Italy’s Illycaffe Targets Retail Coffee Market in U.S. Expansion

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Illycaffe SpA, one of Italy’s largest coffee roasters, is changing its strategy to focus on boosting retail sales as it expands in the U.S.

The company, best known for premium coffee sold mainly in hotels, restaurants and cafes, will target consumers at home as the pandemic locked down cities from New York to Los Angeles, according to Chairman Andrea Illy. The Trieste-based firm has already changed its strategy, boosting at-home sales to 50% of the total, up from 40% before the coronavirus hit.

Illy is looking to expand in the U.S. after selling a minority stake to private equity group Rhone Capital LLC, opening up capital for the family-owned roaster for the first time since 1933. The company is going through a generational change, with shares and voting rights being passed on to the fourth generation of the Illy family, he said.

“It’s not so much about equity as it’s about strategy, and we consider Rhone a strategic partner,” Illy said in a video interview following the company’s Ernesto Illy International Coffee Award, which recognizes growers for the quality of their coffee. “We really hope to fully benefit from their network of relations and expertise in the U.S. market to accelerate growth.”

U.S. Partnerships

Illy intends to grow in the U.S. by investing more in digital marketing and tapping its partnership with online retailer Amazon.com Inc. The company is also looking at increasing its portfolio and the number of retail points where its coffee is sold. That’s all on top of the traditional subscription services Illy already offers through its own e-commerce channels.

Most of the growth will happen organically, Illy said. While he said he doesn’t currently see opportunity to expand via acquisitions, he doesn’t rule it out either as its new American partners may open doors to fresh opportunities. Illy declined to comment on the exact size of the stake but said it wasn’t “far off” the level of about 20% reported by Italian newspapers.

“I don’t see at the moment, but I may be underestimating some opportunities that I don’t know of,” he said. “This will be part of the possible synergies and benefits of having an American partner like Rhone. It might open up some opportunities we don’t see at the moment.”

At-Home Market

Illy expects that a shift to more at-home drinking is here to stay and wants to keep the share of sales between retail and out of home at 50%, he said. The company had already started to invest in expanding its home-consumption products even before the pandemic, having partnered with Jacobs Douwe Egberts in 2018 to distribute Illy capsules compatible with Nespresso machines.

In the U.S., it will target the premium market that sits in between the micro-roasters that have attracted a hipster clientele and the mass produced coffee, he said. Much like in the beer market, micro roasters have gained popularity in the U.S. but lack scale and the technology needed to keep taste consistent, Illy said. At the other end of the spectrum, mainstream coffee is more about volume than quality, he added.

Illy has been changing the structure of the business. Seven out of its 10 board members are not part of the family and 5 out of the 7 are independent, according to the chairman. The company also appointed Massimiliano Pogliani, a previous Nestle SA executive, as chief executive officer in 2016.

“The intention was not to keep it closed, but to keep it ‘family,’ with a model that’s family-owned but professionally led,” Illy said. “We want to prioritize the company development and do whatever is necessary to make the company thrive and grow.”

©2020 Bloomberg L.P.

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