Business Strategies in Tough Economic Times:
The Case of Puerto Rican Coffee

Dr. Marilyn M Helms- July 14, 2002.

This year’s U. S. Department of Education project director’s conference for DSC’s business and international grant took us to Puerto Rico. In addition to three days of meetings learning about grant activities at other colleges and universities and additional ways to enrich students and the community with an international business perspective, we also toured area businesses. The theme of our conference was “Business in Uncertain Times,” and this was indeed true for the Yaucono Coffee Company in Ponce, Puerto Rico. Ponce is a two-hour bus ride on a mountain toll road through the center of the island from the capital city of San Juan. Since I live for a plant tour and to see manufacturing in action, I hope you’ll enjoy the description of this tour and their changing business focus.

The company, Yauco Selecto, began in 1896 by Miguel Ruiz. This company experienced numerous name changes and ownerships and endured many hardships during WWII. The plant was forced to close in 1950 and again in 1955 due to business problems. The business faced further economic and chaos in the industry in 1977 with the rise of world coffee prices.

The brand’s popularity today is strong and has won awards for quality from the Puerto Rico Product Association as well as the Commercial Prestige Award from Spain. Today the brand has a 40% market share on the island but is recognized worldwide as a premium brand.

Our tour began at the start of the production process where 100-pound bags of coffee beans are poured into a floor grinder to be husked. The dry outer shell is removed and the beans are carried two floors up to be held until they enter one of several gas fired roasters where they are roasted at high temperatures for some 15 minutes depending on the quality of the beans. We are told competitor’s lower quality beans are usually roasted much longer to try to add flavor but the result is often a scorched or strong bitter taste.

Water is added to the roaster to stop the process at the precise time and the hot beans, now dark black rather than the greenish tan color of their raw state, are emptied into a large mesh chamber and mixed by a blade in the bottom to rapidly cool the beans and stop the roasting. The cooked beans next go by conveyers and pipes overhead to various grinders. Grinders are unique to the blend or type of coffee being produced. The grinding and not the roasting gives coffee the aroma we all know so well.

The ground beans next are carried downstairs to the filling line where they are packaged into small bags for shipment. We’re told the people of Puerto Rico prefer to smell their coffee and want the product packaged in small paper bags. Bags are shrink wrapped on trays for island delivery. Other packaging configurations include cans and a separate mini-line assembling coffee in filter packs and cellophane bags for the hotel industry.

Our tour included the quality lab and tasting room where we learned the unique process of cupping. Large ceramic coffee cups of dry coffee beans are judged by their appearance and smell. Next, small quantities are roasted and ground in the lab and again evaluated for quality and smell. Finally hot water is added to the ground coffee and the cup sits for three minutes until a crust forms over the top. This crust is broken with a special stainless-steel spoon and the “cupper” smells the aroma and evaluates the flavor based on a standard industry scale. The process is similar to wine tasting and evaluation.

The industry faces new challenges today. Being part of the US and subject to US minimum wage laws, Puerto Rico has a higher growing cost at $160 per 100 pounds of coffee as compared to only $16, or one-tenth the price, in Vietnam, a leading coffee competitor. With no labor cost advantages or tax advantages but with high export shipping costs, the firm has had to be creative and focus on quality to survive.

The firm has shifted to a niche player in the coffee industry concentrating on exclusive world markets that enjoy premium coffees. They also serve their loyal customers in Puerto Rico. Because local customers demand a fresh product, coffee is ground in small batches with a 15-day shelf life. While local customers like to smell the coffee through the paper packaging, internationally and for the U. S. mainland coffee is packaged in traditional cans for shipping.

For the niche market, they produce espresso blends, decaf, and 50/50 blend of decaffeinated and regular coffee all using premium Arabica beans. These ingredients and the fact they have their coffee decaffeinated in Europe makes their prices more expensive. Today twenty countries enjoy their coffees. Other quality and niche factors that aid the firm and their products are their unique climate, soil, and elevation of the country, their philosophy of storing beans and not dehusking the coffee until and order is placed, careful bean selection, and prompt shipment to customers. For a photo tour, visit their website at: www.yscoffee.com

Dr. Marilyn M. Helms is the Sesquicentennial Endowed Chair and Professor of Management at Dalton State College and welcomes your comments at mhelms@em.daltonsate.edu or 706-272-2600.