Skip to main content

Illycaffè Brews Growth Plans While Seeking External Investors And Building Regenerative Supply Chain

Illycaffè Brews Growth Plans While Seeking External Investors And Building Regenerative Supply Chain

by ESG Business Institute -
Number of replies: 0

 In nearly 90 years of business, illycaffè has grown into a global company supplying more than 8 million cups of coffee daily in more than 140 countries. While this growth has meant many changes for the family-owned Italian business, it has maintained its focus on quality products that are beneficial for the people who make them and the communities where they live. Andrea Illy, the company’s chairman and a member of the third generation to run the company, says his grandfather Francesco’s love of a quality cup of coffee continues to drive illycaffè as it pursues new markets. “This idea of offering the greatest coffee to the world means more than sending or producing or distributing,” he says. “It is really hospitality, which is for us our core business and also coherent with the use of coffee in society — to inspire ourselves, not only in terms of a mental energy with a stimulant effect of mind similar to the effect of caffeine, but also the pleasure of the things, the pleasure of the place that makes coffee so social.
That social focus and drive for excellence extend beyond hospitality to its business operations, which are driven by transparency, sustainability, and people development. “We aim for the best coffee nature can provideenhanced with the best technology and the beauty of the art,” Illy says.

Now, as the family’s fourth generation becomes involved with illycaffè, the company is seeking external investors and demonstrating its belief in stakeholder-minded practices and products by becoming a Certified B Corporation. Because of these changes and other aspects of the business, I talked with Illy as part of my research on purpose-driven business. Excerpts from our conversation follow.

Chris Marquis: What values have guided Illy as the company has grown and evolved over time as a family-founded business?

Andrea Illy: With our goal to be the greatest coffee, we realize the greatest can be only one. This is why we offer only one blend, although in three different roasting formats. To get the best coffee nature can provide, we work hand in hand with coffee growers. We pioneered direct sourcing, 30 years ago, working with them to elevate their agronomic practices and provide a full traceability of the beans. We also pay a sustainable price that allows us to build the community of growers, which is perpetual and continuously improving.

In terms of technology, we divide this into three P’s: processing, packaging, and preparation. We are, to my knowledge, the most innovative coffee company in the world. The same formula of the espresso technology known in the world today was developed by my grandfather, who was the first to add pressure in order to get a lower temperature.

We continue to innovate. One of the proprietary technologies we developed in packaging allows us to prevent coffee from any oxidation, but it also captures that coffee flavor. This allows the coffee to age like wine. 

We are the most global coffee brand with a presence in 140 countries. I have the pleasure to represent the third generation of our family in ownership, and we work hand-in-hand with the fourth generation. I took over from my father, who was a chemist as I am. Having the scientific background allows us to better understand what happens in the products, from plants to cup, and also to innovate.

Marquis: Why did illycaffè decide to pursue certification as a B Corp? 

Illy: We always considered ourselves as a stakeholder company, as opposed to a shareholder one. Because we are a family business, philosophically and economically, we understand the effects of corporations collectively. They have a critical mass to drive progress and lead the transition away from an extractivedevelopment model, which continues to extract resources from the ecosystems rather than regenerating them.

Governments only have a third of the GDP and they don’t have the capacity to make this change themselves.This is the reason why we believe that corporations shall not simply pursue profit, per se, but they shall be profitable in order to finance their development and to pursue purpose — improving society, improving quality of life of stakeholders.

Being a stakeholder means having a stake beyond the shareholders. Our hierarchy is consumer first — they are the owner, for the simple reason that they generate the cash flow for the company to invest. Our colleagues are the ones making customers happy and producing wonderful products. Our suppliers provide the raw material for our delicious product, the communities provide a pool of talents for our team. And finally, the shareholders — our family and our colleagues — are there to support the business and not extract or squeeze resources to create profits and value just for their pockets.

With this priority of stakeholders, we pursued the triple bottom line — social, environment, economic sustainability — through the principle of shared value. There must be a profit, but it must be evenly distributed among stakeholders for the sake of investing in and improving the sustainability of the business. We pursue social sustainability through the principle of personal development and growth. Education is the way we can improve the state of the world. This is why we created the University of Coffee, which is present in 26 countries and as many 300,000 participants census, since it started over 20 years ago. We also pursue sustainability through the principle of respecting the environment, which means no pollution, no waste, and circularity — these are the three fundamental ways we respect the environment.

We first took advantage of the Italian legislation and we became a benefit corporation. Then we decided to become a Certified B Corporation as it is close to the same scope as benefit corporation. We have always been supportive of certifications or external audits for the sake of having somebody stating that what we declare is true and not be self referential. B Corp is something more holistic, embracing all these triple-bottom-line aspects into something that is also a brand.

Marquis: How have you worked with growers and others in the supply chain to implement more regenerative practices? 

Illy: I have the privilege to co-chair the Regenerative Society Foundation that we created with Jeffrey Sachs. It allowed me to better interpret the meaning of regeneration and how it fits in our business framework.

To get quality we needed to pay our growers more. We needed to transfer knowledge to them so they had the capacity to improve the quality of the sustainability of their production. Coffee has been made delicious thanks to the use of too much fertilizers or agrochemicals. So you have, yes, a delicious coffee, but from the nutritional or health point of view. This is why you can’t have quality without sustainability and vice versa.

After 2015 we started investigating the adaptation of coffee agriculture to climate change, because climate is definitely impacting coffee agriculture. Drought, floods, high temperatures — many different climatic kind of disasters are impacting production. Up to 50% of the currently suitable land for coffee agriculture might not be suitable any longer by 2050. So the question was, will we be able to ensure coffee security for our production or shall we do something else? With thorough research we determined that what is needed first is improving the agronomic practices; second, developing new cultivars and varieties that are more resilient to the effects of climate change; and third, to migrate coffee plantations to higher latitudes or higher altitudes. Our commitment to sustainability has been one of communication.

Decarbonizing now is the mother of all causes we have with the Paris commitment by 2050. No matter if you are a single individual or an organization or a state or whatever, everybody needs to decarbonize. So the question is how can we decarbonize in a way that we don't need to offset, because offsetting is not necessarily the best practice. 

The question we had was, it is possible to inset the non-compressible emissions from the industrial parts into the same field where we grow our coffee? So I as a chemist took a sabbatical to study the issue myself for over one year, and came away with a model of the future is agriculture with a regenerative, beneficial model.The IPCC recommends to always pursue a double benefit not only for the environment but also for something else. We said OK, if you have a healthier soil, thanks to regenerative agriculture, then you probably have a healthier plant and a healthier food and a healthier consumer, right? So soil health and human is what we are pursuing with our regenerative agriculture framework now. In coffee, we are starting to pilot plantations to be carbon free. The net zero agronomic practices that we will develop in these coffee plantations then will be taught to growers through the University of Coffee. This is the model to scale up net zero coffee agriculture. This is our goal.

Marquis: As the company has grown, it has moved to pursue outside investors. How did you choose these investors and why do you think it’s important at this point in your history to have outside investment?

Illy: We did this not because we were needing capital to perpetuate the family business. It’s very important also in terms of reputation to be able to have a family behind them, so this is about a lot of value that we want to preserve. We want to protect the family business from the risk of becoming victims of the family itself when the generations become more and more dispersed. The idea is to have the company become a world-class organization owned by the family but being professionally managed. To set the business up for long-term success we needed first of all, an independent governance; second the professional management; third, the open equity structure.

You also need to grow. This is why the business really needs to be run as a professional corporation in order to grow. We are now around $600 million with the current exchange rate. We need a country where we can grow and we decided on the United States of America, because one, it is the largest coffee market in the world, and second, it is the largest gourmet coffee market in the world by far. We have been there over 40 years and we know the country pretty well and are well-known and respected in the United States.

We believe that in order to penetrate the U.S. market a little bit deeper, we will enter a so-called unknown territory. Our investor, Rhone Capital, is our local guide on how to create a better business by growing in the United States and how to also leverage the synergies that we can have with them.

The founder of Rhone Capital LLC is from an Italian family. We’ve known the co-founder Steven Langman for many years and we very much respect each other. We want to continue our journey toward sustainability without being compromised.