Illy Caffe Looking to Replace Your Morning Starbucks

Italian coffee maker Illy Caffe will challenge Starbucks Corp’s stronghold over the US out-of-home coffee market by expanding its reach within independent coffee shops, rather than opening up its own.

Italian coffee maker Illy Caffe will challenge Starbucks Corp’s stronghold over the US out-of-home coffee market by expanding its reach within independent coffee shops, rather than opening up its own.

Illy initiated the “Artisti del Gusto” - or Artists of Taste - program with independent shops in Europe three years ago, and brought the program to the U.S. last year. Under the program, Illy supplies shops with Italian espresso machines, coffee cups, artwork, drink recipes and intensive training, after which the cafe becomes a certified Illy purveyor. In return, the shop agrees to serve Illy coffee exclusively for at least three years.

Several shops currently adopting the Illy program have seen their sales and profits increase since signing on – a direct result of the more premium brand halo and allure offered by Illy to coffee (and Illy brand) aficionados – and of the higher prices the white porcelain cup and red logo allows them to charge.

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The Wall Street Journal points to strength of the Illy effect, noting several convincing cases of the model’s success.

Cafe Nineteen in Atlanta, which closed temporarily last year, reopened in June, having added an outdoor patio with red Illy umbrellas. Owner Sean Lupton-Smith said he began serving Illy coffee “so we could offer a consistent experience to our customers and be strong enough to stand up to the Starbucks around the corner.”  He also raised prices. A 12-ounce Illy drip coffee in a white ceramic cup with the red Illy logo sells for $3 instead of $1.60 for his previously no-name cups of joe. Coffee sales have tripled to $750 a day. “We’re open until 2 a.m. and believe it or not, we sell coffee at midnight,” Mr. Lupton-Smith says.

It will be interesting to see how Illy fares within the US coffee shop business, particularly given Starbucks’ size, awareness and strength. And in terms of reach and convenience, McDonald’s and Dunkin Donuts certainly figure heavily into the market as well.

Given Illy’s expansion plans – there are currently 28 U.S. shops operating under Artisti del Gusto certification and plans to add 100 more in the next three years – the reality may be that Illy is content to take just a small slice of Starbucks’ pie – the slice belonging to those consumers that care more about quality and brand equity on most days – or loyalty to smaller, independent shops –  than they do about price.

Wall Street Journal: Coffee Maker Illy Uses Backdoor to Take on Starbucks in the U.S.

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