Illy starts at the top in China

The looming potential of China’s coffee market has lent the Asian nation a status akin to the mythical El Dorado among many in the global coffee industry. But while nobody ever found the fabled city of gold, China is clearly on the map and many intrepid coffee companies have already planted their flags in the shopping centres and supermarket aisles of the emerging superpower. The Chinese market is dominated by instant coffee. Euromonitor puts the market share of the top four players there, which all sell instant coffee, at 86.2 per cent. However, there is one premium coffee company that has been pursuing China’s high-end consumers from very early on. “At the time we were the first,” says illycaffè’s General Manager, Giacomo Biviano. “Many others arrived after that.” Illycaffè made its first forays into Chinese territory some 20 years ago, entering the Hong Kong and Taipei markets in 1993. It wasn’t until 1997 that they began selling their products on the mainland, but it was still very early days for the coffee industry there. Illycaffè is now the fifth largest coffee company in China by market share. While their sales represented just 0.6 per cent of the market in 2012 – just shy of US$7 million, according to Euromonitor – it puts the company in the box seat in a rapidly maturing market. The Chinese coffee market is currently worth almost US$1.3 billion annually, but Euromonitor estimates that it will grow by an annual average of 9 per cent until 2017, when it will be worth US$1.76 billion. Biviano says that the earlier Chinese consumers are exposed to premium Arabica, the better. “The premium segment can achieve an important position, especially in these growing markets in which there is no history of Robusta consumption,” he says. “In Italy, for a variety of reasons, there is still a lot of consumption of Robusta coffee, because it is a very cheap product. This is in the culture and the taste of the Italian consumer. They are not used to premium coffee. “When a coffee country starts from scratch like in China, there are many more possibilities for the premium product as coffee consumption grows,” he says. China has a middle class of some 300 million people, which is almost as large as the entire population of the world’s biggest coffee consumer, the United States. As a fledgling coffee culture, the race is on to capture the loyalty of the Chinese market.  “There is a lot of interest in premium coffee, because of course there are a lot of Chinese people who are looking for premium brands,” Biviano says. Biviano adds that this preparedness to explore new territories is not new for illycaffè. “Illy has always looked to expand into new markets,” he says. “Our first subsidiary was opened in Holland in the 1960s, in Germany in the 1970s and we opened our American subsidiary in the 1980s. Our ambition and our mission to expand is part of our DNA.” However, establishing itself in the Chinese market was not a quick process for the company. “It was quite a gradual approach at the time,” Biviano says. “We started with some distributors in China, and then slowly we built up some restaurant customers and then we were able to expand into the broader HoReCa [hospitality, restaurant and catering] segment.” Underpinning illycaffè’s expansion has been an almost evangelical commitment to educating new consumers about the joys of high quality coffee. As such, in 2006 they set up an arm of their global Università del Caffè, a program of courses and workshops for people in all aspects of the coffee industry, in Shanghai. “For us it was fundamentally important to have a facility in which we could train our customers in our approach and our culture,” Biviano says. Illycaffè opened a subsidiary in China in 2011 and just last year they opened a temporary Galleria store in Beijng. Described in the Chinese English-language press at the time as a “cafè pop-up on steroids”, the store hosted cultural events and exhibitions from artists and writers, as well as acting as another outpost of the Università del Caffè. “Locations like the Galleria are very important for this market because it gives people the opportunity to get the illy experience and sample our product,” Biviano says. The company has a long history of pairing its product with art, as evidenced through its 20-year tradition of featuring the work of prominent artists on the cups used in their stores. Over the past two decades this has turned illycaffè’s cups into canvases for artists such as Anish Kapoor, Michelangelo Pistoletto and Marina Abramović. Illycaffè has also worked closely with renowned Brazilian photographer Sebastião Salgado for the past 10 years, producing a series focusing on the stories of coffee producers at origin. This approach, says Biviano, is informed by the company’s mission to not just sell coffee, but to sell a culture of appreciation for the finer things in life. “For that reason we try to engage our consumer not just in tasting the coffee, but also enjoying beauty,” he says. With its product range limited to 100 per cent ground Arabica coffee, illycaffè has unapologetically pitched itself as a premium coffee company throughout its 80-year history. The company’s strategy is primarily focused on the promotion of its signature Arabica blend, although it also sells three single-origin coffees – from Brazil, Ethiopia and Guatemala – which are all packaged in the pressurised cans that have become an unofficial trademark of the company since they were introduced in 1935. Illycaffè’s coffees are sold through the full range of channels – HoReCa, retail and domestic. While the HoReCa segment is illycaffè’s primary distribution channel, accounting for about 70 per cent of the company’s business, Biviano says different markets demand different approaches, something that has been particularly evident in the company’s experience in Asia. “All of Asia is very different,” he says. “In Japan, for example, people drink a lot of coffee from cans.” As such, illycaffè has adapted its approach in each market accordingly. The Japanese market’s predilection for pre-mixed coffee drinks is one of the factors behind the development of illycaffè’s own offering in that segment, illy issimo. Other markets, such as Korea and Vietnam, have a more developed appreciation of espresso and café culture, which aligns well with illycaffè’s business strategy. Biviano says that while Asia still only represents 10 per cent of the company’s global business (Europe still accounts for 80 per cent, with the rest of the world making up the remaining 10 per cent), it remains a priority for the company. “All of Asia is booming, we are growing above double digits every year,” he says. And of those, the jewel in the crown is undoubtedly China. “China is the best Asian market for us at this moment, it’s even better than Japan now,” Biviano says. “It’s really growing very, very fast.” With the single-serve segment of the coffee market demonstrating such strong growth in recent years, it is perhaps of little surprise to learn that illycaffè sees strong potential for its capsule system, Iperespresso, in China. “One opportunity is in coffee capsule systems,” Biviano says. “Salaries are going to continue to rise there, so there is the opportunity to promote the consumption of premium coffee at home.” Illycaffè has developed the patented Iperespresso single-serve system based on a special capsule with an extraction chamber that makes the coffee in two phases (hyperinfusion and emulsion) to make the most of their signature blend. While Biviano says ground beans still r
epresent the majority of illycaffè’s business, the capsule segment is growing fast, and illycaffè has found a use for capsules that goes beyond the home, capitalising on its strength through HoReCa channels. Illycaffè now supplies capsules to their smaller HoReCa customers as a way to help ensure freshness of their product. “The capsule system is the best way to make sure we are always providing the best quality in the cup,” he says. All of this, Biviano says, amounts to more than simply spreading illycaffè’s products. “We are not only selling coffee, we are trying to sell a general culture, “he says. “We think that our coffee should be a moment of joy and relaxation – a moment in which you can take your time and think about what you like. That is what we try to transmit to our consumers.”