Welcome to WealthWisdom, the economy and investment knowledge blog! Enjoy reading and do sign up as members, before logging off! Feedback on the blog welcome on firstname.lastname@example.org.
Thursday, April 21, 2016
Italian coffee firms: Not so espresso
CAFÉ culture may be quintessentially Italian, but it took an American firm to make it global. Howard Schultz says visiting Milan and its cafés in the 1980s inspired him to develop Starbucks into what it is today. More than three decades later, the Seattle coffee giant is poised to enter the Italian market itself. On February 26th Mr Schultz announced a deal with Percassi, a retail developer, to open the chain’s first location in the country next year, in Milan.
Starbucks is not the only firm to have stolen a march. An Italian developed the first espresso machine, but a Swiss firm, Nestlé, conquered the market for personal espresso-makers with its Nespresso system. The world’s second- and third-largest coffee groups, which merged in 2015 to create Jacobs Douwe Egberts, were American and Dutch, respectively.
Italy’s coffee firms are trying to grab more of the global industry for themselves. Italy’s re-exports of beans, mostly roasted, have more than doubled over the past decade, to the equivalent of 3.2m standard 60kg sacks, increasing their share of global trade from 6.7% to 8.9%.
Last year Lavazza, Italy’s biggest coffee firm, bought Douwe Egberts’ Carte Noire premium brand for €800m ($870m), making it the market leader in France. That followed an initial public offering of 40% of Massimo Zanetti, to raise capital for expansion. Zanetti owns a score of brands, including Boncafé, an Asian roaster; and it is buying a stake in Club Coffee, a Canadian firm with which it has developed compostable capsules. Besides continuing to develop its business-to-business side, Illycaffé is expanding its younger direct-to-consumer arm. It has opened flagship coffee shops in big cities, from Seoul to San Francisco, and plans to open more.
Jeffrey Young of Allegra World Coffee Portal, a consulting firm, doubts if all this is enough in what has become a highly competitive and consolidated market. Many Italian firms have rested on their laurels, he says, believing their product to be superior. That was once true, but the emergence of coffee-shop chains, and then of craft coffee brands, has changed that. Quality is now a given; branding and the ambience of coffee shops are ever more important.
The industry is now in the grip of a fad for the “science” of coffee-making—improved grinding methods, better monitoring of water quality, and so on. Illycaffé was an early innovator, having pioneered the use of pressurised cans when most others were still selling coffee in paper bags. More recently it has created an app that lets coffee-lovers design and buy their ideal blend—it will be rolled out in some of the firm’s shops later this year. But if innovation and product development continue to be important routes to growth, even Italy’s biggest firms may be outgunned by global giants with much deeper pockets.