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Illy Case: Espressamente

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by

Kelly Hinton

on 18 April 2013

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Transcript of Illy Case: Espressamente

China
Chinese usually enjoy food with their coffee
Unaware of the amount of market growth that can be captured with the competition
Starbucks has plans to aggressively expand
Difficulty maintaining brand integrity
Chinese aren't used to franchising Franchises die out easily because of slowing economy
Aging population
Slow market growth (6%)
Franchises must adjust to local tastes to surviveLosing the Espressamente vision Where Not to Enter IFC and World Bank
Ranking Out of 185 Economies
United Kingdom - £5 billion industry U.K.Coffee shops, market grew over 12%
-Significant growth expected next 3 to 5 years, perhaps double over the next 10 years
-Coffee market exploding, now is the time to take advantage of the opportunity

-Very welcoming to franchises:
-The U.K. Trade and Investment Agency facilitates FDI

-Foreign-friendly market, close proximity to Italy
-U.K. coffee sector largely unaffected by recessionary trends. Believe starting with established business model and brand more successful in recession

-Annual British Franchise Exhibition 200+ franchises supported by British Franchise Association. Must meet BFA’s code as ethical entity to exhibit

-One of the most favorable environments to organize and operate a business, little restriction to franchising
-"Be your own boss" mentality The United Kingdom OPPORTUNITY!!
Little Risk
Lowest per Capita at 11,672 and second lowest coffee consumption at .008
This will allow Illy to expand into china and position themselves securely and create a strong brand image and customer loyalty.
Expanding into India, while India’s economy grows will allow them to grow with the economy.

Enter as a Master Franchising
This will allow illy to penetrate into the market and have a competitive advantage over competition.

Also allow illy to work with companies that share the same view
Working with Indian companies will allow for Indian influences within the business while keeping Illy’s image of selling premium Italian style coffee.
Rising income driving consumers to more experienced high end products in espresso is a great opportunity growth because its consistent with Indian taste because it is a high body, strong flavor taste, and mixes with local and food tradition. What this means for ILLY In 2002 there were 200 cafes in India holding sales of $10 million compared to 1,500 shops in 2011.
Coffee consumption in India has increase by 6 percent in five years.
This is due to increased exposure to international lifestyles and global trends
Incomes are rising and a middle class is emerging
Increase in disposable income
Number of young people grew
Rapid urbanization causing rapid growth and change in demand patterns.
India is projected to see a 83% growth rate in coffee sales between 2011-2015.


So although India’s GDP is at a low 3,700 and there income per capita is at a low 11,673, globalization and rising incomes, combined with marketing drives will propel coffee drinking in India, where its not a huge tradition…….yet!!
Due to lower levels of saturation the coffee retailing is one of the fastest growing organized retail segments in India and has room for an additional 5000 cafes.
Franchising great at a rate of 30%, as of 2009 over 70 international franchises operated in the country. GDP per capita (2010) is $40,164, ranked 20th worldwide.
Coffee consumption litres per person (2010) is 150, ranked 2nd worldwide.
“New trend rise in popularity of speicalty coffee and an increase in U.S. –style coffee chains.”
BMI predicted the growth of coffee industry in Germany would grow by 10.5% from 2011 to 2015.

Franchise system is reliable.
470,000 employees work for 1,000 franchise systems that operates 64,000 units.
Importing Illy to Germany is convenient
Berlin is approximately 736 km away from Rome.
Berlin is approximately 2 hours flight-time to Rome. Germany Only 11% of franchises in Brazil are foreign based

There is high domestic competition
Products would have to be localized in order to compete

Coffee consumption per capita, in comparison to mature markets, is still quite low. Brazil: Things to Consider Majority of the population has recently become part of the middle class. Brazil The United States Highly competitive and saturated
While there is growth, it requires a lot of sunk costs in innovation and infrastructure
70% of sales are owned by the top 50 companies Espressamente Genuine Italian Espresso Cafe Offering high quality cafe drinks in an Italian cafe setting Where should Espressamente expand to?
Distance costs
Market Size
Mode of Entry Megan Kelly Julie Laura Suchen Alex India China Japan Mode of Entry: Sequential Franchising Low risk to Illy: Number of franchise locations will start out small and prove profitable before opening additional locations. This way the brand does not become diluted. Foreign-based franchisors developed relationships with non-competing businesses because of the challenge of finding suitable master franchisees. Sales in specialty coffee are rising rapidly, and demand expected to continue increasing. American style coffee shops have become more popular Starbucks was highly successful in Brazil "Second largest consumer of coffee behind the United States. Brazil was one of the fastest growing markets by sales in the specialty coffee shops industry, with growth rates exceeding 30%" Brazil is the largest grower of coffee in the world. GDP per capita (2010) is $11,700 x36 -Mode of Entry: Area Franchise- aggressive strategy to ensure rapid expansion
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