INTERNATIONAL BUSINESS STRATEGY
International Business Strategy
- The recent research in the coffee industry indicates growing trends in the consumption of the premium coffee in the developed and developing countries. This aspect is highly valuable for Espressamente’s (an Illy brand) strategic decision of increasing its international presence, because Illy is recognized as the best coffee in Italy, destined for the premium consumers (Alon and Lohwasser, 2012). Another reason that sustains Espressamente’s intention of pursuing an international expansion resides in the fact that despite the high competition existent in the coffee industry, the developed and developing countries possess a high potential for absorbing specialty coffee brands and in general there is a projected growth for the developing countries (China, India and Brazil) and a slight growth for the developed countries (United States, Japan and United Kingdom) (Alon and Lohwasser, 2012). Moreover, specialty coffee is in-style and alongside Starbucks, Costa Coffee, or McCoffee, Illy offers a customized experience, shaping a lifestyle. Therefore, aiming to increase its international presence is facilitated by Illy’s promised Italian special coffee drinking experience, accompanied by a strong, full flavor and the quality and concern given to every coffee bean. In fact, the concern for every coffee bean to be perfectly matured and in perfect shape is one competitive advantage that Illy enjoys over its competitors. Similarly, the premium Italian experience is yet another competitive advantage that Illy has over its rivals, bringing the Italian culture, representative of the former Roman Empire, the Italian elegance and the European refinement overseas. The company’s flexibility made it an international brand, capable of accommodating the Italian values of style and sophisticated design to the changing markets, adjusting to the emerging opportunities with dynamism and proactivity (Balaster, Cammarata, Geroldi et al., 2006). Italian tradition combined with advanced technology and innovation represent, therefore, Illy’s added value, serving a unique and pleasant experience in every cup of espresso (Balaster, Cammarata, Geroldi et al., 2006).
Nevertheless, Illy’s competitors are also aware of the trends existent in the coffee industry and they too, can propose new, customized coffee drinking experiences in overseas markets, emphasizing the qualities of premium, specialty coffee. For this reason, Espressamente’s managers should concentrate on identifying which foreign markets would be likely and prepared to embrace, absorb and prefer the Espressamente specialty coffee made in Italy to other coffee brands, from Europe, America or any other geographic region. Therefore, the threat of new entrants is one main concern that Illy must face when entering a new market, besides the existent rivalry on that market. Yet another aspect that must be considered when deciding to explore and enter a new market is the power of the buyers, in this case of the coffee consumers. The markets that Illy will chose for its expansion will need to be characterized by a strong urban population, with a comfortable per capita income for the top 10% of the country’s population (Alon and Lohwasser, 2010), indicating their affordability to consume Espressamente coffee as a lifestyle trend. Knowing the power of bargaining of the buyers, there should be considered the possibility that the consumers in certain markets can change the prices of the coffee producers, including of the premium and specialty coffee producers. Economic and financial downturns can lead to such situations and Illy should investigate if such a situation is likely to occur in the near future in the markets it targets for expansion and to avoid such markets or to find solutions to cope with such situations.
- In Brazil, the coffee drinking is a tradition, being the second largest consumer and the first coffee producer in the world (Alon and Lohwasser, 2010). In fact, Brazil is the main country from which Italy imports 30,9% of its total amount of imported coffee (International Coffee Council, 2012). Overcoming the financial crisis with little difficulties, Brazil is today one of the four big developing nations in the world, alongside Russia, India and China (BRIC), which translates into an increased power of consuming qualitative, premium products. In Brazil coffee, called cafezinho, is served everywhere, from offices to bars, on streets and it is preferred sweet, although the country enjoys a great unique coffee variety, savored in coffee shops, instead of preparing coffee at home (“Coffee . Cafe”). Therefore, the preference for sweet coffee is a difference existent on the Brazilian market compared to Illy’s home market, where the coffee is preferred short and dark (Alon and Lohwasser, 2010). Another difference between Brazilian market and Illy’s home market is that in Italy the premium coffee is mostly consumed in restaurants, whereas in Brazil the coffee is consumed in offices and home also. Moreover, Brazilians have their own coffee drinking habits, enjoying the Brazilian specific coffee tastes and the Brazilian coffee-drinking experience, although they have slowly begun to change their habits into serving coffee outside, in coffee shops, rather than preparing it at home (“Coffee . Cafe”).
Illy’s Espressamente is positioned as a short, dark coffee and the Brazilian preference for the sweet coffee requires Illy’s adjustment to sweet coffee. Nevertheless, trends indicate that the coffee served with a lot of sugar is specific to the business environment, specific to office meetings and Illy does not target this environment, but rather the coffee shops and restaurants locations, which are emerging trends in the Brazilian coffee drinking style. Therefore, the differences existent on the Brazilian market regarding the coffee drinking trends are inconsistent to be considered serious challenges for Illy to extend its operations on this market. Nevertheless, Brazilians’ preference for the Brazilian coffee brands because of the customized taste and because of national affinity to supporting their local industries, this is the real challenge for Illy.
Japan, a developed nation with high potential for consuming the premium brands, currently develops a trend of serving the coffee ready-to-drink, which implies proper packaging for serving the coffee while walking, or outside a coffee shop or restaurant. Statistics indicate that there are over 5 million vending machines in Japan and half of them combine beverages with coffee (“Coffee Market in Japan”, n.d.). This is a major difference from Italy, where the coffee drinking experience is associated with the sunny, luxurious or family restaurants. A significant part of the total coffee consumption per person per week is registered in the home environment, so that out of 10.93 cups/week/person, 6.74 were consumed at home in 2010, while the coffee shops decreased among the preferred locations for drinking coffee (“Coffee Market in Japan”, n.d.). This is a considerable difference as compared with Illy’s home market, because in Italy the coffee is an out of home experience and Illy is served within the luxury restaurants. In Japan coffee is purchased from supermarkets, in pet bottle, which also indicates the increasing trend for consuming coffee at home. Yet another difference between Japan and Illy’s home market stays in the fact that in Japan the main coffee consumers are men and women in the 40-59 age group, wherein men exceed women in coffee consumption (“Coffee Market in Japan”, n.d.), whereas in Italy coffee consumption targets young adults in particular, but also mature and senior population.
The significant difference between Italy and Japan coffee drinking style resides in the fact that the Japanese tend to increase their coffee consumption in the comfort of their homes, while Italians prefer drinking it outside, in restaurants. This is a difficult situation for Illy as the company aims to enter Japan coffee market, because Illy is a premium brand, served in premium restaurants or sophisticated coffee shops. The lack of interest for specialty coffee in Japan and the increased preference for ready to drink, packaged coffees served in vending machines indicate the power of buyers, which is one of the five competitive forces that Illy has to deal with in Japan. The threat of substitute products, such as the vending machine coffee or the pet bottle coffee bought in supermarkets is another competitive force that Illy needs to address while targeting Japan as a new overseas market. Moreover, the lack of interest among the young adults towards coffee is yet another challenge that Illy must address when entering Japan.
United Kingdom’s main difference as compared to Italy stays in the fact that the first it is a traditionally tea drinking country. However, other differences between UK and Italy are: (1) English coffee consumers prefer soluble coffee, while Italians prefer pure coffee; (2) British prefer Nestle or Costa Coffee, which are British premium coffee brands; (3) the preumization of the coffee is a new trend in UK; (4) the coffee consumers aim to replicate the coffee shop experience by producing coffee at home at a push of a button, buying coffee machines (Forsyth, 2013).
These outlined differences impose challenges for Illy to enter this market, considering the inexperienced premium coffee consumers and the preference for home-made coffee.
- Illy’s entrance on Brazilian market with its Espressamente brand is a bold target, as the company will face a strong existent rivalry, an experienced and mature coffee drinking market and still a significant preference for home drinking coffee. Illy needs to capitalize on the fact that Brazil is a developing nation, with a growing income per capita, which can accommodate increased consumption for qualitative, premium products. Illy already started to educate the Brazilian coffee drinking population on the culture behind consuming Italian premium coffee, spreading this culture through Brazilian bars, following a training provided to baristas within the University of Coffee from Brazil (Balaster, Cammarata, Geroldi et al., 2006). Therefore, Illy must change the existent nationalistic perceptions into more international views for accepting Illy as a serious, qualitative coffee brand, delivering the Italian classic premium specialty coffee drinking experience. The fact that Brazil is an emerging premium coffee market is what makes it an attractive market and Illy’s Espressamento can overcome the risk of not being fully accepted in Brazil, by localizing its coffee to the country’s preferences, since adaptability has always been a strong point for the Italian company. The company can apply franchising approach for reducing the difficulty and cost of entry.
The solution for all the identified problems in Japan (preference for ready to drink coffee, pet bottle coffee purchased from supermarkets and increased home coffee consumption) would be to adjust to this market and to develop ready to drink premium Illy Espressamento coffee. The correct positioning as a premium brand that defines a trendy, global lifestyle should target the young adult population, but also the mature and senior coffee drinkers, with high incomes. The attractiveness of this market stays first of all in the fact that Japan is a developed economy, with high potential for consuming premium brands and Illy’s management should exploit this potential by making its Espressamento irresistible, the new social coffee drinking trend. Using Japanese and international celebrities to promote the Italian coffee drinking experience provided by Illy’s Espressamento should be the key to activate the premium coffee market in Japan.
The attractiveness of United Kingdom for Illy’s international expansion is represented by the fact that this country has registered growing trends in consuming coffee, with an incipient focus on the premium brands. Plus, the purchase power of premium brands represents another attraction of this market. Because UK is an EU member, just like Italy, there will be no difficulty of entry, but only a difficulty of competing with the existent strong players – Jacobs, Costa Coffee, Starbucks McCoffee. Illy’s Espressamento needs to differentiate from its rivals, by proposing a distinct coffee personality, meaning choosing fancy, yet friendly locations for distributing Espressamento or by promoting the quality of Illy’s specialty coffee for health and for an energetic lifestyle.
The risk imposed by the preference for soluble coffee and the home-made coffee facilitated by the fancy coffee machines should be addressed by “selling” to British coffee consumers the fun and elegant alternative of consuming short, dark premium specialty coffee, as a sign of their status quo. Selling class and refinement is the proposed strategy for coping with the UK market’s challenges.
Alon, I. and Lohwasser, M. 2012 The espresso lane to global markets. London: Richard Ivey School of Business Foundation.
Balaster, F. Cammarata, V., Geroldi, A. Kurucz, V., Maj, V. and Milani, S. 2006. The Illy case: preliminary study: “La cultura del caffe” the Espresso culture in the tea country.
Coffee. Café. N.d) [Online] Available at < http://www.brasilbar.com/Coffeebrasil.htm>. [Retrieved on 7 May 2014].
Coffee market in Japan. N.d. [Online] Available at < http://coffee.ajca.or.jp/wp-content/uploads/2012/07/coffee_market_in_japan.pdf>. [Retrieved on 7 May 2014].
Forsyth, J. 2013. Coffee consumption in UK: from coffee plebs to connoisseurs. [Online] Avaiabl at < http://www.mintel.com/blog/drink-market-news/coffee-consumption-in-the-uk-from-coffee-plebs-to-connoisseurs>. [Accessed on 7 May 2014].
International Coffee Council. 2012. Trends in coffee consumption in selected importing countries. [Online] Available at < http://dev.ico.org/documents/icc-109-8e-trends-consumption.pdf>. [Accessed on 7 May 2014].