Italian Expansion

By Dan Shryock

Every major coffee company is accelerating efforts to promote their brands and increase sales across North America. Some companies are enhancing their value in the wake of recent mergers and acquisitions, analysts suggest. Others say it’s simply good business.

Two iconic Italian coffee brands – Lavazza and illycaffè – are pushing forward with initiatives and innovations designed to introduce their products to new customers. 

“The [key to success] is coming up with as many different versions of coffee for as many different occasions as possible [which] allows you to be global,” says Jim Watson, a senior beverages analyst for Rabobank’s RaboResearch. “Lavazza has pushed out the vending machines and office coffee. Illy has been explicit about expanding into North America. If you’re going to be competing with Starbucks, Nestlè, and Coca-Cola, if you’re sitting at the next tier of companies, you need to scale up to get on that playing field.”

Watson penned a 2017 study, “Coffee Consolidation Accelerates,” in which he examined the coffee landscape following a spate of mergers and acquisitions. He suggested the global coffee market had space for a third major player to join JAB Holding and Nestlè in world coffee dominance. And, he named names. 

“Lavazza is our choice from the traditional roast and ground space, and it has a stated appetite for further growth, especially in the more premium space and in North America,” Watson wrote. The analysis sited Lavazza’s acquisition of Carte Noire in 2015 and Canada’s Kicking Horse Coffee in 2017.

Illy, meanwhile, hears the m&a drumbeat as well. “All the industry is in a kind of turmoil,” illycaffè chairman Andrea Illy told STiR in 2018. “Either you feel that you are prey; that you are at risk of becoming prey, or that you should become a predator.”

A year later, illy c.e.o. Massimiliano Pogliani tells STiR the company is focused on its coffee. “Illy is neither [prey or predator] because we have built the company to be sustainable, and thrive on its own,” Pogliani says. “Our focus remains on offering the best coffee to the world, and our growth opportunity is to make it easier for quality-loving coffee drinkers to experience and enjoy our legendary blend. Our brand is extremely strong and well differentiated, so the key is executing our plans to make our coffee more accessible, developing the right products, and keeping our quality leadership, and our consumers always at the center of everything that we do.”

Here’s how illycaffè and Lavazza are reaching out to North American coffee consumers.

Lavazza: ‘Pure coffee player’

Davide Riboni, Lavazza North America’s c.e.o., sees his company’s strategy in direct terms. “We are a pure coffee player,” he says. “We try to expand in the market and stay as a premium coffee brand that is able to be found across channels. We own a special place in the market, and we are trying to push forward the idea that we become popular in the key geographies.”

The Lavazza mission is to dramatically grow the size of its North American business in the next three or four years, Riboni says. It currently accounts for 3.5% share of the North American specialty coffee market and “we want to double that. We want to be the brand, the market leader, in the specific segment. We are not far from being one of the market leaders.”

The roasting company identifies four key channels to distribute its products across North America – retail/grocery, food service, office, and online sales. The first step is brand recognition and while Lavazza is known to coffee drinkers in other markets, there’s still work to be done in North America.

“Not everybody knows our Lavazza brand, so we still have to make Americans aware of Lavazza,” Riboni says. “We keep our standing distribution in brick and mortar channels.” Lavazza coffees are sold at Target and Walmart stores, for example. Lavazza also emphasizes the food service industry, what Riboni calls the company’s core channel in the United States. “This is where we started,” he says. “We keep expanding our presence in the fine dining, coffee shops, and hospitality segments. At the same time, we are expanding our presence into key chains. We have to keep owning the brand of preference in the fine dining segment.”

The company also is developing what Riboni calls “more sophisticated solutions” over traditional coffee in the office channel while targeting the continued growth in direct-to-consumer online sales. Coffee must be available on e-commerce platforms, especially in the US market. “It’s no secret the market is going in that direction,” he says. “But at the end of the day, coffee has to be tasted. It has to be experienced.

“The game for us is let customers try our coffee. Whenever you try our coffee, you like it and [sales] repeat with time. Let more and more Americans try our coffee and remember the experience when you go back to the grocery store,” Riboni says. “Let the consumer remember that what they are having is a Lavazza coffee. When our consumer is able to find the coffee in the most convenient place, they buy it.”

The company also is looking for new ways to make its coffees available. Vending machines are seen as a way to attract customers, especially in hospitality settings.

“We have seen that there is a potential in North America for automatic coffee kiosks [and] we launched new vending machines at some trade shows recently,” Riboni says. “Different channels and consumers have shown a high level of interest. Sometimes vending machines don’t deliver authentic coffee [but] these are outstanding machines. We have worked to deliver an authentic cup of coffee. The common point is that it’s a Lavazza coffee.”

Illycaffè: “expanding footprint”

Like Lavazza, illycaffè rests its fortunes on its longstanding reputation for producing quality coffee. The key to expanding across North America, c.e.o. Massimiliano Pogliani says, is increasing accessibility to attract new customers. Illy already is available in Nespresso-compatible single-serve capsules and ready-to-drink products.

“Meanwhile, we are also expanding the footprint of our illy shops around the world, most recently in Vancouver, San Francisco Airport and in other leading cities,” Pogliani says. “These illy-branded [products] enable us to offer a unique, ideal, and beautiful illy experience in every aspect.”

Growing consumer demand for better coffee provides companies such as illy increased potential for growth, Pogliani says.

The global coffee market should grow at a compound annual rate of at least 2% between 2018 and 2023, he says, and “there are opportunities nearly everywhere, at a time when coffee consumption and appreciation for higher-quality, sustainably grown coffee is being appreciated like never before, in developing and mature markets alike.”

More than 65% of illycaffè sales take place beyond Italy. “Asia and North America are among our priorities, along with several other major markets.”

While whole bean and ground coffee are at the heart of the company’s success, illy looks for new ways to find customers “wherever and whenever and however coffee lovers who appreciate quality want it,” Pogliani says. “Illy has long had a strong position in all aspects of high-end hospitality as well as at retail and direct-to-consumer through our home subscription program.”

One example, he says, is a five-liter, premade bag-in-a-box cold brew package for use in hospitality. There’s no overnight steeping required. Most recently, illy debuted what Pogliani called a “plug and play tap system” called illy Cold Brew Aria. This system uses ambient air instead of space-consuming nitrogen tanks to naturally infuse cold brew. And, he says, illy has worked with the airline industry to develop a method to brew better quality coffee at high altitudes.

Seeking younger customers

Attracting younger customers is central to growing sales and creating product loyalties. “There’s a good chance a young consumer, someone in their 20s, has never used a coffee maker at home,” analyst Jim Watson tells STiR. “These customers have a new relationship with coffee.”

Cold brew, popular with younger coffee drinkers, has been a focus in the merger and acquisition arena. JAB Holdings claims the largest piece of the cold brew segment. It has consolidated Stumptown, the originator of cold brewing, with Peet’s, Intelligentsia, Caribou, and Keurig Dr Pepper. Nestlé’ purchased of Texas-based Chameleon Cold-Brew, the top-selling organic product, as well as a majority share of Blue Bottle.

And with good reason. The 2019 report on U.S. coffee trends from the National Coffee Association showed 19% of coffee consumers drink cold brew, about 12% saying they had a serving within the past week. Overall, 31% of those surveyed said they have a ready-to-drink coffee “regularly or occasionally.”

The research indicated 48% of respondents 18 to 24 years of age had a positive view of RTD coffees. That number nearly mirrored the 47% of consumers 25 to 29  who felt the same way.

To target that demographic, Lavazza developed its own cold brew product line as they “expand beyond the espresso segment and become more relevant to younger segments of the market,” Riboni says. Cold brew and ready-to-drink coffees appeal to the millennials. So do online retail sales. Lavazza recently upgraded its e-commerce platform in the United States and illy Caffè expanded its digital sales efforts into Canada.

Under 40s are Formidable Force in the Coffee Industry

New data supports Rabobank coffee analyst Jim Watson’s assertion that “there’s a good chance a young consumer … has never used a coffee maker at home.”

Research included in the National Coffee Association’s annual study of coffee drinking trends indicates a growing number of consumers are enjoying their coffees prepared after breakfast and in places outside the home.

About 25% of coffee drinkers surveyed said they drink coffee-based beverages after breakfast. That’s a 6-point gain over the 2012 mark of 19%. In addition, one in five people surveyed said they drink cold brew occasionally or regularly and those beverages are most often consumed away from home. While breakfast remains the most popular time of day to drink coffee, more and more people are skipping their morning cups for a drink later in the day.

The recent study indicated 82% prefer coffee with breakfast now, compared to 87% in 2012. Within the 25-39 age bracket, more are drinking later in the day (46%) than they were only a year ago (36%).

“The under-40 demographic is a formidable force in the coffee market,” a summary of the 2019 National Coffee Drinking Trends report stated. “They’re driving remarkable growth in cold brew and ready-to-drink are also demonstrating exciting growth trends.” The report, produced each year, was released in March 2019.

Overall, the latest study indicates 63% of American adults drink coffee each day, a number consistent with the previous year’s report. Yet the share of gourmet coffee consumed reached a new high at 61%. The trends were consistent across product segments include espresso-based beverages, traditional and gourmet coffee.