Monday, February 22, 2010

Luxury Advances as Valdez Retreats

In my last post I mentioned that Colombia, and many other Latin American coffee producing regions, is having a lower producing first part of this growing season. Using "Juan Valdez" as my emblem of big-name/big-business coffee, I proposed  that less well-known producer regions could use this time of decreased Colombian output to gain a larger share of the specialty coffee market. What I did not realize is that Juan Valdez is suffering literally as well. The "Big Colombia" coffee retail front has been losing a steady stream of business in the last year or so; the answer to what is the cause of these losses in sales is the point of this post.

Juan Valdez brand of coffee and retail shops is owned by Colombia's National Federation of Coffee Growers, known as Fedecafe, a major trading corporation focusing on quantity, not quality of the product. Juan Valdez brand has closed stores in multiple countries and, allegedly, all for the same reason: the globally depressed consumer buying power. What I want to examine now is if this "fact" is actually true. Is the big-Colombia coffee business really feeling the sting to the wallet because people cannot afford their drinks? For goodness sake, their shop in TIMES SQUARE in NYC is closing! I believe there is one central claim here worth investigation: Are ALL coffee outlets feeling the pinch or are just some KINDS of outlets contracting and WHY? Simple answer to follow.

My experience tells me that even through this rough economic time, people are still buying their beloved beverages. Not only are people still buying coffee, but they are buying more than they used to! Coffee is a luxury not a necessity (very arguably). People buy luxuries for one main purpose, and that is to create a sense of pleasure or happiness that is not found in the day-to-day expenditure for the necessary things in life like basic foods, UNPURIFIED and NON-BOTTLED water, basic clothing, and shelter. During this tough economic time, people have to cut back on their luxury expenses. A lot of the time, luxuries are ridiculously expensive- so expensive they should not ever have been incurred, even in the best of times. These expenditures are often the first ones to go. Cars that are way too pricey, unnecessary smart phone plans, designer clothing, expensive business lunches, etc. What is one luxury that is, comparatively, affordable? Specialty Coffee.

So, assuming what I've observed to be true really is true, why is Juan Valdez hurting and not other outlets like Kaldi's Coffee Roasters or Stumptown or Intelligentsia who are all relatively expensive? The answer is because consumers are being much more SELECTIVE with their luxury purchases. If I'm going to buy a latte that will cost me around $3.50, am I going to buy from a micro-roaster/ coffee shop that is nationally acclaimed or a place owned and stocked by something akin to Folgers? Juan Valdez is feeling the pain because coffee buyers are becoming snobs. I'm not talking about snooty, I'm talking about having raised standards. These are a new educated public of choosy consumers with a more limited luxury budget. They do what anyone does when in their right mind, they are more careful with what they have, ergo not buying crap coffee from crap places like the neighborhood gas station, or Juan Valdez for that matter.

There is really not much more that needs to be said. If a coffee outlet wishes to survive in a more strapped luxury expenditure economy, do what any luxury must do: Become more luxurious. Pause and take a minute to learn something from your little-brother turned pro-wrestler- the small, independent, micro-roasting, coffee shops. Improve the quality of your product and become, sincerely, specialty coffee.

Lord, thank You, once again for choice. Keep my head deflated and on straight. Here we go.

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