Archive for January, 2007

Small is beautiful

January 5, 2007

espressamente illy represents illycaffe’s growth and extension of its premium coffee brand and effort to double revenues over the next five years.  Nothing more. 

Although illy already operates more than 100 espressamente illy coffee bars (including more than 50 outside of Italy), it nevertheless created a little bit of a media stir over the year-end holidays when Mr. Andrea Illy discussed the company’s plans to extend its brand.  No less than the New York Times, International Herald Tribune, Business Week, Economist, as well as several blogs, including Slashfood, the shot, the client side have written about Mr. Illy’s grand plan. Even one of the major business publications from India (where tea is preferred over coffee) featured an article about Illy’s plans for growth. What made the story interesting for the media is the comparison of Illy and Starbucks (does David and Goliath come to mind?) and the implication that Illy would compete with Starbucks, although most went to great lengths to stress that this was not about Illy vs. Starbucks.  Mr. Illy “publicly” acknowledged Starbuck’s role in growing consumer awareness and taste for premium coffee, with his counterpart Mr. Howard Schultz, Chairman of Starbucks, offering a “no comment”.

So let’s take a look at Starbucks and Illy, and what drives their business.

Starbucks Corp. (SBUX) is a publicly-listed (since 1992), global retailer with $7.8 billion revenues (+22%), net income of $564 million (+14%) and a market value of more than $26 billion. It has more than 12,000 coffee outlets (about 8,800 US locations and 3,600 international locations) and employs 135,000 people. Starbucks opened 2,200 stores in 2006 and plans to open a further 2,400 stores in 2007 on its way to 30,000 coffee shops (Mr. Schultz’s goal). Can you say “Walmart”?

Illycaffe, on the other hand, is a privately-held, family-run business founded in 1933 in Trieste, Italy and run by Mr. Andrea Illy, the founder’s grandson. It has estimated 2006 revenues of $330 million and profit in the $20-$30 million range. That’s tiny compared to Starbucks! Even if it manages to double revenues to $600 million over the next 5 years (Mr. Illy’s goal), it will still be the “hill of beans” compared to Starbucks. But is that a relevant comparison? Surely not.

Illycaffe is one of three major Italian coffee makers, along with Lavazza and Segafredo Zanetti, but it is the acknowledged leader in branding and marketing coffee as a luxury good. It has a growing business of commissioning and selling artist designed cups (Julian Schnabel, Jeff Koons, others) and collaborating with Italian espresso machine manufacturer FrancisFrancis! and architect Lucca Trazzi to design and sell espresso machines.  But illy’s core business is and remains the roasting and distribution of a single blend of arabica coffee (arabica beans are higher quality than the robusta beans, and ideal for brewing espresso) to more than 40,000 hotel, restaurant and coffee shops globally, as well as to the retail consumer market.  Today, illy exports to more than 144 countries, with exports accounting for more than 50% of revenues.  More than 6 million cups of illy espresso are served every day!  Sale of illy coffee is growing at 30% annually at such upscale US markets as Whole Foods, Williams-Sonoma and Sur La Table.  And Mr. Illy believes that the growth in the market for gourmet coffee has just begun.  No wonder then that illycaffe is interested in extending its brand and expanding its reach with espressamente illy.

So what are illy’s plans? As already mentioned, illy operates more than 100 espressamente illy worldwide (including more than 50 outside of Italy). According to illy’s website, espressamente illy are “Italian-style coffee bars in their setting and offer, with different atmospheres and roles during the course of the day, involving the customers’ senses and emotions, through communication and cultural events.” illy continues: “Lifestyles are changing, and stopping off at a coffee bar for a cup of coffee has become much more than just a quick break. It is an experience involving the senses and the spirit, and overflows from the cup into the café as a meeting place for communication, in accordance with the most genuine Italian-style coffee houses. It is a place offering the openness and liveliness of the street and the comfort and coziness of home. A place where people stop for something to eat, to read, or to share ideas with friends and colleagues.” Illy will offer the espressamente illy experience in several flavors, based on function and location, including core bar, landscape bar, transit bar, community bar, and corner bar. espressamente illy has opened in such diverse locations as Terminal 1 of Frankfurt airport, the perimeter wall of a bull fighting arena in Lisbon, and most recently (December 18, 2006) in the Nihonshibashi fashion district in Tokyo (3,500 square feet including a 33 feet long coffee bar). illy will ensure the consistent interpretation and application of its brand to the espressamente illy coffee shops with advice on architectural design (in collaboration with three Italian star architects), coffee, food and beverage, setting, culture and environment, training, communication, and financial advice.

Illy will also rely on its ability to pursue perfection in the coffee cup througth technical innovation. For example, illy is credited with the development of the paper pod delivering a single dose of pre-ground coffee for espresso machines, and is working on a two-stage espresso-making process to intensify the drink’s aroma and make it smoother. With a single roasting plant in Trieste, Italy and plans to open 500 espressamente illy coffee bars worldwide, it may also want to think about how to assure consistent freshness in every cup no matter where it is served.

We know that Starbucks had good intentions when it started its expansion in the early nineties (consistent, premium quality coffee and relaxing ambiance to meet friends and business associates – sounds familiar?), but with shareholders eagerly anticipating every quarterly earnings report and wondering how Starbucks would continue to maintain its double-digit growth, that initial concept was compromised. Provided illycaffe maintains its focus on its core strategy of extending and growing its premium coffee brand, we don’t expect to see illy opening 30,000 espressamente illy coffee bars anytime soon.

Small is beautiful.

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Friends: eDirective.com

January 3, 2007

Building a business is not possible without the help and advice from people we like to call subject matter experts. One of the many rewards of building and running a business is to be able to meet people who are subject matter experts and freely offer their vast wealth of experience and expertise to a new business like ours. We have been fortunate, and are very appreciative, of the many people who are helping us build something very exciting! In a series of posts we would like to acknowledge a few of our friends…

We wanted to launch a special promotion (10% savings on all tableware purchases) for a local bank’s customers and needed to add a feature to capture and validate a coupon code in our shopping cart. Although WebAssist’s eCart shopping cart does have a couple of tutorials for discounts, it does not have one for coupon codes. We searched their user forum and found Kevin R. Rounsavelle’s excellent coupon code demo, which is accompanied by a well-written tutorial and a forum thread. Kevin is President of eDirective.com, which assists clients with the design and implementation of websites and eBusiness applications.

The demo and tutorial are written for WebAssist’s eCart shopping cart, but can easily be adapted to other shopping carts. The ASP and PHP versions of the coupon code can be found in the tutorial and forum thread, respectively.

Kevin’s demo and tutorial was a lifesaver! We completed the coupon code in a matter of a few hours. To resolve a couple of issues we experienced, we contacted Kevin and he agreed to quickly assist on a Friday evening between two client applications that were scheduled to go live. He was headed out of town on Saturday, and promised to continue with the help if we needed it upon his return (which was not necessary as his initial advice helped us fix the issues). We have since contacted Kevin with a question regarding a Web Assist tutorial for volume discounts in shopping carts, and he has been equally responsive and helpful.

We appreciate Kevin’s help on a couple of critical feature implementations (coupon code and volume discounts), and recommend his firm to anyone who is interested in eBusiness applications written in PHP or ASP. It is people like Kevin, and their participation and sharing in user forums and with demos and tutorials, that greatly benefit people like us who are building new businesses.

We have reproduced below a few comments/suggestions we have made to Kevin on his wonderful coupon code demo and tutorial.

  1. Please include the PHP discount_process code in the tutorial for those of us who do not use ASP. I did find it by searching all threads, but it would be nice to package it in the tutorial.
  2. Regarding the PHP discount_process code, any chance this could be updated for PHP 5 (no longer uses CHAR VARS). And in the redirects, I tried to use dynamic URLs, but it did not work. My reason to want to use dynamic rather than static URLs is that these pages are secured with an SSL certificate on my production box, but I don’t have an SSL certificate for my development box. It is a little cumbersome to have to manually change these URLs each time I move the files from development to production.
  3. Would be helpful to point out that session cookies have to be added to the header of each page that contains a shopping cart. I have an editable shopping cart (where customers input the coupon code), followed by the customer info page (billing/shipping info), followed by the read-only shopping cart for customer to confirm purchase. I also have a quick cart in the nav bar on every page.
  4. Another enhancement to the coupon tutorial would be to show how to create multiple coupons for marketing campaigns running in parallel.
  5. BTW, Kevin mentions an “advanced” tutorial that includes expiry options for coupons – has this been published and where? Would love to get my hands on it.

UPDATE:

We received an immediate and very kind response from Kevin Rounsavelle to our suggestions, which we would like to share.

“To have multiple coupons, you just add multiple coupon codes to your discounts table in your database. You can then add either a rules table or custom code to specify if a customer can apply multiple discounts codes at the same time. I also use an ACTIVE field in my discounts table.

I haven’t had time to finish the advanced coupon code tutorial mostly because I have been working night and day on a retail ecommerce application that includes more discounts and merchandizing features than any other application on the market right now. I plan to release in around March 1.

However, expiration and start dates are really simple. You just have to add a startdate and enddate field to your discounts tables and then add some conditional code on your discounts processing page to only process records in the table that are between the two dates.

Example in ASP:

<% Dim TodaysDate, StartDate, EndDate
 
TodaysDate = Date
StartDate = DiscountsTable.Fields.Item(“StartDate”).Value
EndDate = DiscountsTable.Fields.Item(“EndDate”).Value
 
IF TodaysDate >= StartDate AND TodaysDate <= EndDate Then %>
 
<% Coupon Processing Code Goes Here %>
 
<% End If %>

Using the logic above, the coupon code(s) will not be processed unless today’s date falls between the starting and ending dates of the campaign.”

END OF UPDATE