Summary
This paper will evaluate some of the ongoing market dynamics in the coffee industry, focusing on Illycaffè. Its largest market after Italy is the United States, where the company has significant investments, but the markets with the highest growth rates are in Asia, especially China (Cretella, 2020). However, these foreign markets present different local consumption patterns, distribution procedures, and tariffs, affecting Illycaffè’s performance (Lojacono et al., 2021). This paper outlines major players in the coffee industry in China and the US, their market share, and advantages to predict whether Illycaffè can implement its ambitions.
Main Players
The company had to face much competition in the international coffee market. Large multinationals like JAB, Starbucks, or Nestlé, Italian brands like Lavazza, and numerous local ‘micro-brewers’ targeted the same consumers as Illycaffè (Lojacono et al., 2021). In China, the major players in the coffee market were all the non-local brands, namely Starbucks and Nestlé (Bisello, 2021). In the US, Starbucks, Dunkin, Folgers, JAB, and Nestlé are the leading companies (Allegra World Coffee Portal, 2020; Cretella, 2020; Neacşu, 2018). The aggressive market domination of the leading companies presents a challenging playing field for Illycaffè.
Market Share
The market share distribution patterns are quite different between China and the US. In 2019, the market share distribution of the leading coffee companies in China broke down: Nestlé had an overwhelming 67.4% of the market, while Illycaffè followed in second place with only 2.4% (Bisello, 2021). Moreover, the brand shares in chain cafes revealed a different picture, with Starbucks occupying 59.2% of the retail value in 2018, followed by McCafé at 6.4% and Costa Coffee at 3.5% (Bisello, 2021). Folgers has the largest market share of 25% in ground coffee sales in the US, while Starbucks has the highest share of the coffee shop market, accounting for roughly 40% (Allegra World Coffee Portal, 2020). Illycaffè’s share in the American market is likely negligible and lumped with other smaller brands, as no detailed information was present in recent literature.
Advantages of Market Leaders
US key market leaders’ advantages differ from Illycaffè’s upper hand drastically. Illycaffè’s major competitive advantage is the quality of the coffee that international customers do not always perceive and appreciate (Lojacono et al., 2021). Indeed, the US takes on a more utilitarian and simplistic approach to coffee consumption for now (Cretella, 2020). Specifically, brands like Dunking or Starbucks have embraced serving their signature large and sweetened drinks. With that, it is doubtful that a brand like Illycaffè, with its focus on espressos and specialty products, will be able to gain wide popularity (Tencati, 2018). However, there is a growing demand for more ethical, sustainable, and high-quality products, a so-called ‘third wave’ (Tencati, 2018). The large market leaders like Starbucks or Folger’s sell to a wider audience. So, if Illycaffè were to compete in the niche specialty market, it must meet two conditions: high quality and availability to its target consumers (Cretella, 2020). Therefore, the extant market leaders dominate the US due to their pricing, wide-coverage, and ease of consumption. Illycaffè nonetheless stands a chance to enter the market due to its long-standing reputation and excellence.
Chinese leading brands present somewhat similar patterns, yet the outlook is different. In China, where the target consumer audience appreciates the coffee origin, quality, and physical consumer experience, coffee quality is the key factor in choosing one brand over another (Bisello, 2021). However, unlike the US market, there are fewer brands: Nestlé and Starbucks hold most of the available revenue, but there is arguably still room for the smaller specialty coffee firms to grow. Moreover, the nearly uncontested Nestlé’s domination is due to its highly developed sector of ready-to-drink beverages (Cretella, 2020). Given Illycaffè’s emphasis on higher quality and the reputation of the Italian company, it likely will have the advantage of standing out. Pascucci (2018) concludes that Italian firms’ global competitive performance and competitive potential have been deteriorating. However, with the increasing popularity of specialty coffee in the United States and the emergence of Asian markets, Illycaffè is still far from being forgotten.
References
Allegra World Coffee Portal. (2020). Global research overview 2021 (p. 105). Web.
Bisello, G. (2021). Starbucks and Illycaffé: Different strategies to successfully enter the Chinese coffee market [Università Ca’ Foscari Venezia]. Web.
Cretella, F. (2020). Different perception and uses of a product in different cultural contexts: The Chinese coffee market and Illy case study [Università Ca’ Foscari Venezia]. Web.
Lojacono, G., Misani, N., & Sesini, M. (2021). Illycaffè’s international growth: Evaluating foreign demand for Italian super-premium coffee.SDA Bocconi. Web.
Neacşu, A. N. (2018). Quality Management on the Coffee Market. Bulletin of the Transilvania University of Brasov. Series V: Economic Sciences, 11(1), 109–118.
Pascucci, F. (2018). The export competitiveness of Italian coffee roasting industry. British Food Journal, 120(7), 1529–1546.
Tencati, A. (2018). Caffee making as art: Illycaffè. In E. O’Higgins & L. Zsolnai (Eds.), Progressive Business Models: Creating Sustainable and Pro-Social Enterprise (pp. 73–93). Springer International Publishing.