Coffeehouses as Fashion Boutiques
It was Andrea Illy’s grandfather, Francesco Illy, who back in the 1930s invented the espresso, a steam-driven coffee maker to replace the little pots Italians used until then.
So it is not surprising that Mr. Illy, who now runs the coffee company Illycaffè, sought in recent years to have the name espresso protected by law, so that it could be used only by Italian espresso makers. It was a gambit to take back the espresso heritage.
But Mr. Illy, 42, was told by authorities that espresso had become a generic term and could not be owned by any one nation or group of coffee makers.
“As we say, the cows were already out of the barn,” Mr. Illy said, seated at his desk under an enormous painting of the Illy logo.
Still, Mr. Illy is annoyed when companies like Starbucks call their drinks espresso, latte, or hybrid Italian names like frappuccino, and refer to their employees as barista.
But the fact of the industry is that the business of coffee has fundamentally changed, on both sides of the Atlantic, and it is companies like Starbucks that have changed it. Those companies conquered America first and the changes are now being transported even further afield, to Asia, including countries like China, where tea, not coffee is a mainstay of the culture. Coffee is becoming a case study in globalization, inducing more people to drink coffee and to pay more for the coffee they drink.
“The coffeehouse evolved globally,” said Nicole Miller Regan, who follows the restaurant trade for Piper Jaffray.
But now, the Italians are fighting back by positioning themselves as a gourmet item much the way coffeehouse chains in the United States have been doing.
Illy, nestled in this charming Adriatic port city, is picking up the lead, vying with the fashion business for cachet and flair. Illy places its coffee the way Gucci does its handbags, at the top of the market, and it continues to invent accessories, like the single-cup pouches prevalent in Europe these days. It is also introducing espresso bars, called Espressamente, with the look of fashion boutiques, and it surrounds its products with cups and saucers whose design is the work of contemporary artists like Jeff Koons and James Rosenquist.
“Illy is a premier brand,” said Ms. Miller Regan, at Piper Jaffray.
Illy expects to post $330 million of revenue in 2006, selling coffee as beans, ground and in individual portions, or pods. It is expanding beyond its traditional professional food trade, like hotels and restaurants, and this fall opened the first three of its Espressamente bars in the difficult Chinese market, in Shanghai and Hong Kong. Illy is one of three big Italian coffee makers, along with Lavazza and Segafredo Zanetti, but it is arguably the leader in marketing coffee as a fashion accessory.
“Once, everyone was talking about coffee as a commodity,” said Mr. Illy, the company’s chairman and chief executive, who says he drinks five espressos a day. “Not now.”
But the Italians are facing strong competition from company like Starbucks, which entered continental Europe in 2001, but already has 785 outlets in seven countries.
Starbucks is not yet present in Italy, but Cliff Burrows, president of Starbucks Coffee in Europe, the Middle East and Africa, wrote, by e-mail, “We are very excited about the opportunities for Starbucks in Italy,” though he said the company was not yet prepared to announce an opening. Still, Ms. Miller Regan said Europe in general was “a more challenging region” for Starbucks, because of the ingrained coffee culture.
Mr. Illy is not fazed, noting that the Italians have taken the battle to Starbucks’ home turf. Illy now has been selling its coffee in the United States for 25 years, to hotels and restaurants, and to individual consumers through upscale shopping chains like Williams-Sonoma, Sur la Table and Whole Foods Market.
Last year, it opened Galleria Illy in the Time Warner Center at Columbus Circle in Manhattan as a way to test a new market. The next step will be to introduce Espressamente in the United States, he says, as soon as the company can find a property. Mr. Illy said the company had “solid roots and a reputation” in America. ‘’We believe the cultural barriers are not insurmountable,” he said.
The Espressamente stores typify Illy’s approach to selling coffee the way Gucci sells fashion. Its coffee is not necessarily more expensive. A cappuccino at an Illy shop in Paris costs 3.50 euros, or $4.65, similar to the price at Starbucks.
The Illy stores may be rather small, but are located in prime locations, like the one next to the Opera Garnier in the center of Paris. And they are designed by leading Italian architects, like Claudio Silvestrini and Luca Trazzi. In addition to coffee and Italian-style snacks, the stores sell espresso cups and saucers designed by contemporary artists like Mr. Koons, Michel Lin and Joep van Lieshout.
Over the last three years, Illy has opened 140 Espressamentes, and in the next five years hopes to have 500 more. Illy is now present in 140 countries, compared with 12 countries 10 years ago, and generates 55 percent of its revenue outside Italy, compared with less than 20 percent a decade ago
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Oddly, Mr. Illy admits, the move to transform espresso and coffee generally into a gourmet item started in the United States in the 1980s. In more recent years, the Italians let big competitors like Nestlé steal a market from them for individual portions of coffee and the machines that use them.
Mr. Illy’s grandfather, Francesco, a Hungarian refugee to Trieste after World War I, first began making portion-sized pouches with paper, similar to tea bags, in the 1950s. But until recently, Illy sold the pouches only to commercial customers, like restaurants and hotels, while Nestlé used its network to flood the market with machines and the coffee pods that go in them.
Illy is still very much a family company. Mr. Illy’s father, Ernesto, though retired, is honorary chairman and keeps an office across from Mr. Illy’s. On a recent afternoon, he was hunched over a laptop studying nuclear imaging of coffee beans. Just how water leaves the bean during the process of roasting remains something of a mystery, he said. Andrea Illy’s brother Riccardo and his sister Anna are on the board.
Even as coffee companies expand and open new outlets around the globe, the industry is beginning to consolidate, with companies buying other coffee companies or suppliers of food products for gourmet coffee shops.
Earlier this year, Segafredo completed the takeover, for $82.5 million, of the American coffee brands of the Sara Lee Corporation, including Chase & Sanborn, Chock Full o’Nuts and Hills Brothers. Earlier, Segafredo acquired one of Poland’s best known café chains and coffee companies, Café Mag, of Cracow. Illy acquired the Italian maker of gourmet chocolates, Domori, of Genoa this year; earlier, it took over the French tea distributor, Dammann Freres, in Orgeval, France.
Mr. Illy acknowledged that in a $4.50 cappuccino, the ingredients accounted for only about 10 percent of the price, the rest going to labor and advertising. Still, that increased cash flow is also benefiting coffee growers around the world, in Latin America and Africa, he said. In some countries, like Costa Rica, premium coffees now account for 70 percent of the crop.
Part of the market’s dynamism comes from the exchange between large-scale coffee sellers, like Starbucks, and niche players like Illy, Segafredo and Lavazza. Mr. Illy is not afraid that the big players will crush the small fry.
Instead, he compares the market with Italian fashion, where companies like Gucci and Armani coexist with Prada and Versace, and even help each other. “Why? Because there are many fashion brands, and they are in the same street, in the same media, they are a system,” he said.
The gourmet sector, he went on, now accounts for about 8 percent of global coffee sales, “There is a potential for it to be twice as big, in value,” he said. He repeatedly compares his coffee to an expensive Champagne or perfume.
“We are consistent in taste, like Champagne, whose secret is consistency,” he said. “Or like Chanel No. 5.”
Source: www.nytimes.com
