of Chicago, 2024.\n\n\n513-090 \nJuan Valdez: Caffeination in Innovation \n24 \nEndnotes \n \n1 FNC, Juan Valdez: The Strategy Behind the Brand, p. 117. \n2FNC, p. 137. \n3 “Roaster” referred to the company or brand that processed raw coffee beans into the whole bean or ground \nproduct purchased by consumers. For decades, the most well-known roasters were brands such as Folgers, \nMaxwell House and Yuban, which were primarily sold in supermarkets. As the coffee industry in the U.S. \nevolved, café operators such as Starbucks began to be more prominent as roasters. Roasters usually created \nblends containing many different types of coffee beans, but as consumers became more informed about coffees, \nthe companies would offer specialty products, often at premium prices. \n4 FNC, p. 145. \n5 FNC, p. 197. \n6 FNC, p. 162 \n7 According to Luis Samper, in 1990, a surplus year on many global coffee exchanges, Colombian coffee sold \nfor 96.57 U.S. cents per pound while other coffee averaged 90.21 cents. In 2009, when stocks of Colombian coffee \nwere limited due to weather conditions, Colombian green coffee was valued at 177.28 cents while the selling \nprice for other beans was 125.35 cents per pound.","difficulty":"hard","domain":"Single-Document QA","length":"short","question":"In analyzing the performance of Juan Valdez Cafés in the U.S. and Colombian markets, how did variations in consumer behavior influence Procafecol's strategic responses, and what nuanced adjustments were considered to effectively bridge these cultural gaps?","sub_domain":"Financial"}

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