#166 Lavazza brews some Ka-Fei
As recently reported, Lavazza, the iconic Italian coffee company has big plans for China. In 2020, while the COVID-19 pandemic was still raging in other countries, it opened its flagship store in Shanghai’s fashionable Jing’An district, and expanded to some twenty locations in Shanghai, Beijing, Guangzhou, and Hangzhou in 2021. Lavazza is clearly capitalizing on a coffee boom that was kicked off by Starbucks and later replicated by Chinese coffee chain Luckin. Starbucks entered China with its first store in Beijing in 1999, and it took the company more than a dozen years to get to 1,000 stores in a country with more than 1.4 billion population. Today, Starbucks has more than 5,000 stores in the Middle Kingdom, and its size is almost matched by Luckin that entered the market as late as 2017.
One might say that Lavazza is taking risks as a late follower, but as a European company with more than 125 years of coffee roasting tradition, it tries to carve out a niche that neither one of its large competitors occupies. Its coffee shops are stylish European and invite to linger for a more immersive coffee experience, enhanced by an Italian-inspired snack menu and a series of specialty coffees that have been developed just for the Chinese market.
Besides, Lavazza has recognized that China is a tough market to crack without the right partner. It therefore entered into a joint-venture with Yum China, the American-based restaurant group that operates almost 10,000 restaurants in 1,400 cities, among them KFC, Pizza Hut, and Taco Bell. Yum, which holds 65% of the joint-venture that plans to invest approximately $200 million in the near term, will certainly open a lot of doors for Lavazza, and it also brings expertise that the Italians don’t seem to have. So far, Lavazza has operated only a small number of Caffè di Roma and Èspression stores in the US and Europe. After ambitious plans to open 400 stores in the UK, it actually closed its only coffee shop in the UK in 2018. Starbucks, in contrast, has perfected its global operations over many decades. On the other hand, Lavazza made forays into other countries’ coffee markets. In 2016, it acquired French at-home coffee company Carte Noir, in 2017 it acquired Australian coffee pod firm BluePod as well as a 80% stake in Canadian specialty coffee retailer, and in 2018 it purchased Mars Drinks’ global vending business.
As China is expected to transform from a tea-drinking to a predominantly coffee-drinking country by 2026, the opportunity is certainly there, but success won’t come easy. It remains to be seen if Lavazza will reach its goal of opening 1,000 outlets in China by 2025.
December 3, 2021 @ 10:20 pm
As it exists today, the coffee industry is already one of the most difficult to emerge in given Starbucks’ fervent presence globally. It has been determined by many experts that the best way to combat this is to essentially exist in a niche, something inherently different than what Starbucks is offering. For the sake of this specific article, I am somewhat optimistic about Lavazza’s chances. As mentioned, they are a European company with a storied tradition and offer a very different experience than Starbucks.
I think the choice to partner with Yum China was excellent and shows strategic poise for their market entry. Ideally, they will be able to maintain the core of their success while seamlessly merging with popular concepts and ideals in the Chinese market. I think ultimately deciding upon locations will be the most critical part of their expansion, being careful and selective so as to not step on the toes of local shops while also steering clear of Starbucks and Luckin.
Ultimately I find it wise that they have expanded their brand by absorbing other global at-home coffee brands to keep their options open. They are growing their brand by establishing it in small yet effective ways globally as they prepare to hopefully launch into a household name status within a decade.
December 11, 2021 @ 4:39 am
Lavazza has been able to perfect the art of roasting, but that does not relate to the art of business. Lavazza has been roasting its coffee for more than 125 years and has carved out a segment in the coffee industry. They have predominantly taken the Italian market and are looking to expand their operations to China. Management believes that customers would rather choose an Italian coffee tradition approach that offers a stylish European experience that allows its customers to linger for a more immersive experience compared to China’s customs or traditions. This is an area of concern and one that will not work or pan out. Lavazza did partner with Yum China that will bring market knowledge and management that will know how to target its new customers but Lavazza has not perfected its international expansion strategy. One key indicator to worry about is the failure of expanding to their EU neighbors. Lavazza’s only store in Europe closed although they expressed to their shareholders that they were going to expand to 400 stores by 2018. Instead of focusing on name brands and expanding their operations, whether, by a vertical merger or horizontal merger in Europe, they expanded and purchased Mars Drinks. Lavazza should have stopped the merger and allocated the funds to keep its presence in the UK. Although expansion is good for the longevity and expansion of new markets for the company if you are having to close business instead of opening additional stores in a market you already know or are adding to, one should not expand to a region where you don’t have a presence or done any R&D to see if their target audience will 1) drink your coffee, 2) switch from tea to coffee as primary choice 3) accept Euro-style coffee shops. If your company can’t get 2 out of 3, their business will not succeed even if they have $200MM in backing even if there wasn’t a global pandemic. Lavazza should use their distributing knowledge and partner to first make their presence known through advertisement and placing their products at stores and retailers to serve their coffee. After receiving data that contains sales numbers of bottles of coffee sold at stores, pounds of coffee beans being sold to either retailers or coffee shops serving their coffee and or their individual coffee bags then compare the numbers to its other international stores that have been sustained and if the project is deemed profitable, then expand by opening stores.
December 16, 2021 @ 6:58 am
Lavazza, an Italian coffee company that has been brewing for over 125 years, has done a pretty decent job at emerging themselves in international markets. They are following a super-niche strategy by manufacturing specific products and strengthening their unique Italian experience to richen the traditional coffee culture. Lavazza has taken their stylish European ambiance and variety of Italian snacks and drink menu to Shangai, where they have opened twenty locations as of 2021. Many critics may compare Lavazza in copying Starbuck’s international business strategy, but the Italian company is aiming to offer more to its international customers. They have a good understanding that products require significant adaptation in the Chinese market. Lavazza negotiated a joint venture with Yum China, which plans to invest millions in the near future, which I believe is a very smart opportunity that will allow for the Italian coffee company to submerse itself in Chinese culture more fluidly. By continuing to focus on product differentiation and selling an experience to the Chinese coffee market that is highly favored, Lavazza has a good chance of completing its goals of opening 1,000 stores in 2025. What they need to work on is their multinational strategy for countries like the United States and the United Kingdom. They have not had much success in these areas, probably due to the favored experience of stores like Starbucks, Dunkin’ Donuts, and Coffee Bean. Lavazza may need to analyze the economic differences between markets as well as assess if the costs outweigh the benefits and if they have the right kind of management to be successful in the US and UK. A suggestion would be to hire an international expert residing in these countries to offer critique and experience for Lavazza in accommodating such populated coffee markets. Overall, it appears that the company is in the right direction of globalizing itself by connecting to a majority of the markets they have entered into.
January 6, 2022 @ 9:21 pm
If Lavazza wants to bring their Italian coffee tradition of 125 years to China, an extremely traditional culture, the company will have to market their products and experience appropriately to not offend anyone. This situation reminds me of the marketing shown during an International Business MBA course lecture. In one piece of advertising, a woman was featured with her husband and child. In the second piece of advertising, the woman was omitted from the ad. Why was this? If I remember correctly, the woman’s clothing was not appropriate for the culture it was been advertised too. In a similar fashion, if Lavazza wants to advertise their coffee tradition, they must research Chinese cultural customs and social norms beforehand. Overall, I would recommend this Italian company should try to enter the Chinese market. For starters, the competition from Starbucks and Luckin would be hard to overcome, but the niche strategy will help differentiate from these competitors. Next, the fact that this company is willing to make specialty coffees specifically for the Chinese market shows their willingness to adapt and serve a multitude of cultures rather than force their own culture on another. In conclusion, Lavazza’s experience with internationalization in other countries makes their entrance into China favorable.
February 7, 2022 @ 7:13 pm
It seems as though Lavazza is doing their research to enter into the Chinese market. From the looks of things, it sounds as though they are making smart decisions such as partnering with Yum China. Yum China is a good strategy to do a joint-venture with as they have experienced large success with other countries entering into the Chinese market. Yum China has expertise in entering the Chinese market and seems to be a good choice. Lavazza also recognized the importance of changing taste preferences of snacks and drinks for the Chinese market. It seems as though not researching the market and taste preferences is what gets a lot of businesses in trouble. I think that Lavazza will experience success in entering the Chinese market because they are doing their due diligence to research the market and make sure they are entering effectively.
Hans Jurgen Handler
March 6, 2022 @ 10:27 pm
After only 2 years in the Chinese market and also 2 years of pandemic lockdown, it might be too early for a reflection, if Lavazza will succeed in this market or not. And as stated in the blog, it took Starbuck several dozen years to establish 1000 stores. So maybe it is only fair to give Lavazza some 5 years to expand from its now 20 Café, to more.
Also, not to forget, the taste of real Italian caffé is quite different, but the international brew, called coffee -at least not caffé. Even with a special blend and roast for China, it might be hard to meet the Chinese taste. And maybe some more years will be needed to get the Chinese customers “educated” to the original Italian caffé experience. Which they hopefully take back from their vacation in Italy.
From a strategic perspective it also reasonable to team up with a local partner. This splits the risk and adds local expertise, experiences, network and access to the joint venture. Which, otherwise, would need to be earned in the long run.
March 8, 2022 @ 1:10 pm
Personally I can very much relate to this post since I had been passing by the Lavazza store construction site with my bicycle for months on my daily commute to work. Unfortunately I never had the chance to experience it on site since I had left China before the shop finally opened in 2020.
Nonetheless, I am more than curious to see how the brand will develop on Chinese soil and whether it will manage to reach its goals. Many have failed in the past but, on the other hand, Starbucks and Luckin are great success stories, operating thousands of shops in mainland China alone.
I still remember my very first trip to Shanghai in 2006 and how surprised I had been about the amount of Starbucks stores around the city, considering that China had always been thought of as the ‘capital of tea.’ Over the following years, this landscape has changed even more and countless little, fancy coffee shops have popped up all around the city, highlighting the growing hunger for coffee among the Chinese population. While Starbucks had been focusing on traditional values and establishing this ‘third place’ for its customers, meaning the preferred location outside of the office and home, as well as taking advantage of the high reputation western brands had been enjoying at that time, Luckin coffee and many other, more recent shops are taking advantage of the Chinese’s liking for tech solutions. As a result, Luckin coffee cannot be purchased offline, the usage of their app is compulsory and they only offer take-away options without the possibility to sit-in.
Even though Starbucks and Luckin follow complete different strategies, both of them have been very successful to this day. It will be interesting to see whether Lavazza will be able to make for a similar success story in the end by sticking to its own strategy. The company seems to have done the homework which is also shown by the cooperation with Yum. Though, it also has to be mentioned that this is not necessarily a guarantee for success, as many grand failures can attest. I guess only time will tell whether Lavazza will be able to not only gain a foothold but to establish the basis for a fruitful and growing Chinese venture, meeting its ambitious goals. The potential is definitely there but just because there is a population of more than a billion people, it does not mean that every single person is going to enjoy a cup of coffee per day.
March 13, 2022 @ 8:25 pm
I’ve read this post with great enthusiasm to learn that the traditionally tea-drinking Chinese middle-to-upper class is increasingly consuming coffee.
However, despite its success in diverse European markets, the Italian coffee company Lavazza needs to adjust its strategies for successfully entering the Chinese market.
Considering that other multinational enterprises such as IKEA required more than a decade to achieve positive financial results, this growth potential market will need a different approach compared to the Western countries.
Therefore, teaming up Yum China seems to be a smart turn; however, I doubt that a company which is primarily operating junk food restaurants will be able to convey the luxurious touch Lavazza plans to imprint on its Chinese coffee shops.
Nevertheless, I see two main points that – when using the right strategy of influencer-driven marketing, craftsmanship and elitarism – Lavazza will fill a highly-demanded niche.
These are that Chinese coffee lovers
(i) increasingly prefer to drink coffee in specialized shops
(ii) are willing to pay higher prices for premium products
Since the Chinese coffee market is still relatively fragmented without dominant players, I anticipate that Lavazza – with the right partner and strategy – will soon be among the key players in the Chinese market.
April 3, 2022 @ 5:18 pm
As clearly stated in the article, Chinese is culturally a “Tea country” but is forecast to a switch to coffee; being on the biggest market worldwide this makes it of course an interesting opportunity for a well-established and famous coffee brand like Lavazza.
The main criticality I can see is to meet the local taste for coffee; coffee in Italy is a sacred moment with people having very high standards, but based on my experience the way coffee is brewed is completely different. Italians are looking for strong and intense taste which is appreciated only in few other countries, while in most of the world coffee is prepared in a lighter version with a higher water content.
Lavazza will have to choose whether to stick to tradition and try to build is niche market focusing on selling “the Italian experience” or to tailor the products to meet local taste and go into competition with giants like Starbucks, with maybe a focus on a more “luxurious” experience compared with competitors.
In the next years will become clear which strategy the company will follow and whether or not was the successful one.
April 11, 2022 @ 2:01 pm
This case reminds me of the case touched in my eMBA program, Starbucks trying to enter South Africa. In the case of Starbucks, the lacking success had brought to light some of the wrongful assumptions regarding market readiness and timing.
Regarding Lavazza and China, I believe, entering the Chinese market as a foreign organization is difficult and therefore the choice of entry mode through a joint-venture with Yum China is very prudent (in some businesses even obligatory) and it will help Lavazza understand market demands and product placement.
Also, I assume proper due diligence had been performed by Lavazza and a clear business opportunity is visible. Therefore, I believe that the target market selection is well thought through, because China’s quickly emerging middle class has more leisure money to spend and is very Europe-“affine”.
However, as times are changing ever quickly and the transformation of China’s public to a coffee-drinking society is currently just an assumption, and also the entirety of the Corona Pandemic’s impact is still to show, it will remain an interesting case to observe.
April 14, 2022 @ 6:52 pm
I believe it is a very ambitious goal to have 1000 open Lavazza stores by the year 2025 when Lavazza currently has roughly 20 stores open in the Chinese market. The Chinese culture is deeply rooted in tea ceremonies, which date back to thousands of years of tradition. This behavior will not easily be changed. Furthermore, real Italian coffee, as Lavazza is serving, is very distinct in taste. It will require a lot of education about coffee and its preparation methods to make Chinese people appreciate coffee and its flavor palette.
Ignoring cultural drinking and eating habits can be problematic and lead to failure, as seen in the case of Mcdonald’s entering Vietnam, where traditional eating culture has been ignored, leading to Mcdonald’s having a very hard time capitalizing on the market.
Beyond that Lavazza has always been sold at a premium price, which might be problematic considering the market capitalization of other companies like Starbucks and Luckin, which can already sell at a lower price due to economies of scale. One card that Lavazza played well is partnering with Yum China, as they are already established within the market. I believe Lavazza will have a hard time establishing itself in China and will need to play its partnership with Yum China well and ensure they are not seen as a fast-food chain, but as an authentic Italian coffee brand and store.
April 15, 2022 @ 3:23 pm
Re: #166 Lavazza brews some Ka-Fei
In my opinion Lavazza waiting for Starbucks to clear the grounds for foreign Coffee in the chinese market has big advantages. I don’t think they are late to the market, but rather waited to see if it could be done. Starbucks and it’s chinese counterpart Luckin proved that the beforehand predominantly tee-oriented market was ready for a new brew and the rise of these two companies brought coffee on the menu. Even though Luckin was later found to be faking their accounts and later filed for bankruptcy in the US in February 21 it is still in service with all its coffee stores open during the restructuring. In terms of size and market value Lavazza is no match for these giants, but finding a niche segment is only possible of the main market is already established such that niches can be viable markets.
The growth of the Chinese coffee market has slowed down since 2015 und thus new trends developed. Coffee in China is mostly consumed by middle-to-high class urbanites aged 20-30. With the maturing of the coffee industry expectations have gradually increased. If Lavazza can bring a menu that satisfies the needs of their clientele in China with a mediterranean flair I am certain they can find their niche are will be able to survive in China.
April 22, 2022 @ 7:57 am
Lavazza is taking up a big challenge in trying to expand their presence to China. China has a unique culture and Lavazza needs to ensure it matches the Chinese consumer taste in the products themselves but also for the physical store locations and their marketing.
That being said, it seems that Lavazza is doing many things right. It is good that they collaborate with an experienced company and it is great that they created specialty products just for the Chinese market. I hope, however, they did not just tune their product based on assumptions but actually went to local consumers and did thorough testing of product market fit and then considered the feedback.
The Italian European heritage can be an advantage for Lavazza, as European products are viewed with a high regard in China. While history and tradition are great, China equally cherishes modernity and Lavazza needs to find the right way of integrating traditional and modern aspects.
For instance, this could be done by concentrating on the heritage aspect in store decorations and marketing messages while at the same time providing up to date technology, like making it easy to order and check the menu via phone, install ordering screens etc.