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Feature
Globalization Survival Guide
Dennis T. Jaffe and Jackie Cooperman
02/01/2006

Andrea’s father, Ernesto, who stepped down as CEO in 1994, dons a lapel pin of interlocking espresso cups signifying his belief that espresso is meant to be shared. He also carries a silver tasting spoon designed by another son, Riccardo. The Illys make a single roast, 100 percent Arabica-bean espresso now sold through retailers and Illy cafes in 130 countries. But, for his family’s success, Andrea intends to take the company to another level in Asia.

In Illycaffè’s most ambitious expansion to date, Andrea is making an especially concerted effort in India. Although the company has long bought coffee beans from Indian growers, this is a nation that consumes 200,000 tons of tea a year and a mere 15,000 tons of coffee, according to estimates from Euromonitor International. Andrea hopes to boost Indian consumption of his family’s product over the next five years from its current 30 tons a year to as much as 1,000 tons by exporting a very continental European sense of coffee. Illycaffè and its Indian partner, Fresh & Honest Café (F&H), will invest $20 million to add 120 coffee bars to the existing 130 that F&H operates under the name Barista, and to install 6,000 Illy espresso machines in India’s leading hotels and restaurants.

Andrea is aware that to succeed he might have to refine the coffee experience so that it fits another culture’s expectations in some thus-far-unknown way. "We have to understand all cultures for the sake of customer satisfaction. We cannot do everything the Italian way," he says.

You need to study chemistry to understand the complexity of life and of the world.
–Ernesto Illy

The adjustment might include adding products that cater to local tastes. Starbucks, which has not yet made its way into India but has more than 200 stores in China, has taken traditional Chinese mooncakes–a type of pastry made of duck eggs and bean paste–and injected coffee flavors. First, however, Andrea is grappling with the larger hurdle of import duties, which currently run about 108 percent on roasted coffee. He has been vocal about his wish to see the Indian government work to improve the living conditions of local growers rather than use tariffs as protectionism. Even with the present costs, however, Andrea believes the tens of millions of Indian consumers who have disposable income and like the status of Western products will help boost the privately held company’s revenues, which were about $270 million last year, by an annual average of 10 percent over the next five years.

This impressive growth rests, inevitably, on strategic decisions of Asian partners. He has a nonfamily partner with ambitions at least equal to his in V. Srinivasan, the head of F&H, who has told the local media about how important the partnership is to his company’s desires to "offer the complete range of coffee experience to our customers and realize our aggressive growth plans."

THE ILLY family. From left: Anna Illy, Ernesto Illy, Anna Illy Blechi, Andrea Illy and Riccardo Illy.

It has been a decade since Andrea and his father recognized a need to bring on independent board members and pry some of the operations of Illycaffè from family hands in order to expand into new regions. Ernesto, a chemist by training, saw globalization as akin to a newly discovered element; Andrea, the youngest of four siblings, was his most likely successor because, in addition to having an MBA from Milan’s Bocconi University, he too studied chemistry.

"You need to study chemistry to understand the complexity of life and of the world," says Ernesto, a spry octogenarian who will happily expound for hours on the scientific properties of the perfect espresso. It was under his reign that Illy cracked the U.S. market. "I had this conviction that if you wanted to be global, you had to be in the United States," Ernesto adds. "In the beginning, I had some difficulty convincing my family."

Today the entire family sits on the board, but Andrea also depends for expertise on several outside directors, including a prominent Italian banker, a business professor and the CEO of Lloyd Adriatico insurance. He maintains that ideas from outsiders can be as stimulating as a jolt of espresso itself. Already, he says, "I think we’re less Italian and more global than when my grandfather led the company." –Jackie Cooperman

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