The slick lobby in Illycaffe's head office is a lively blend of gallery, museum, store and – this being Italy – bar. I stroll up to the counter with Andrea Illy, the company's dapper chief executive officer and co-owner, and we could be stuffed into a street bar anywhere in this coffee-mad country. The espresso machine hisses to the clinking sounds of china cups. The patrons – Illy employees and their guests – are jabbering away, producing the pleasant cacophony of Italian life.
Mr. Illy and I have just finished lunch upstairs and the requisite post-meal caffe is in order. "Espresso?" he asks, and I respond: "Si, ma per me espresso macchiato, grazie."
Within a second, I realize my mistake. I had just ordered an espresso cut with a few drops of frothy warm milk: "Macchiato" means "stained."
The addition of milk is not to every Italian's taste and it certainly is not to Mr. Illy's. You see, he considers his coffee the finest blend on the planet and millions of coffee drinkers from Canada to China would agree. To him, sloshing milk into espresso is like sloshing Coca-Cola into champagne.
He gives me a slightly condescending look. "It's not a pure coffee experience with milk," he says, as I knock back my polluted little espresso, suddenly a guilty pleasure.
Which is why I assume Mr. Illy is not a fan of Starbucks' coffee products, which are typically drowning in milk and often laced with caramel, peppermint, cinnamon and other confections that would make an Italian burst into an aria of pain. But I know he is a great fan of Starbucks as a shop, because he says so. "They have been terrific as a retailer," he says. "Their soul is of a retailer. Their coffee? I prefer Illy."
He is such a fan of the coffeehouse retail concept that Illy is undergoing its most radical change in its 79-year history: It is becoming a business-to-consumer company – that is, it is focusing on the retail side of business. In the past, Illy largely existed as a business-to-business company, supplying coffee to hotels, supermarkets and independent coffee outlets.
Illy already has 400 Illy-branded shops, including one in Toronto, and the goal is to double that number within five years. Mr. Illy knows he will never truly compete with Starbucks, which has almost 18,000 outlets. Nor does he want to. "If we want to grow so big, we would have to compromise on the quality of the coffee," he says. "Our real goal is more social than business. We want to create a community of people – stakeholders – who are really proud of what they do, rather than just generating profits for shareholders."
Clever investigative journalist that I am, I decide to visit an Illy caffe in the centre of Trieste, before my lunch with Mr. Illy.
Trieste is in Italy's extreme northeast, by the Slovenian and Croatian frontiers. In the 19th century, it was the main naval port of the Austro-Hungarian empire. In the early part of the last century, it was a thriving industrial and cultural town, a sort of Vienna by the Adriatic, and attracted the likes of Sigmund Freud and James Joyce. Italy annexed Trieste after the First World War.
A faded beauty, Trieste today is better known as the unofficial coffee capital of Italy, the one big European market that Starbucks has been unable to penetrate, in spite of on-again, off-again efforts for about 15 years. While Mr. Illy thinks Starbucks will inevitably make its Italian play, even Illy finds the market exceedingly crowded.
The Illy caffe I visit certainly has its work cut out for it. Within a couple of hundred metres, there must be a dozen competitors. Italy has one coffee shop for every 400 people; in the United States, the figure is one for every 20,000. The Illy shop is a sleek little study in white and chocolate brown.
While I sip my espresso, one of the two baristas writes the menu on a chalk board; unlike many caffes, you can get a hot lunch at an Illy. The row of small white angular tables are empty – no one is taking advantage of the free WiFi. The patrons are all clustered together like grapes at the bar itself. The noise level is high. The place feels like a meld of coffee bar, restaurant and club. I like it.
Still, Mr. Illy insists good coffee is at the heart of the Illy caffes. To say that coffee is his passion is like saying Michael Schumacher likes to drive Ferraris. The man is obsessed with the entire business chain, from the Arabica bean production in Ethiopia and Brazil, and the roasting at the Illy plant in Trieste, to the licensing of the Illy caffes and the selection of the artists, like Anish Kapoor, who design Illy's well-known collection of "artist cups."
Over lunch in an executive meeting room, Mr. Illy recounts the family's remarkable history and record of innovation – innovation that it failed to exploit to its full potential, allowing competitors like Nestlé's Nespresso and Starbucks to create global brands while Illy remained largely stuck in the business-to-business European market.
Lunch is standard Italian fabulous, hustled up by the in-house chefs: Boiled vegetables, prosciutto so delicate it melts in my mouth, risotto, polenta, ravioli, all washed down with a killer Mastrojanni Brunello di Montalcino, the big Tuscan red owned by his two older brothers, Francesco and Ricardo.
Mr. Illy is 48 and trim with intense blue eyes and short-cropped white hair. He is a chemist by training – "I am not a businessman" – and a fanatic outdoorsman who adores helicopter skiing in British Columbia. The day before we met, he opened the season at Cortina D'Ampezzo, the glamorous ski resort north of Trieste. But he would rather talk about coffee.
Illy was started by his grandfather, Francesco Illy. Francesco, who died before Andrea was born, left Hungary in his late teens and dabbled in spices and high-end chocolate in Vienna and Trieste before switching to coffee. "He wanted to differentiate himself through excellence, no matter what he was doing," Andrea says.
Innovation was his forte. Francesco invented the second-generation espresso machine, in the mid-1930s, which gave the operator independent control of the water pressure and, crucially, the water temperature. A surviving example sits in the Illy headquarters lobby. Bristling with knobs, handles and valves, it is the size of a diesel engine and it worked.
"The formula that everyone in uses in the world for espresso still now is the formula invented by my grandfather," Andrea says. "Ninety Celsius degrees and nine atmospheres for the water pressure. The coffee is extremely sensitive to the preparation conditions. If the water is too hot, even 1 degree, it immediately becomes bitter, too cold, it immediately becomes acidic."
About the same time, Francesco invented pressurized packaging, a process in which inert nitrogen gas was pumped under pressure into bean-filled cans, keeping the beans fresh for a long time. Still a third big innovation, espresso packed into a paper pod, came in 1974, when Ernesto, Francesco's son and Andrea's father, was running the show. Illy made the mistake of hanging onto the paper pod too long. That market now belongs to the aluminum capsule that turned Nespresso into a coffee champion.
Still, Illy has developed an upscale international brand that belies its relatively small size. The company, which Andrea vows will always be a family affair, has 800 employees, about €360-million ($490-million) in sales and an operating profit margin of 8 per cent, meaning its raw earnings are about €28-million. In a decade, he sees €1-billion in sales.
Mr. Illy vows never to lose focus on coffee quality as the company doubles in size. That's why he never sought Fairtrade Foundation certification. "The system was initially a good way to help the growers get a premium price," he says. "But it never addressed the quality of the product."
To ensure he gets the best beans, Illy pays a 30-per-cent premium to internal market price in the producing country (Fairtrade also requires a premium price). Paying high prices for the world's best coffee is essentially the Illy business plan, though there is a new twist to the formula. "I would have been more aggressive in new businesses; we hesitated too much," he says.
He vows to move more quickly in pushing the company into new markets; for my part, I vow to drink espresso without milk.
Age: 51; a chemist by training.
Born in Trieste, grandson of Francesco Illy, Hungarian immigrant who founded Illycaffe in 1933.
Has three teenage daughters.
Wife Elisabetta is a journalist, photographer and
author of the coffee book L'Aroma del Mondo.
Joined Illycaffe in 1990, in the quality-control department. Became CEO in 1994.
Grooming fourth generation of Illys. Niece Daria and nephew Ernesto work at the company.
Loves all outdoor sports, especially heli-skiing. Skis in Revelstoke, B.C., and Cortina D'Ampezzo, Italy.
"I love Canada. … I could live there."