The ever-growing demand for coffee products has lead to a recent spate of energy-buzzed business acquisitions, including Coca-Cola Co. buying UK coffee chain Costa, Nestle teaming up Starbucks, and JAB Holding Co. purchasing Keurig Green Mountain, Peet’s Coffee, Stumptown Coffee, and many more.
In the face of the one-two combination of Starbucks’ arrival to Italian shores, and Nestle’s announcement to sell its coffee products around the world (a deal worth $7.15 billion, roughly 6.1 billion euro), the two best-known names in Italian coffee, Lavazza and Illy, have begun to fight back, hoping to secure their own status as independent global coffee giants.
Family owned coffee company Lavazza, founded in 1895 in the city of Turin, has gone on the offensive. Lavazza Group is the third largest coffee producer in the world, holding about 2.5 per cent of the global market according to Euromonitor International. They agreed to acquire Mars’ coffee business, which includes the Flavia and Klix systems, in order to expand their sales into the United States, Canada, France, Germany, and Japan. Mars’ Drinks is valued at about $650 million (567 million euros), including its debts, and showed sales of about 303 million euros last year.
This particular deal follows Lavazza’s previous acquisition of Nim’s, an Italian company that sells coffee capsules and machines door-to-door, Canadian organic coffee maker Kicking Horse Coffee, and French label Carte Noire. In order to finance this latest acquisition, Lavazza obtained a 400 million euro financing loan from a pool of Italian banks, including Intesa Sanpaolo SpA, UniCredit SpA and BNP Paribas SA’s Italian unit BNL. Lavazza’s expansion is, therefore, something of a national financial investment for Italy.
“This acquisition fits perfectly within our international expansion strategy, the objective of strengthening key markets, as well as the pursuit of having an even closer relationship with end consumers”, remarked Antonio Baravalle, CEO of Lavazza Group.
Another household Italian name, coffee-roaster company Illy was founded in 1933 in the port city of Trieste by Francesco Illy, who figured out a way to use pressurisation to preserve coffee’s taste and aroma during packaging. Today, the family-owned business is worth 467 million euros and operates in over 140 countries. Illy is the third-biggest coffee maker in Italy, with sales totalling nearly 500 million euros last year.
Former CEO Andrea Illy sees a number of challenges for the coffee business going forward, one of which is the effect of global climate change on the supply of coffee beans. As for intimidation from coffee heavyweight Starbucks, Illy is not overly concerned, noting that Italians “don’t like milk with their coffee”. Starbucks opened up its first roastery in Italy in Milan, in September, kicking up domestic coffee competition.
There is also no doubt that Illy is struggling in the face of a rapidly consolidating coffee market, which spurred them to sign a licensing deal with Luxembourg-based investment firm JAB Holdings, allowing the conglomerate to produce and distribute Illy coffee products internationally while leaving domestic Italian distribution in Illy’s purview. This new deal allows for Illycafe’s coffee pods to be used in their rival Nestle’s coffee machines, opening up a vast European market (currently, they only work in Illy’s own espresso machines). Neither JAB nor Illy gave a value for the deal.
“The coffee pods segment is still booming, with a rate of growth of between 20 per cent and 30 per cent [a year]”, said JDE’s finance chief Fabien Simon. JDE, a subsidiary of JAB, was created in 2015 when the holdings company bought the coffee operations of sweets giant Mondelez International, picking up a string of coffee and tea businesses in recent years.
“Making the Illy experience more and more accessible to consumers globally is fundamental for our strategy and it is the reason why we decided to enter . . . a licensing deal”, Massimiliano Pogliani, CEO of Illy, said in a statement.
Despite all the ups and downs and future unkowns, Lavazza and Illy have insisted on remaining family-owned companies. Studies show that large family firms are a massive driving force in the economy, accounting for 9 per cent of the EU’s total GDP and up to half of all employment in Europe. Furthermore, family-owned firms tend to take long-term views, which is better for both global and regional economic stability. By going after international markets without becoming publicly traded, Illy and Lavazza follow in that tradition.