The family that grew rich on the other black stuff

To Giuseppe Lavazza, writes Martin Baker, coffee is far more important than money. It just happens to be second only to oil as a commodity

Sunday 23 October 2011 08:15

Giuseppe Lavazza doesn't offer a coffee, specifically. But then, he doesn't have to. He is the crown prince of the world's biggest independent coffee company, and the beverage that is synonymous with the family name permeates any encounter.

Ours happens to be in Turin, Italy's capital of chocolate, ice cream and, of course, coffee. I've just had a tour of the mind-boggling Lavazza factory, a few kilometres from the city centre. Amid the lava flow of facts thrown at me is the unsurprising news that this is Europe's, and possibly the world's, biggest coffee production unit. I've also sampled the best cappuccino I've ever tasted, and witnessed the strangely chilling sight of silent robots relentlessly stacking pallets of coffee in a dark warehouse the size of an aircraft hanger.

So ... Giuseppe Lavazza makes an easy, open-palmed gesture, confident that his product has worked its magic: would I like a drink? I decline. The image of the macchiato Robo Cop slaves is still with me, and I don't want to spoil the memory of that cappuccino.

We sit on leather benches, and Lavazza hits his conversational stride quickly. The group marketing director and coming man of that exceptional rarity, a globally known, €1bn-plus (£800m-plus) family business, has a lithe self-assurance about him. And so he might. Coffee is nearly the most valuable soft commodity in the world right now – second only, ounce for ounce, to oil.

Tanned from skiing with his family, and gently balding, Lavazza warms to his favourite topic – coffee as a cultural icon: "Coming from a country where coffee is recognised as a benchmark, you can put together a creative and artistic job with a large, mass-market product. We work to keeping the old traditions and have a great focus on the pleasure a cup of coffee can afford.

"It's like running a clothes boutique, where you choose certain clothes to give a look, philosophy and style. We do something similar with coffee."

Phew. That cappuccino was quite something – but a clothes boutique? Lavazza is quite clear that coffee has cultural value – something he reiterates during our meeting. "This is a country where coffee is not considered a commodity – for Italian people, it is truly a pleasure," he says with conviction. "We lead the market in Italy, with a 45 per cent share."

Lavazza's marketing people have told me that the company has a 48 per cent share in Italy. I query this, only to be told that 48 per cent is merely a monetary figure. In terms of volume, of the sale of the beautiful thing that is coffee (and implicitly more important than money), the figure is 45 per cent.

At which point it's time to get all Anglo-Saxon and global capitalist with the undoubtedly charming Lavazza. His grandfather founded the firm in the late 19th century, his father is chairman and his cousin vice-chairman, but won't the Lavazza empire find itself going to the equity capital markets sooner or later, as it tries to take on giants such as Kraft, Nestlé and Sara Lee? Surely, Lavazza will have to tap the markets or sell at least part of itself?

"No, for a very simple reason," insists Giuseppe. "The business is profitable enough to make enough money to reinvest." For the moment, the profits are running at some €100m per annum, and the two families who own it (Giuseppe's own and his cousin's clan) take a low dividend to facilitate that reinvestment.

Turmoil in the equity and bond markets is another reason why Lavazza sees the family firm as sitting pretty. He is clearly glad the two controlling families have held out against the many offers from their quoted global competitors: "Procter & Gamble, Sara Lee, Kraft, Nestlé – everybody has approached us."

Few of them could easily afford Lavazza right now, though. The flight out of shares has led to record soft commodity prices for sugar, wheat and coffee.

So if Lavazza can fight off the multinational producers, for the moment at least, what about the ever-growing presence of Starbucks coffee shops?

"Starbucks' expansion of the market is a very good thing," says Lavazza. "Until they arrived in the US, the market in coffee was dead. Very cheap, very poor, of no value. It was difficult to find an espresso coffee machine outside fine-dining restaurants. Espresso machines are our life! So thanks very much. They have a strategy that's focused on their core approach, which is shops, shops, shops. They were looking for some sort of partnership, but not the acquisition of something that's not Starbucks-branded. For us it's the same. Developing the business through acquisition is difficult because our strategy is focused on the brand."

Lavazza has acquired the Barista and Fresh & Honest coffee chains in India, and is "looking for more acquisitions in Russia, Brazil, China. European markets are very mature".

So isn't Lavazza now in direct competition with Starbucks? "They're not in India. We're sniffing at the coffee shop business, because it's important for a brand. It's a sort of window. We're not really competing." It will be interesting to see whether the view from Starbucks' Seattle headquarters is the same as Lavazza's on that one.

If it isn't, the mild-mannered, workaholic Lavazza can expect more approaches from the giant producers and retailers. Of course, so long as the families remain united, the private empire that is Lavazza will remain untouchable. Yet as the generations move on, the ownership of the business will diversify, and achieving what Giuseppe Lavazza describes as "consensus, agreement and mutual respect" will become more difficult.

And for all his love of coffee, his real job is to find and keep those last three intangible commodities.

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