Sunday, October 25, 2009

Lavazza to make India coffee hub

TURIN: Till now it was just software and small cars. But if Italian coffee giant Lavazza S.p.A has its way, India might soon become the hub for coffee in Asia.

In 2007, Lavazza walked into the country by acquiring the Barista coffee house business and Fresh & Honest Cafe, a company that specialises in serving corporate clients with vending machines and ground coffee products, for a reported sum of 100 million euros. And now, it’s time to expand, according to Gaetano Mele, CEO at the Italian Lavazza Group. On the cards is Lavazza’s first coffee plant outside home and an ambitious plan to expand its business in the Asia-Pacific region.

About 60% of Lavazza’s revenues come from Italy and rest from foreign markets. Asia contributes a mere 5% to its coffers. So, it is no surprise that Italy’s biggest coffee maker wants to use India and its relatively cheaper raw coffee beans as a base to expand into other markets.

“We are making fresh investments in building a coffee processing plant in Chennai on the lines of the one that we have in Turin,” says Mele. “It is our first factory outside Italy and should be operational by the first half of 2011.”

Mele is banking on the country’s young population and its potential disposable income. China is also a budding market. In the pipeline is a range of designer cafes, such as the popular Lavazza Espression where décor and service make an exciting proposition to coffee lovers.

But more important is the money that Lavazza would save on the nearly 110% import duty it goes through by manufacturing its products here. “Around 70% of the retail price of our products is due to the cost of raw materials,” says Attilio Capuano, director, Asia & Pacific, Lavazza S.p.A. “It will be a huge saving for us once we start manufacturing in India.”

At the same time, the Lavazza brand here is undergoing a brand transition with the company’s logo slowly being integrated with the Barista logo. “We don’t want to suddenly intrude,” points out Mele. “It will be a slow makeover.” Incidentally, Barista has not performed according to the expectations of the Lavazza group. “We have still not broken even,” says Capuano.

But the company’s other spearhead, Fresh & Honest Cafe, a part of the Indian coffee vending industry, is going great guns. “We have most of the top hotels as our clients and from only 14 coffee vending machines a month in 2007, we are now selling 100 machines a month, which translates into sales of 50,000 coffee cartridges every month,” reveals Capuano. “We will soon touch a lakh,” he adds.

Today, compared to around 800 stores of close competitor Café Coffee Day, Lavazza has just over 200 stores in the country. “Don’t expect our numbers to go up drastically,” explains Mele. “We are not competing with Café Coffee Day.” Well, that’s how conservatively the Italians “espress” themselves!

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