Starbucks faces Italian challenge

04 November 2009

SEATTLE: A David and Goliath battle between the mighty Starbucks Corporation and Italian challenger IllyCaffe SpA looks set to add some piquancy to the US premium coffee market.

After two decades of US trading, during which it has adopted a largely low-key distribution strategy via top-end hotels and restaurants, Illy has come out fighting.

The Trieste-based firm has so far signed exclusive deals with around 30 independent coffee shops – many of them in traditional Starbucks ‘neighbourhoods' - and aims to add 100 more in the coming three years.

The company is also set to move into Canada and Mexico.

Under the terms of the deal, Illy supplies each shop with luxury Italian espresso machines, crockery, artwork, recipes and staff training programmes in return for official Illy certification and an agreement to sell nothing but Illy coffee for at least three years.

A number of coffee shops brought to their knees by the recession report to brisker trade, younger customers and happy acceptance of higher prices post the Illy deal.

While Starbucks' presence is undeniable – despite store closures, it still has 11,000 outlets in America alone – Illy, which claims a 10% share of the $48 billion (€33bn; £29bn) global retail gourmet coffee market believes that the US coffee drinker is ready for something new.

Armed with a strategy allowing it to move into Starbucks territory without the need to rent or buy its own premises, this is one Italian invasion that looks promising.



Data sourced from Wall Street Journal; additional content by WARC staff