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Conscience-driven coffee

FOCUS: LAVAZZA

Marc Smith is acting editor of Families in Business.

Since 1895 Lavazza has been a household name in Italy and remains the country's most popular coffee brand. Marc Smith talks to fourth-generation Giuseppe Lavazza about their socially responsible side and how they are pursuing new markets …

Black gold. For most people this conjures up images of Middle Eastern oilfields and rising petrol prices, but thanks to a recently released film of the same name, many people may, instead, begin to associate the term with another important commodity – their daily cup of coffee.

The film, which despite its low-budget approach caused a stir at the recent Sundance festival, follows Tadesse Meskela, the manager of an Ethiopian farmers' cooperative, who is attempting to save his 74,000 struggling coffee farmers from bankruptcy. As the farmers strive to harvest some of the highest quality coffee beans on the international market, Meskela travels the world in an attempt to find buyers willing to pay a fair price.
 
The filmmakers, British brothers Nick and Marc Francis, aim to force western consumers to question some basic assumptions about their consumer lifestyle and its interaction with the rest of the world. This is a scenario that Giuseppe Lavazza, marketing manager at Lavazza, Italy's number one coffee company founded by his great grandfather in 1895, can certainly relate to. In 2004, Lavazza, with the support of one of the world's leading green coffee traders, launched the Tierra Project in Honduras, Peru and Colombia. The project aims to improve the living conditions of local communities in order to make coffee production more profitable and environmentally friendly for the coffee growers, and to make the territory a better place to live in by building facilities for processing and drying green coffee, and by restructuring and building homes, schools and
medical centres.
 
"We wanted to offer ecological, environmental and social support to the communities we work with in order to guarantee long-term benefits," Giuseppe told Families in Business. "As a family-run company, our goal – and our natural inclination – is to think of developments that will carry on from generation to generation. We naturally applied this principle to the Tierra Project."

The enterprise has so far been a success. Classrooms and healthcare facilities have been built, houses have been refurbished, and training in coffee-growing best practice has been organised. In Honduras a microfinance – microcredit project has been set up to help the growers to manage their economic resources more efficiently and independently. Lavazza is equally keen on environmental initiatives that reduce the impact caused by coffee production; reforestation, water treatment and the development of integrated agricultural techniques are other important initiatives that the family-owned firm have pursued. Taken together, all this activity means that small producers can become competitive, marketing their coffee for what it is effectively worth, and doing so in a sustainable way.
 
But Giuseppe admits that the project has to be commercially viable to succeed in the long run. "To make it feasible we had to create a high-quality blend, with a remarkable flavour and aroma," he says. "The coffee is of the same high quality as Lavazza's other blends and proves that consumers don't have to compromise on taste when making conscience-driven purchases." The price of the product is in line with its intrinsic quality and the costs of the project are not passed onto the consumer since they fall under the activities that form part of Lavazza's corporate social responsibility strategy.

Although CSR and sustainability are the de rigueur benchmarks against which companies are currently viewed, it seems clear that Lavazza's commitment is more than just a passing fad. The firm's commitment is cemented in a foundation, Fondazione Lavazza, which is entrusted with overseeing the development of producer countries. Indeed, as early as 1935, Luigi Lavazza adamantly expressed his disapproval of the practice of using unsold coffee as fuel, claiming he would not live in a world that destroys the riches of nature. This far-sighted view has been carried through to the fourth generation of Lavazzas, as Giuseppe confirms: "Our choice of sustainability is governed precisely by the desire to foster long-term development and change."

The perfect blend
When Luigi Lavazza founded the firm it was initially run from a small grocery store in Turin. Despite this humble beginning, innovation and entrepreneurship were key parts of the company's early success. While most vendors sold a single variety of coffee, Luigi developed the use of blending different beans, which shook up a staid market. To maintain quality, Lavazza has carefully sourced the best coffee products to make distinctive blends in a range of products to suit consumers' tastes ever since.

"Lavazza is a company based on a sound entrepreneurial tradition, and will remain so in the coming years," says Giuseppe. "Working as an entrepreneur in a company allows a person to define and implement long-term strategies, and supporting values that are not always merely economic."

Today, Lavazza is the leading coffee brand in Italy with 48% share of the retail market, while in the UK it is the market leader in the premium espresso roast and ground market. The company supplies coffee to both the in-home (eg, supermarkets and independent retailers) and the away-from-home (eg, restaurants, coffee shops and vending) sectors, and has built on grandfather Luigi's original blend to offer a diverse range that includes: Qualità Rossa, made from a unique blend of Robusta and Arabica beans to produce an aromatic, smooth, well-rounded flavour; the dark, intensely aromatic Caffè Espresso made from 100% Arabica beans; Lavazza Crema e Gusto, which is best used as the base for milky coffees; and Lavazza Caffè Decaffeinato for those who prefer the taste without the caffeine.

The fact that the Lavazzas are an Italian family producing and promoting the cultural stereotype of coffee is a further pressure, but one that they are happy with. "Coffee is a way of life in Italy," explains Giuseppe. "It is important for consumers to be able to identify with a person who can vouch for the product's quality and authenticity."

The company has always been a family company in the purest sense of the word – during WWI, the entire Lavazza clan was enlisted to work at the firm – and today it remains 100% owned by the family. "The fact that we are a family-run company helps in terms of flexibility and adaptability, which are becoming increasingly competitive market features," says Giuseppe. "And being closely associated with the company increases the level of responsibility, involvement and attention to detail, product and work quality."

A number of family members currently hold important posts: Emilio Lavazza, Giuseppe's father, is the firm's president; Emilio's cousin, Alberto Lavazza, is vice president and CEO – these two represent the third generation of the family. Francesca, Giuseppe's sister, is director of corporate image, while Alberto's son, Marco, is coordinating manager of operating projects.
 
Despite such a large number of family members having such prominent positions, the firm has established a rigorous set of rules that everyone is expected to follow, without exception. "The company's interest is always more important than the specific interest of each of us," explains Giuseppe. "The three crucial rules for achieving successful results are: mutual respect of everyone's role; the protection of the company's interests and assets; and friendship and understanding."

With these rules and a robust managerial structure securely in place, the family believes it is ready to face whatever challenges the future has in store for them. However, they are continually looking at ways to improve and, in common with many other forward-thinking family businesses, are aiming to train future generations wishing to join the company. They also aim to set up what Giuseppe calls "a sophisticated governance system" to pave the way for growth and development.

An acquired taste
Despite already having a presence in 80 countries worldwide, one of the principal challenges that the firm is currently engaged in is an expansion into emerging markets. In Eastern Europe, where, according to Giuseppe, Lavazza coffee was already seen as a true symbol of Italy, it wasn't necessary to educate the market about what the company did or stood for. "In Bulgaria, for example, we are the market leader because it is a country that traditionally drinks espresso and people were already familiar the Lavazza brand even before we began trading there," he explains. "But in other countries, espresso represents a small niche in the coffee market and there are is no shortage of competitors; in these more crowded markets, it's obviously harder to attain a certain market share."

While selling coffee in Europe may seem like preaching to the converted, tackling a tea-loving nation such as India is altogether more difficult. In March, Lavazza agreed to acquire the Barista and Fresh & Honest Café chains. Barista is the second-largest Indian coffee shop chain in terms of outlets, with 150 shops, while Fresh & Honest Café is a vending business, supplying an average of 300,000 cups of coffee per day, equal to about 800 tons of coffee per year.

"Following this deal, we've become one of the leading players in India in the premium coffee sector and have strengthened our position as a worldwide player," says Giuseppe. "The acquisition is part of our strategy to expand our operations in markets with a high development rate and a high-growth potential, through a careful policy of acquisitions and alliances."

With a brand that is both well-defined and well-known in the West, the family look on course to repeat their success in new markets. Worldwide coffee consumption is on the rise and, with an emerging middle class in tow, demand for Lavazza's high-end products looks to be secure. What Luigi Lavazza started in a small Italian grocery store has, thanks to four family generations, grown to become an iconic, high-quality brand on an international scale – he would certainly raise his espresso cup to that.

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