McDonald’s java roaster Gavina eyes premium market

* Targets upscale coffee drinkers with “Family Reserve”

* Weighing some price increases as coffee costs rise

* McDonald’s accounts for about 18 percent of revenue

By Lisa Baertlein

LOS ANGELES, Aug 17 (BestGrowthStock) – When you’re sipping a
McDonald’s brew on the U.S. West Coast, chances are you’re
really sampling coffee from F. Gavina & Sons Inc.

The little-known Los Angeles roaster, which started decades
ago with a focus on ethnic markets and has expanded to supply
major companies like McDonald’s Corp (MCD.N: ) and Costco
Wholesale Corp (COST.O: ), now has its eye on the fast-growing
premium market.

The family-run seller of grocery brands like Don
Francisco’s and Cuban coffee staple Cafe La Llave espresso in
July introduced its Don Francisco’s Family Reserve line in
Southern California, ahead of a national launch.

The move, which pits the company against formidable players
like Starbucks Corp (SBUX.O: ) and Peet’s Coffee & Tea Inc
(PEET.O: ) in the supermarket aisle, reflects how U.S. coffee
drinkers are graduating to higher-quality brews — from home.

“Once you taste good coffee, you don’t go back,” said
company President Pedro Gavina, who like other roasters
compares the trends in the coffee market with the increasing
sophistication in the U.S. wine market.

Deep ties with growers should benefit the company as it
moves upmarket and competes for ever more limited supplies of
specialty beans, he said. “We have the heart of a coffee
farmer,” Gavina said.

Market researcher Packaged Facts projects U.S. coffee
market growth of more than 25 percent between 2009 and 2014,
with annual sales increasing to $59.6 billion from $47.5
billion. But demand for upscale coffee far outpaces that: the
Specialty Coffee Association of America said sales of upscale
coffee are growing at about 5 percent to 6 percent a year.

“The shift towards upscale coffee is continuing, but an
increasing number of consumers are preparing upscale coffee at
home due to the recession,” said Ed Weiss, author of a recent
study for Packaged Facts.

“The upscale coffee business at retail is extremely
competitive, but smaller marketers such as Peet’s have made
impressive gains in recent years,” Weiss added.

CUBA TO LOS ANGELES

Founder Francisco Gavina abandoned a thriving coffee
business in Cuba after Communist revolutionary Fidel Castro
seized power in 1959. He found his way to Los Angeles and set
up the roasting business that is now run by his children.

“We started with the Cuban coffee. Then we realized there
were other markets” like Middle Eastern and Vietnamese, said
Pedro Gavina. “If you cater to them, you have a small section
that is solid. They’re very loyal customers and they stay.”

The family now roasts 40 million pounds of coffee a year —
more than Peet’s 25 million to 30 million pounds, but
significantly less than Starbucks’ 367 million pounds.

Last year, sales were up about 5.5 percent to roughly $114
million and 2010 growth is trending higher, executives said.

The company gets around 18 percent of its revenue from a
deal that makes it one of a handful of drip and espresso coffee
suppliers to McDonald’s, said Leonor Gavina-Valls, the
roaster’s vice president of marketing.

Its core grocery brands, which are sold at Wal-Mart Stores
Inc (WMT.N: ), Safeway Inc (SWY.N: ), Kroger Co (KR.N: ) and CVS
Caremark Corp (CVS.N: ), already are priced at the high end of
the mass market dominated by J.M. Smucker Co’s (SJM.N: ) Folgers
and Kraft Foods Inc’s (KFT.N: ) Maxwell House.

Gavina is reviewing pricing on all brews except Family
Reserve on the heels of price hikes by the majors.
[ID:nN03308846] [ID:nN06424207]

“We’ll do what it takes to maintain our market share,”
Pedro Gavina said.
(Editing by Gerald E. McCormick)

McDonald’s java roaster Gavina eyes premium market