The logo is a small red square set against a white swirling italic script spelling out the four letters of the brand. The frame is silver. The overall effect is simple, elegant and powerful. Like a small painting, even. Behind this now-iconic brand is CEO Andrea Illy who claims his company sells the best quality coffee – about six million cups a day, in fact – in the world. Even in the downturn, remarkably, Illy appears to be thriving. But the Illy boss, a former chemistry graduate, is facing several challenges. Pressure from multi-nationals like Nestlé and even Starbucks means Illy has to embed its stylish product into new markets while rivals increasingly also pitch their products up-stream, encroaching on this Trieste company’s own patch. Hence the introduction of Illy’s recent Espressamente designer coffee bars worldwide, a move to challenge the likes of Café Nero and Starbucks, though at the belle époque, gourmet end of the espresso-sipping experience.
Quietly brewing
There are other pressures. The Fairtrade coffee movement hardly constitutes a major threat to the Italian premium brand. But a 2006 film Black Gold made by two British film-makers, Marc and Nick Francis, highlighted the stark difference between the world of fashionable high grade coffee-drinking consumers and the often impoverished African farmers who plant and farm the beans. It didn’t flatter Illy (or any other coffee company for that matter, though Illy sources its coffee from a very broad global area, including Brazil and India and says it does ensure that farmers’ profits are guaranteed, whatever the circumstances). Consumers though are becoming pickier on such issues and Fairtrade coffee has grabbed a small but solid foothold unlikely to fall away.
As mentioned, competition for Illy is intensifying. In a revealing interview by Andrew Davidson in the Times in 2007, Andrea Illy said flatly he had no interest in fighting Starbucks for street presence. Rather, he wanted to preserve an environment for drinking high quality coffee, hence the introduction of Espressamente designer coffee bars. “It will be a holistic brand message with our search for beauty and the coffee experience, because coffee culture is very rich, like wine from plant to grass, it’s also the official beverage of all cultures, particularly European culture.” Illy’s head barista also wants to reinforce the distribution network, currently to up to 140 countries. The money to do all this as widely as possible would be useful but funding always rears its grizzled head. Illy remains a private and very well-run family company, but it doesn’t have the benefit (or the drawbacks) of outside investors yet. Floating the company of course would haul in the cash that would allow this Italian company to expand at its chosen pace. Even floating up to a third of Illy would still hand the family overall control. For the moment, though, a float doesn’t look likely, especially while stock market valuations remain volatile.
Niche expansion
However, the company has other options. The family holding company Gruppo Illy continues to buy small but high-end brands allowing Andrea Illy to enlarge the company. Gruppo Illy’s smattering of designer brand names includes conserves-maker Agrimontana, chocolate company Domori as well as wine company Mastrojanni. The company also remains a very tight family affair: Andrea’s sister Anna is in charge of Illycaffe’s development projects while brother Francesco is vice president of the organsiation. Another brother, Ricardo, formerly closely involved in local politics, is president of Gruppo Illy. The Trieste-based operation has 400 employees. And a recent project with Coca-Cola shows that the Italian company is not afraid of targeting new markets with new, untried products, even in a prolonged recession. Illy assume drinks – combining an espresso, latte macchiato and a cappuccino beverage – will sell in 20 different countries by the end of 2009. “People go less to coffee shops and this represents a huge opportunity to intercept consumption in other places with other products,” says Andrea Illy.
Stirred not shaken
Despite obvious economic worries, it is likely Andrea Illy is piloting his Hungarian grandfather’s company – Francesco Illy founded it in 1933 after arriving in Trieste as a serviceman in World War I – in a style Francesco would approve of. Andrea knows the risks of stretching the brand too far too quickly. “We have high-end positioning, if we stretch the brand too much, it will become mass market,” he told the Times’ Andrew Davidson, “so we know there is an optimum size for the coffee business, maybe three or four times what it is now. Then what do we do? Another coffee brand and a portfolio? No, because then we would lose the reputation of producing only the best . . .” The company is criticised for its lack of Fairtrade products. But in fact, Illy helped prise open the high quality coffee market in places like Brazil and Africa that weren’t there 10 years ago, handing many farmers a trade in the process.
Until fairly recently it was assumed premium consumer companies like Illy would suffer as the global economic crisis dampened demand. Recent supply constraints have forced coffee prices higher. Hedge fund speculators have also got into the action, adding unwelcome volatility.
Yet Andrea Illy has always been careful to target the company away from plain coffee drinking to something more rarefied – a deluxe, even holy experience – that should safeguard the company’s security for at least the next decade. “Eight years ago,” he told the Economist in 2006, “people talked of coffee as a commodity; now, nobody does.”
The Trieste connection
Francesco Illy first arrived in Trieste as a Hungarian serviceman during World War I. He thought it the ideal place to start a coffee business: a multilingual border city offering a port with warehouses, insurance companies and skilled machinery constructors, a city teeming with historical cafés – the intersection of society and culture, a perfect place to transform a raw material from far-off lands into a product that could travel the world. In 1933, Francesco Illy founded his company. As a result, Trieste soon become the only city in the world to house the complete coffee production process and is now recognised as the locus of the most important coffee research and test laboratories with a consistent record for innovation. The company’s first fundamental invention dates back to the thirties: coffee pressurisation in cans, which immediately allowed coffee to be shipped as far as the south of Italy, preserved and ‘aged’ in tinplate cans. Other inventions came along: the sorting machine which analyses the intensity of light reflected from every single bean and removes the defective ones, and the single serve pods, called servings, for preparing espresso. Illy, of course, stands for a number of things. But its combination of science and technology married to huge marketing finesse is probably its most potent weapon.