#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. 

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