Italian coffee maker seeks gourmet status

December 31, 2006

BY JOHN TAGLIABUE The New York Times

TRIESTE, Italy — It was Andrea Illy’s grandfather Francesco Illy who back in the 1930s invented the espresso machine, a steam-driven coffee maker to replace the little pots Italians used until then.

So it is not surprising that Illy, who now runs the coffee company Illycaffe, sought in recent years to have the name espresso protected by law, so that it could be used only by Italian espresso makers. It was a gambit to take back the espresso heritage.

But Illy, 42, was told by authorities that espresso had become a generic term and could not be owned by any one nation or group of coffee makers.

“As we say, the cows were already out of the barn,” Illy said, seated at his desk under an enormous painting of the Illy logo.

Still, Illy is annoyed when companies like Starbucks call their drinks espresso, latte or hybrid Italian names like frappuccino, and refer to an employee as a barista.

But the fact of the industry is that the business of coffee has fundamentally changed on both sides of the Atlantic, and it is companies like Starbucks that have changed it. Those companies conquered America first, and the changes are now being transported even farther afield, to Asia, including countries like China, where tea, not coffee, is a mainstay of the culture. Coffee is becoming a case study in globalization, inducing more people to drink it and to pay more for the coffee they drink.

“The coffeehouse evolved globally,” said Nicole Miller Regan, who follows the restaurant trade for Piper Jaffray. But now the Italians are fighting back by positioning themselves as a gourmet item much the way coffeehouse chains in the United States have been doing.

Illy, nestled in this charming Adriatic port city, is picking up the lead, vying with the fashion business for cachet and flair. Illy places its coffee the way Gucci does its handbags, at the top of the market, and it continues to invent accessories, like the single-cup pouches prevalent in Europe these days.

It is also introducing espresso bars, called Espressamente, with the look of fashion boutiques, and it surrounds its products with cups and saucers whose design is the work of contemporary artists like Jeff Koons and James Rosenquist.

“Illy is a premier brand,” said Miller Regan at Piper Jaffray.

Illy expects to post $330 million of revenue in 2006, selling coffee as beans, ground and in individual portions, or pods. It is expanding beyond its traditional professional food trade, like hotels and restaurants, and this fall opened the first three of its Espressamente bars in the difficult Chinese market, in Shanghai and Hong Kong. Illy is one of three big Italian coffee makers, along with Lavazza and Segafredo Zanetti, but it is arguably the leader in marketing coffee as a fashion accessory.

“Once, everyone was talking about coffee as a commodity,” said Illy, the company’s chairman and chief executive, who says he drinks five espressos a day. “Not now.”

But the Italians are facing strong competition from companies like Starbucks, which entered continental Europe in 2001 but already has 785 outlets in seven countries.

Starbucks is not yet present in Italy, but Cliff Burrows, president of Starbucks Coffee in Europe, the Middle East and Africa, wrote, by e-mail, “We are very excited about the opportunities for Starbucks in Italy,” though he said the company was not yet prepared to announce an opening. Still, Miller Regan said, Europe in general was “a more challenging region” for Starbucks because of the ingrained coffee culture.

Illy is not fazed, noting that the Italians have taken the battle to Starbucks’ home turf. Illy now has been selling its coffee in the United States for 25 years, to hotels and restaurants, and to individual consumers through upscale shopping chains like Williams-Sonoma, Sur la Table and Whole Foods Market.

Last year, it opened Galleria Illy in the Time Warner Center at Columbus Circle in Manhattan as a way to test a new market. The next step will be to introduce Espressamente in the United States, he says, as soon as the company can find a property. Illy said the company had “solid roots and a reputation” in America. “We believe the cultural barriers are not insurmountable,” he said.