Illycaffè SpA

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Illycaffè SpA

Via Flavia 110-34147
Trieste
Italy
Telephone: +39 (040) 38-90-111
Fax: +39 (040) 38-90-490
Web site: http://www.illy.com

Private Company
Incorporated: 1933
Employees: 500 (2001 est.)
Sales: US$113.1 million (1999 est.)
NAIC: 311920 Coffee and Tea Manufacturing; 333311 Automatic Vending Machine Manufacturing

The second largest espresso manufacturer in Italy (Luigi Lavazza is the largest), illycaffè SpA annually produces over 12 million pounds of a single premium blend of gourmet coffee for both brewed and espresso preparation. Considered to be one of the finest coffees in the entire industry, illy coffee is a blend of 100% high-quality Arabica beans, meticulously selected through a unique system perfected over decades and overseen by three generations of the entrepreneurial Illy family. According to Coffee and Cocoa International, “illycaffè’s entire ethos is built on quality.” Illy is the leading brand in Italy’s hotel, restaurant, and bar segment and is sold in over 70 countries through a network of subsidiaries and distributors. About 40 percent of illycaffè’s sales come from outside Italy. The company estimates that its coffee is sold in more than 40,000 restaurants and coffee bars, serving over five million cups of illy coffee a day.

The Early Years

In 1933, the industrious and analytical Francesco Illy founded illycaffè in Trieste, Italy. Originally an accountant who had been drafted into World War I and stationed in Trieste, Mr. Illy decided to stay on in Trieste after the war ended, to marry his sweetheart and begin a coffee business. As a roaster of what is arguably the world’s finest coffee, illycaffè fittingly finds its home in a city rich with coffee history. Since the 17th century, shipments of coffee beans from Africa, Brazil and other places have been delivered to Trieste and conveniently transferred to other coffee-drinking cities such as nearby Vienna. Coffee production and a cafe culture thrived in Trieste, already a well-established tradition by the time Mr. Illy began his coffee business.

By 1935, within only two years of founding his company, Mr. Illy made some major developments in espresso coffee. Most notably, he developed the modern espresso machine, the “illetta.” His was the first automatic espresso machine to measure water automatically and to use compressed air instead of steam (the standard at the time). The compressed air made it possible to have espresso without the tendency to burn, a side effect easily caused by steam. In the same year, Mr. Illy also developed a method of packaging roasted coffee in airtight containers with nitrogen gas to help prevent oxidation. This method of packaging made it possible to maintain the coffee’s freshness for years while actually enhancing the complexity of the coffee’s flavor. As illycaffè explained it, the aroma of the coffee improves with this unique packaging, because the coffee’s volatile aroma compounds are allowed to bind with the oils inside the beans. The company likens the flavor-enhancing effect of its special packaging to the aging process of wine.

It was not long before Mr. lily’s company officially became a big family business. By 1948, Mr. lily’s son, Ernesto, fresh with a Ph.D. in Chemistry, began his coffee career inspecting espresso machine parts for his father’s company and the Swiss sister company which manufactured them. By 1956, Ernesto assumed some control within the company as co-owner and manager of the Trieste illycaffè. Then, in 1963, he was appointed president, managing director, and general manager of the entire company. Nicknamed the “espresso evangelist” by many coffee connoisseurs, Ernesto was recognized by the entire coffee industry and governments throughout the world for his expertise in coffee science.

As a passionate advocate, lecturer, and founder of many coffee industry conventions, associations and seminars, Ernesto immediately established himself and his family business as a world-class coffee industry presence. illycaffè’s rise to imminence began in the 1960s, when Ernesto founded the ASIC (Association Scientifique Internationale du Café) in 1965. He remained a leader in the group in subsequent decades, most recently as vice president. From 1966 into the mid-seventies, he served as an advisor and president to the AIIPA (Italian Association for Food Products) and the CIC (Italian Coffee Committee). In 1967 he founded EUCA (European Union of Coffee Associations), also serving as president for several years into the mid-1970s. It was clear that Ernesto’s scientific expertise and political savvy would help illycaffè distinguish itself as a premium roaster and marketer of espresso coffee throughout the world.

Espresso Science and Quality Control

Illycaffé recognized that premium coffee would have to come from premium production methods. From bean to cup, the company managed a level of quality control that was the envy of the industry. The standard first began close to home for the Illy family, as early as when founder Francesco tinkered with espresso machines and coffee packaging. His legacy of innovation and quality control remains fully embraced by the illycaffè of today. For decades, the company was known for always applying the strictest and technologically advanced scientific method possible to quality improvement. In fact, its program is a model for coffee research and development, collaborating with notable experts from the academic world as well as within the field.

Soon after taking control of the company in the 1960s, Ernesto Illy established a research laboratory that became a breeding ground for inventions and patents, furthering illycaffè’s mission for espresso quality. He came to hold 17 patents on various aspects of coffee processing and preparation methods. As R.W. Apple, Jr., personally observed for the New York Times, illycaffè “maintains a laboratory equipped with sophisticated instruments like gas chromatographs, infrared emission pyrometers and flame ionization detectors. Coffee beans are cut into slices eight microns thick for analysis in an electron microscope. Every step of the manufacturing process is monitored by computers, and there are 114 quality-control checks between the time bags of raw beans arrive on the loading docks to the time roasted beans are shipped in sealed cans.”

In another fascinating account, Chris Partridge, for The Times (London), reported in 1995 that Ernesto “put together a group of mathematicians and software scientists to use the massive Cray supercomputer recently installed at the University of Bologna to work out exactly how hot water flows through ground coffee in an espresso machine.” One of the devices illycaffè likes to boast about is a patented machine—similar to a bean sorter—that typically rejects 1.5 percent of the beans based on color, mottling, and other aspects detectable by the machine’s red and green wavelength scanning. The rejects are sold to other roasters. Once canned, the beans are randomly selected for Ernesto and a specially trained team to taste-test. And beyond the company plant’s walls, the shipments are rigorously tested by an outside laboratory for hints of any contaminants such as insects, lead, cadmium, and biological toxins.

While illycaffè had always consistently held an enviable amount of quality control at the roasting level, it was not always easy for the company to find high-quality green beans to start with. Ernesto Illy asserts that it takes 55 beans to make one cup of espresso, and only one bad bean to ruin it. To help ensure that its coffee bean sources offered consistently high-quality beans, the company led some key initiatives to extend its quality standards beyond the company itself. For example, the company began an annual coffee bean competition in Brazil in 1990, considered to be a kind of Oscars for the coffee industry. Each year, illycaffè closely studies the beans of Brazil’s top growers and awards the producer of the highest-quality beans a cash prize of US US$30,000 and a 30 percent premium over market for the winning coffee lot. Second and third prizes are US$20,000 and US$10,000, respectively. More than 500 Brazilian producers participate in the competition, working with illycaffè year-round to produce better coffee.

Also, in 1997, Illycaffè moved to invest US$250 million annually in efforts to improve Brazilian coffee, including after-harvest treatment methods, research, and genetic improvements. illycaffè also directly educates growers on planting and production methods, conducts field trials of new coffee varieties, and works with the University of Sao Paolo through Pensa to conduct coffee production development studies. In 1999, illycaffè published a pocket manual of coffee growing guidelines, and opened a coffee university in Naples, Italy. Then, in early 2000, in association with the University of Sao Paolo, illycaffè inaugurated the illy University of Coffee in Sao Paolo. Suddenly, people could earn a degree in the business of coffee, covering everything from coffee planting to production to marketing. According to Miriam Jordan of the Wall Street Journal in February 2001, “Italian espresso maker illycaffè SpA, arguably the most fastidious coffee buyer in the world, has tripled imports from Brazil in the past decade after it started helping growers improve their crops.” Brazil’s quality of coffee has made such a turnaround since the days when the country’s growers were set up for quantity, not quality. The turnaround, thanks in large part to illycaffè, is even more significant as it comes at a time when coffee prices overall are at a seven-year low. illycaffè claims that growers who work closely with illy to produce quality beans turn out better profits, substantiating the company’s firm belief that better coffee is better business.

Company Perspectives:

The illy Mission: to provide the ultimate coffee experience by offering coffee lovers and connoisseurs the finest products, service, education, and innovation. To partner with our customers whose clientele demand the very best quality and value. To carry on the tradition of excellence which has been a family passion for well over 60 years.

The Art of illycaffè Espresso

Since 1992, illycaffè has shrewdly established a strong relationship with the art world. The company began to successfully associate its fine coffee with other fine tastes for the “good lifè.” The company sponsors art exhibitions and contests, and commissions famous artists to contribute to illycaffè’s evergrowing line of fashionable cup-and-saucer sets. Some of the exhibitions the company has supported include “James Ro-senquist: The Nineties,” an exhibit of the American pop artist (1995); “Robert Rauschenberg at San Lazzaro,” a showcase of the modernist master (1996); and the 47th Venice Biennale, one of the world’s oldest and most prestigious international visual arts exhibitions (1997). Ultramodern and fanciful designs distinguish illycaffè’s limited edition of cup-and-saucer sets, from Jeff Koons’s colorful near-abstract animals to David Byrne’s monochrome space alien visages to Norma J.’s surrealistic washing machines suspended in a clear blue sky. The company also supports emerging artists, offering a special award, the Premio illycaffè, at the Venice Biennale.

Illycaffè’s association with the arts also helped to keep its product quite visible. The company’s foray into the film arts in 1999, for example, was extremely successful. illycaffè spent over US$4 million to air a commercial created by Francis Ford Coppola. Coppola was asked to create a standard one-minute spot, and then a special “cinematic” two-minute version to be shown at a special movie-like premiere in Rome. Also planned was a 15-minute, behind-the-scenes movie about Coppola’s work for the company. Although these were Hollywood-like production plans, the project was new territory for the filmmaker, as it was his very first television commercial. After some awkward co-concepting between the filmmaker and the coffee company, the tiny film successfully evolved into a dreamy homage to the Italian barista, or coffee bar operator. Distributors from the United States and other markets clamored to air this exciting collaborative commercial.

Premium Espresso throughout the World

As part of its strategy to appeal to more at-home coffee drinkers as well as the usual restaurant or coffee bar clientele, illycaffè developed a way to make preparation of espresso much easier than by using the traditional, tricky, “tamp and pull” method. In 1981 the company introduced a line of premeasured servings of illy coffee, also known as “pods.” With these pods, and a pod-compatible espresso machine, espresso could be easily and consistently made within 30 seconds—without the fuss of measuring and dealing with messy coffee grains. The company boasted that the system was so easy, even Ernesto lily’s granddaughter was able to prepare her grandfather a perfect cup of espresso at the age of four. Unfortunately, the specialized, pod-compatible machines were expensive and only practical investments for businesses such as restaurants and coffee bars.

Even though illycaffè’s contributions to espresso-making was widely embraced by the professional espresso-making sectors, espresso-making remained relatively unpopular in consumers’ homes. According to The Economist, “In the early 1990s, only one in every five household with an espresso machine used it regularly, because the results were so unreliable.” Even though this is well after illycaffè introduced its easy-to-use, tea-baglike espresso pod, this is well before illycaffè made strides breaking into markets beyond its home country. Italy was easily the market leader in espresso-making, for both the home and professional sectors. Other countries were still far behind in espresso consumption. Although an espresso craze gripped the United States during the 1990s—powered in large part by the promotional efforts of the ubiquitous Starbucks chain—it was some time before illy coffee was available to the U.S. home market. Until then, illy coffee was only available in fine U.S. restaurants and a select few specialty food stores.

By the mid-1990s, coffee consumption in the United States soared, especially in the espresso sector. Research by the Special Coffee Association of the United States found that 40 percent of young people (up to age 29), consumed espresso, coffee, or cappuccino. illycaffè’s business was doing quite well by then: Its sales in 1992 rose by 53 percent, and in 1993 rose another 45 percent, and was expected to rise 38 percent in 1994. Exports had been growing by about 35 to 40 percent annually. The company was in a good position to make another bold move to try to capture a bigger share of the growing espresso market. In 1993 the company began to slowly introduce its espresso to select retailers, most notably Williams-Sonoma. By 1995 a full-scale distribution system was in place for the United States.

Key Dates:

1933:: illycaffè is founded.
1935:: Francesco Illy develops the modern espresso machine and coffee packaging that maintains freshness for years.
1948:: Francesco’s son, Ernesto, joins the company as an espresso machine inspector.
1956:: Ernesto Illy becomes co-owner and manager of the company.
1963:: Ernesto Illy becomes company chairman.
1981:: illycaffè introduces the Illypod, premeasured and wrapped servings of espresso grounds.
1990:: The company sponsors the first annual coffee grower’s competition in Brazil.
1992:: The company receives the Qualite France certification for its espresso.
1996:: illycaffè licenses its E.S.E. (Easy Serving Espresso) system to other manufacturers and becomes the first European agro-industrial company to receive ISO 9001 certification for its production process.
1997:: Ernesto Illy is awarded a “Lifetime Achievement Award” by the Specialty Coffee Association of America.
1999:: illycaffè founds the first coffee university in Naples, Italy.
2000:: The company cofounds a second coffee university, in Sao Paolo, Brazil.

Illycaffè also made a move to help make espresso-making much more appealing a8;d affordable to the U.S. home market. It partnered with several espresso roasters and machine makers—including Gevalia, Lavazza, Starbucks, Alessi, Ariete, Electrolux-Zanussi, Gaggia, Mulinex-Krups, and Saeco, among others—to develop standardized pods and pod-compatible machines. illycaffè also headed an industry-wide effort to develop comprehensive guidelines for the standard so that other coffee companies could also develop the products. The standardized machine and pod, together as a system, was dubbed E.S.E (Easy Serving Espresso). The E.S.E. partners represented 80 percent of the worldwide espresso machine market share, so there was much hope that E.S.E. would take off and appeal to more at home espresso drinkers. It was not until 1998 that the standardized system would debut in markets. By then, already one in ten American households had an espresso maker, according to a survey conducted by the National Coffee Association. Also by then, sales were up another 10 percent for illycaffè. During 1999, sales of E.S.E. units grew by 7.5 percent, compared to E.S.E.’s debut year. Overall, illycaffè sales were up 16 percent in 1999, and up 17 percent in 2000.

illycaffè in the New Millennium

Illycaffè’s goal was to become the first global brand of coffee. If family commitment is any indication of illycaffè’s singular drive for success in the new millennium, then the future looked bright for the espresso company. Chemist, author, and CEO Andrea Illy led the company, supported by other family members: his father, Ernesto Illy, as chairman of illycaffè; his mother Anna, a board member; and siblings Anna, a board member, and Riccardo, as vice president and current mayor of Trieste. Another son of Ernesto, who was also named Francesco, served as the corporate image director and author of several books, including one on coffee history and lore. So far, under Andrea’s leadership in the last five years, the company’s sales have doubled, despite a generally ailing coffee market.

In 2001, overall coffee prices sunk to record lows, an effect of the glut of cheap robusta coffee coming from new coffee-producing countries such as Vietnam. This cheap coffee, however, had not prevented premium growers; they managed to continue to thrive. Optimistic about illycaffè’s future, Andrea Illy boldly predicted that in a few decades, the company’s sales will be as much as four or five times what they are now. Although espresso is a mere 2 percent of the world market for roasted coffee, illycaffè’s commitment to quality, and its unique influence on premium Arabica coffee-growers (most notably Brazilian, and potentially those of other countries), promised to secure the company great returns for some time to come.