Group 4Giulia BenincasaGuglielmo CamminoGiulia GrecoChiara Lo CascioStefano RennaCostanza Sebastiani

Feasibility Analysis  Illy’s US Expansion

The Company

History Founded by Francesco Illy in 1933 in Trieste

During the 30s Francesco develops some crucial innovations allowed geographic expansion of sales (first phase)

With the arrival of Ernesto in the company after World War II, Illy started to export significantly and consolidated it’s position as high-quality coffee reseller

The second phase of development provided a significant acceleration in growth both geographical and organic

In 1975 Illy joins the North American market

In 1992 Illy further expanded it’s offering with the launch of the Illy Collection cups

The third phase of Illy’s history is characterized by the appointment as CEO of Andrew

Last and actual phase Illy combines its technological guideline with changes in society and perseption of consumers 2003 “Espressamente Illy”

Illycaffé finally opens its first US coffee bar Espressamente illy in Las Vegas, in 2008 +joint venture with coca cola company

The Company

Mission and...“We aim to delight people all over the world who value the quality of life by offering the best possible coffee nature can provide, enhancing its perfection through the most innovative technologies, and inspiring emotional and intellectual involvement by seeking beauty in everything we do.”

…visionWe aim to be the world reference for coffee culture and excellence. An innovative company offering the finest products in the best places, growing to become the high-end segment leader and creating superior stakeholder value.

The Company

The organizational structure

The Product

Coffee’s History and… • Coffee growing came into being in the 15th century in

Yemen, subsequently it has been imported by Dutch merchants in Europe, Central and North America in the 17th century.•After WWII coffee represented one of the most valuable primary products in world trade, for many years second in value only to oil as a source of foreign exchange to producing countries.• Nowadays, coffee is vital to the economies and politics of many developing countries; for many of the world’s Least Developed Countries, such as Uganda, Kenya, Rwanda and Burundi, exports of coffee account for more than 50% of their foreign exchange earnings.

…Coffee

Today • The American coffee is an infusion, the espresso is an emulsion. • The difference between american coffee and espresso is associated with a different form of consumption.• The coffee filter is definitely the most drunk coffee in the world but not in Italy

The Product

Illy’s productsThe professional products•3 kg format of coffee•Illy bar concept•“at the workplace” segment: iteca espresso sistem

Home products•Ground coffee•Coffee beans•Decaffeineted coffee•Servings

Ready to drink (Ilko coffee international)•Caffè•Cappuccino•Latte macchiato

Illy collectionEspressamente IllyUniversity of coffee

Market & Industry

Hot drinks industry and…

Global hot drinks market segmentation: %share, by value,

2009

Asia PacificAmericasEurope

Worldwide Hot Beverages Consumption

coffeeteaother

Coffee is the largest segment of the global hot drink industry, accounting for 54.2% ($ 36.9 billion) of the industry’s total value.

Europe is the main segment of the market, representing 44.6% of the total value, whilst zones as America and Asia have a higher forecasted growth rates for the period 2009 – 2014, respectively with CAGR of 2.7% and 5.3%, with future values equal to $ 20.9 billion and $ 25.2 billion dollars.

…market

Market & Industry

Coffee industries...Coffee is one of the world’s most widely traded commodities, and is produced in over 60 countries, many of which are heavily dependent on coffee. In the last year (April 2010 – May 2011) coffee prices rose steeply reaching their historical peak of 231.24 US cents/lb. This level represents the average of the two main types of coffee: Arabicas, composed by Colombian milds, Brazilian naturals and other milds, and Robustas.

The coffee market size for year 2010/2011 is estimated to be around 133 million bags, with a remarkable increase of 8.1% face to crop year 2009/2010. Eight out of ten of the main, exporting countries (Brazil, Vietnam, Colombia, Ethiopia, Guatemala, Mexico, Honduras and Uganda) recorded production increases in the period 2007/2009. Exports extended to 101 million bags in March 2011, the maximum amount ever recorded. Ibid. Players in the coffee industry try to distinguish their products to some extent by stressing the taste, quality, and even health benefits.

…and Market Size

Market & Industry

Hot drinks market Italy vs USA

•Market size in term of value: 2,658 million dollar(2009) with a 5,5% CAGR•Market size in term of volume: 242,2 million Kg(2009) with a 5,2% CAGR•Segmentation: 1,8 billion dollar revenues(2009), 67,7% of the hot drink industry overall value•Italy itself accounts for 9.2% of the whole European hot drinks industry value.

•Market size in term of value: 9,672.6 million dollar(2009) with a 3,1% CAGR •Market size in term of volume: 793,8 billion Kg(2009) with a 2,2% CAGR•Segmentation: 6,6 billion dollar revenues (2009) 68,7% of the hot drink industry overall value

Market & Industry

PESTLE analysis

Market & IndustryConsumer Profile Italy vs USA

56% of coffee drinkers are men81,1% of coffee consumers drink up to 3 coffee per day57,3% of Italians drinks coffee with other people22,2% of Italians has at least one cup of coffee at a cafè.75,2% of coffees are consumed during the morning74% of coffee consumers prefers espresso1.65 number of cups consumed by 1 adult everyday at a cafè

Around 49% of the population drinks coffee During daytimeMen drink 1,7 cup of coffees per day, women 1,5Stronger consumers of coffee consume about 3,3 cups coffee per day37% of consumers drink plain coffee, without sweeteners, milk or cream57% consumed at breakfast, 34% at mealtimes and 13% during the rest of the day

We can conclude that Illy’s attention will shift from the a mojor attention to business men towards an increased focus on women with the introduction of the ‘Artisti del Gusto’ program and the ‘Espressamente Illy’ franchising bars.

Competition

Direct competitors Starbuck Corporation represents the major competitor in the US in the high quality brewed coffee business and the Espressamente Illy store-businessStarbuck Corporation’s principal activity is to purchase and roast high-quality whole bean coffee and sell it along with fresh brewed coffees, cold blended beverages, Italian-style espresso, coffee-related accessories and equipment, an assortment of diverse food items and a selection of premium teas. The company is downstream vertically integrated mainly to maintain the control on high quality at least in the last part of the supply chain. The firm’s mission is very similar to the one of Illy.

Lavazza is the first single-product brand of coffee of the world, accounting their commercial presence in over 80 Countries, and brand leader in Italy with 47% of the market share.Lavazza develops a communication strategy with the aim of celebrating the tradition of coffee, a strategy that has gone on for 100 years with the first logo in 1946 and the first image campaign in 1950 with the slogan “Miscela Lavazza”

Competition

Direct competitors

Segafredo Zanetti (Segafredo) is a subsidiary of Massimo Zanetti Beverage Group, involved in producing espresso coffee. The group has long pursued a strategy of vertical integration within the world of coffee, from growing green coffee, creating blends and roasting, through to marketing.“Segafredo Zanetti is, in fact, the only coffee-roasting company in the world to cultivate green coffee on its own plantations. The Segafredo’s coffee shops have a dystonic personalization.

Nestle is the largest food and beverage company in the world. Its key coffee product brands include Nescafe, Nespresso, Taster's Choice, Ricore, Ricoffy, Bonka, Zoégas, and Loumidis. Nescafe, the flagship soluble coffee product of this division, is one of the leading brands in the world. The company's coffee range also includes Nespresso .

Competition

Illy’s SWOT

Competition

Starbucks’s SWOT

StrategyIlly’s Five Forces Analysis

StrategyAnsoff Matrix

StrategyBCG Matrix

StrategyAbel matrix

Strategy

Increase awareness and trial via experiential marketing, PR, social media,circolo, and direct marketing; Expand brand advocacy by increasing relevancy and desire for the brand; Expand to coffee lovers and younger users to include a greater percentage of 25-39 year olds;Increase frequency of purchase and share of requirements among current base.

Brand development strategy

TacticsIncrease retail programming to drive consumer behavior (trial, frequency of use)Sustain direct channel investment focusing on systems; B/E 2012Accelerate and invest in Artisti del Gusto (AdG) programSynergize with issimo with consumers and tradeLaunch Circolo illy as digital platform to increase consumer database and build brand affinity, engagement and advocacy Develop stronger visual merchandising and improve brand communication at the point of purchase

StrategyBalanced channel strategy: fewer, bigger, better, deeper

Increase home channels share from 50% to 58% of subsidiary turnover

Increase distribution and penetration of systems

Launch Mitaca in mid sized offices via distribution partnership

Expand national and scalable distribution in cafes and hotels with in Horeca

StrategyProduct strategy

Coffee Develop and launch Origins line Develop next generation of iper capsules; monodose capsules for hotels Distribute Mitaca2 in OCS with partner Develop 400g packaging for club channel Optimize Dammann packaging and range Develop route to market plans for Gruppo illy products Develop ready to use and next generation formats

MachinesExpand range of machines with partners (home and horeca)Offer range of machines for ESE/Ground and IPSODevelop dedicated machines for direct channelDistribute Mitaca2 system with partner

StrategyStrategic objective1 Develop a robust and profitable global direct channel, controlling it directly in strategic markets and supporting through tools

and best practices in secondary markets. Establish direct one-to-one relationships with our customers,

leveraging Circolo illy and the social web to grow awareness, acquire prospects, build loyalty and drive sales across all-channels.

3 Provide a seamless, cohesive and compelling user experience across illy sites, shops and social networks.

4 Integrate commerce and content platforms to support targeted direct marketing and rich, interactive brand experiences across the web

Create a single, unified global B2C database with CRM overlay.6 Extend commerce and content to key emerging markets7 Identify and leverage global synergies in agency relationships8 Build direct channel competency and human resources

Strategy

Focalisation In the “espresso” and in the premium segment

Globality The same marketing mix worldwide

Differentiation Quality, one unique product, price supply of all products for preparation, setting and service

CoherenceProduct, positioning, packaging, distribution, public relation, internetpos, advertising, corporate identity

Mktg strategy

Financials

In the financial analysis, we looked at both situations as if Illy did not implement internationalization strategy and with its implementation.

FinancialsInstead, for calculating the financials of the internationalization strategy applied we referred to balance sheets for the period 2004-2009. This calculation focuses only to analyse in details the impact of the strategy implementation over operating profits, without looking at the leverage coming from financial debts.

Conclusion

Thank you for your

attention… …now it is time for a coffee!!