Antonio Baravalle, CEO of coffee company Lavazza, on the decline of the out-of-home business, the growth of online retailing and commodity concerns caused by climate change.
Mr Baravalle, Lavazza's sales and profits plummeted during the Corona crisis. How exactly did that happen?
2020 was a special year for everyone. In the first three months, we were still growing at double-digit rates, so we were looking at a fantastic year. But then Corona came upon us. Our foodservice sales were down 40 percent, and our office segment was down 30 percent. Retail grew tremendously by 17 percent, e-commerce by about 110 percent. But the bottom line was down 5 percent in revenue and 8.8 percent in Ebitda.
You only generate 55 per cent of your turnover in retail and are perhaps too dependent on out-of-home consumption. How do you plan to change that now?
We have decided not to change that. We are a family business. We don't think short-term and we don't have to satisfy shareholders or financial analysts. And out-of-home consumption will come back. When you're building a brand, you need all contact with customers: at home, in the office, in cafes and bars. Retail is certainly incredibly important, but we need the combination of all touchpoints.
How do you expect out-of-home consumption to return?
It will take the next two years to understand. I believe that foodservice will make a strong comeback. We are already seeing this in the US, which is usually a year ahead of us. Not every company in the restaurant business will make it, but there are already new ones opening places.
To what extent could Germany, with its strong home consumption, fully automatic coffee machines and strong bean sales, be a model for other Lavazza markets?Germany is one of the key markets for us, the third largest, that's where we invest. But the market is quite unique. Retail is very strong there, and one in three families owns an automatic coffee machine that processes beans. Beans will be one of the key segments in the future. But we can't just change consumer habits in other countries to fit this model.
Which countries in the world do you expect to see the strongest growth in the post-Corona period?
Italy and France are two strong, mature markets that we dominate. Lavazza has about 50 percent of the market in Italy, and our Carte Noire brand holds about 22 percent in France. We have to defend this position. In the UK, Poland and Russia, on the other hand, we are growing very strongly. In Russia, we are already the market leader with 30 per cent of the market.
And the United States?
We took over Mars' office business there three years ago. Most US companies offer free coffee to their employees, so this business is very big. Now we have opened a production facility near Philadelphia.
A few months ago, you said you wanted to pursue other acquisition opportunities. Which ones have come up?
Our strategy is to invest in the Lavazza brand first. It is the treasure of the owning family. But there are markets where we cannot become the market leader with it. There, we try to find regional jewels with a deep understanding of the market.
In France, Lavazza is number two in the out-of-home market. But we are very weak in retail there, with only 3 percent of the market. That's why five years ago we acquired Carte Noire, the leading brand in France. It was the perfect match, with the same philosophy and attitude to quality.
Wouldn't Dallmayr then also fit into your portfolio?
I respect the brand and the family. Their culture of quality would fit with ours. But mergers are like marriages, it always takes two to make it work. Right now we're focused on consolidating what we've acquired over the past few years.
So carte noire and the US office business?
Remember, seven years ago we also bought Merrild in Denmark, which increased our annual turnover in the Nordic countries from 300,000 euros to 15 million euros. What's more, our mergers and acquisitions department consists of just two people.
Digitalization is one of the megatrends in Corona times. How important is it for you?
Online trade is growing and not going back. Corona has given Amazon and co. an incredible gift in terms of reach. Now they are reaching people who were very distant from them before. In Italy, 80-year-olds have started shopping online.
But what does that mean for Lavazza?
We now do about 7 percent of our total sales online, twice as much as before the pandemic. And that's just our direct sales. Traditional retailers like Esselunga or Coop also sell our coffee online, but we don't have their figures. Right now, we're revamping our e-commerce capabilities to sell even more directly to consumers.
To what extent are you also digitizing your production processes?
That part is perhaps even more important. Data analysis already plays a big role in our day-to-day work. With the help of artificial intelligence, we make a production forecast every week. In the coming months, we will launch more test projects, especially in production and sales.
But how can you win the competition with global corporations like Nestlé or Coca-Cola?
Our competitors have grown enormously in the past five years. Nestlé has bought Starbucks, Coca-Cola has taken over Costa Coffee. Jacobs Douwe Egberts has bought $25 billion worth of companies in the last ten years. Compared to these giants, we are small potatoes. The only thing we can do is be very careful about our identity. Our goal is to remain a family business. As such, we are quite flexible in our decisions. And we focus only on coffee.
Do you see that as an advantage over your competitors?
It's hard to say that we have any advantage at all. That would be arrogant, because the big ones are fantastic companies with a lot of expertise and great brands. For example, Nestlé has 3000 people working in research and development. But in espresso, we are one of the leading companies with a tradition of 125 years. Our espresso products are booming all over the world, from Italy to China. We are trying to bring the Italian coffee experience to the world. If we succeed in doing that, that's more than enough for us.
How fierce is the competition for green coffee?
It is already fierce, and demand, for example from China, is growing. But climate change is becoming the real problem. Looking ahead to 2050, the risks are enormous. Many of today's areas will no longer be able to grow coffee at all because it will be too hot and too dry there.
How do you plan to protect against these risks?
Our plan is a community plan. We need to move more as an entire industry towards sustainable products. We need to help farmers use technology and chemicals properly.
Why don't you just switch to organic and Fairtrade products?
We are moving more and more in that direction. Our Tierra range is Rainforest Alliance certified and some of it is organic. But we can't switch 100 percent of our production in one day.
To what extent do consumers appreciate your efforts?
Sooner or later they will see it. Nowadays, consumers inform themselves thoroughly and prefer clean brands. Of course, they are not willing to pay more if we simply make our regular coffee sustainable. But it works with your own innovative product range. That's what we see with Tierra.
With that in mind, how do you see your goal of using only sustainable packaging by 2050?
That's exactly the right decision. In 2020 and 2021, we will invest 50 million euros for this. We also want to become climate-neutral by 2030. That's a tough process that involves the entire supply chain, from farmers to logistics to our production. It will be an interesting push for the entire industry.
But will it be worth it?
Yes. In the long run, consumers will reward companies that take sustainability seriously and don't just use it as a marketing tool. That could become an additional differentiator for us.
Would you like to be remembered as the CEO who made Lavazza sustainable?
It would be enough for me to be remembered as having helped steer the company in the right direction in a very difficult economic situation.
The interview was conducted by Mathias Himberg
This text first appeared on www.lebensmittelzeitung.net.