Upstart coffee chain bets on Mexican flavor to duel Starbucks

Mon Nov 26, 2012 7:43pm EST

* Mexican cafe chain sets sights on U.S. market

* Coffee consumption in Mexico up nearly 20 pct 2005-2010

By David Alire Garcia and Armando Tovar

MEXICO CITY, Nov 26 (Reuters) - Growing coffee consumption in Mexico is helping propel a new chain of cafes with a distinctly Mexican identity, a concept the chain plans to use to take on local market leader Starbucks on its home turf back in the United States.

The upstart chain, Cielito Querido Cafe, a Spanish play on a famous Mexican folk song, expects to double its number of cafes next year from its 23 current locations.

The chain also sees expansion across Mexico's northern border as soon as 2014, based in part on the growth and influence of the Latino market in the United States.

In an interview, the chain's top executive said Cielito Querido Cafe occupied a unique niche.

"We find ourselves in a market where there is a dominant competitor that is obviously foreign, and people either like or dislike them," said Diego Landa, referring to Starbucks. "We've decided to go after the people who don't like them."

Its marketing tactics seek to play precisely to that audience.

"It's not called venti, it's called large," reads one slogan printed on coffee cups, a reference to Starbucks' sizing labels. "We say small here, not tall," reads another.

Offering uniquely Mexican drinks and snacks like chocolate con chile and panque de elote, Landa says his chain's expansion plans are helped by the growth in coffee consumption in Latin America's second-largest economy.

Per capita coffee consumption in Mexico grew by nearly 20 percent between 2005 and 2010, and consumption of freshly brewed coffee is expected to surpass long-dominant instant varieties by 2016, according to a study released earlier this year by Euromonitor, a market analysis group.

Seattle-based Starbucks Corp, the world's largest coffee chain, currently has about 360 cafes in Mexico.

Last month, the global chain's Mexican operator Alsea said it will invest about $75 million over three years to build 170 new cafes in Mexico, Starbucks' fastest-growing Latin American market.

Cielito Querido Cafe is currently the country's fifth-biggest coffee chain, but at two-and-a-half years old it is also much younger than its competitors.

Starbucks opened its first cafe in Mexico a decade ago.

If Mexico's $1.4 billion domestic market continues to grow, Landa says his chain will likely turn its eyes toward the United States and its large Mexican-American population.

"The United States is the natural market due to the composition of the Latino population there," he said. "I think Mexico is going to become even more fashionable than it is right now, and that will be an opportunity for us," he added.

The U.S. market could prove more lucrative given its higher rate of coffee consumption.

According to data from the London-based International Coffee Organization, the average Mexican coffee drinker consumes 1.21 kilograms of coffee a year, while the average American drinks the equivalent of 4.11 kg.

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