Over the last few years, acquisitions and mergers have become a defining part of the coffee industry.
Set in motion by JAB Holding Company’s purchase of Peet’s Coffee in 2012, the ensuing spending spree has seen deals between some of the market’s biggest players, including Nestlé and Starbucks.
While most involve the purchase of related businesses (known as horizontal integration), companies outside the coffee industry have also joined the frenzy. In 2018, for example, The Coca Cola Company sent shockwaves when it acquired a majority stake in Europe’s largest café chain, Costa Coffee.
As the trend for market consolidation continues to dominate the industry, attention has recently turned on the Italian market, with some of the country’s leading brands handing over controlling stakes.
And although the lingering impact of Covid-19 would seem the most obvious cause, a number of other factors are also at play. To find out more, I spoke with Simonelli Group’s executive for corporate strategy, Maurizio Giuli.
How does the Italian coffee market operate?
Few countries lay claim to a coffee culture as distinct and acclaimed as Italy.
Since arriving via the ports of Venice in the 16th century, it has formed an important part of daily life for Italians, characterised by deeply entrenched rituals and closely guarded traditions.
Italy’s position as coffee capital of the world was solidified with the invention of the espresso in 1901, while its trademark style of coffee bars has been recreated everywhere from New York to Addis Ababa.
Today, coffee continues to make up a substantial part of the country’s economy: recent estimates put its market value at more than $3 billion.
Its significance to Italian culture means that, historically, consumers have shied away from large coffee chains, preferring instead to frequent local, independent cafés.
As a result, only a handful of large-scale Italian coffee companies exist. These include Kimbo, Segafredo, Lavazza, Illy, and Caffè Vergnano.
Maurizio, who has worked in the coffee sector for more than 20 years, tells me the main feature of these large roasters is their omni-channel product distribution.
“The large roasters operate across retail and wholesale, and, also because of Covid, most of them now have a platform on ecommerce,” he says. “Caffè Borbone is one example of where part of its growth in sales comes from ecommerce.
“The rest of the roasters are more focused on specific distribution systems and most operate via a full service, wholesale model. Some of them have activity in local retail, but it’s not a big part of their overall turnover.”
What’s driving the acquisitions of Italian roasters?
In November 2021, German coffee and home products giant Melitta Group bought a 70% stake in Arezzo-based coffee company Corsino Corsini. This followed the sale of Italy’s third-largest coffee chain to Coca Cola HBC, who bought a 30% stake in Caffè Vergnano last June.
On its website, Corsino Corsini states that the aim of the sale was to “cooperate in the future on market cultivation and product development for the mutual benefit of both companies and thus open up new opportunities together”.
While acquisitions in the coffee sector are nothing new, the interest in Italian coffee companies is. So what’s driving it?
Maurizio says that in addition to speaking of a wider trend in the country, it illustrates the global influence of Italian coffee brands.
“First of all, the market is moving towards greater consolidation,” he says. “So in a way, it is a result of this evolution, which is also taking place internally. For example, Caffè Diemme acquired Milan-based Moka Sir’s roaster last November.
“Also, when we talk about coffee, the Italian brand has a high perception among consumers. I think this has been one of the drivers of the acquisitions.
“In the case of Melitta, I don’t believe they were interested in buying other roasters; they wanted an Italian brand to reach new segments of the market.
“I think that Coca Cola HBC acquiring Vergnano follows a similar logic. They wanted to strengthen their full service model and were looking for an Italian brand with a strong heritage.”
Another interesting facet of recent acquisitions is the influence of younger generations. Many of Italy’s coffee roasters are family-owned and were launched several decades ago.
As such, the ones who started the companies are increasingly handing over responsibilities to their younger family members – who are introducing ways of moving the brands forward.
“It’s a new generation of ownership,” Maurizio tells me. “Most Italian roasters were created in the 50s, 60s, and 70s. So now we’re seeing the next generation come through, which is a very critical phase in the life of any company.”
To highlight his point, he notes the recent acquisition of Illycaffè, which sold a minority stake to US private equity firm Rhone Capital.
“I believe there has been a drive from the family to find a stronger partner able to bring Illy to a new dimension. They are looking for a way to transform Illy to a bigger company and become more export-oriented than they are now.
“One of the goals they declared was to reinforce Illy’s position in North America. It was one explanation given to justify their decision to choose Rhone Capital as their partner over others.”
The future: How will the market look in years to come?
As acquisitions and mergers continue to define the coffee industry, the question now is how this will affect the Italian coffee sector as a whole.
As a country that has famously batted off influence from abroad (Italy resisted Starbucks until 2018), greater input from the US and beyond will inevitably alter the landscape.
However, Maurizio sees the speed of acquisitions as a symptom of a wider trend, rather than a driver of one itself.
“I don’t believe the acquisitions [of Italian coffee brands] can be considered the triggers of an evolution,” he explains. “I believe they are the result of an evolution that is already happening and they will probably increase its speed. But the evolution of the market already exists.”
But what does this evolution include?
“New scale, more consolidation, a new way to compete. Probably the brand will become more and more important. The smaller companies that cannot navigate this new market will go out of business and the larger players will become stronger as a result,” Maurizio adds.
For coffee roasters, it’s important to stay up to date with the latest industry trends – and that includes sustainability.
At MTPak Coffee, we offer a range of recyclable, biodegradable, and compostable coffee packaging. Not only will they help you reduce your carbon footprint, they will also showcase a commitment to becoming more environmentally friendly.