I must point out: I don't drink coffee. If I want to get a good dose of caffeine, I'll stick with a can of Pepsi (NYSE:PEP). Therefore, I've never actually set foot inside a Starbucks (NASDAQ:SBUX) coffee shop (and meeting people at the Starbucks cafe in my local Barnes and Noble doesn't count as far as I'm concerned).
Still, I found it interesting to hear that the Colombian Coffee Growers Federation is launching a competing system in Starbucks' arena. They run the Juan Valdez coffee bars in Colombia and plan a worldwide expansion of perhaps 300 units in the next several years. About eight of those are slated to appear in the U.S. by the end of 2004. And the Federation (sounds like something out of Star Wars, doesn't it?) will be right in Starbucks' face, because one of the proposed locations is none other than Seattle, Wash.
You know, I don't get the whole high-end coffee phenomenon. My mind can easily comprehend the idea of going down to the local Dunkin' Donuts to acquire a simple cup of the stuff, but when it comes to profligately engaging some complicated machination of a goofy bean, I'm lost. My perception doesn't matter, though -- Starbucks has captured a loyal following by presenting a myriad of exotic variations on the steaming liquid in a sophisticatedly atmospheric cafeteria environment... and with that sizable cult comes a lot of profits.
Rick Aristotle Munarriz wrote a great commentary on the coffee wars (you know, George Lucas really should do a new trilogy examining these battles now that he's done with his old universe -- I pray he doesn't include a character named Java Binks, however). Checking that out, you'll see that although the margins are low, coffee dispensing is a great business because of the volume (even with the expensive cost of milk as of late).
With new coffeehouses like Juan Valdez entering the field, however, comes an awareness that old guards oftentimes are replaced by new kids on the block (or, "cups" on the block, in this case). As an example, let's set the clock back several decades. Who would have thought that Kmart or Sears would have been dethroned as major retail icons by the likes of a Wal-Mart (NYSE:WMT)? And leaders in their fields such as McDonald's (NYSE:MCD) can always have a bad cycle at the hands of a Burger King or a Wendy's (NYSE:WEN).
It's way too premature for me to make anything of the Juan Valdez initiative. But I'm sure the long-term shareholders of Starbucks are counting on their executives to be taking any new competitor absolutely seriously. And if I personally owned shares in the company, I would be watching Juan and his beast of burden's progress every step of the way. Keep in mind, there is a strong association between the image of a quality cup of coffee and Mr. Valdez.
Starbucks already has competitors, like Peet's (NASDAQ:PEET), Diedrich Coffee (NASDAQ:DDRX), and the scores of mom-and-pop shops dotting the landscape. But, to paraphrase Senator Palpatine's sentiments to Anakin Skywalker at the end of Episode I, I will watch Juan Valdez's career with great interest.
Is Juan Valdez a legitimate threat to Starbucks? Share your opinion on the Starbucks discussion board.
Fool contributor Steven Mallas owns none of the companies mentioned.
