”Globes” has learned that Elite is examining the possibility of setting up a chain of coffee houses. The chain will be under the label of Illy or some other international brand name. According to the report, Elite is examining the possibility of investing in the Starbucks chain; the Delek Group recently received the Starbuck Israeli franchise. Elite is not denying the report and claims that it is considering all methods of becoming an operator in the espresso bar market, including launching a chain under the Illy brand name or another international brand. Elite was offered a partnership in the Coffee Bean and Tea Leaf chain, but turned it down, saying it had no interest in operating a chain of espresso bars.
Italian espresso coffee supplier Illy recently began considering extending their brand name to the retail field and opened a trial coffee house in Italy. Extending the brand is no trivial matter, since poor performance on the part of a coffee house chain is liable to damage the Illy brand name. Furthermore, operating a chain of Israeli coffee houses would put Elite’s activity as a supplier of Illy coffee to Israeli coffee houses, in which it dominates the market, at risk, since Elite would itself be competing in the coffee house market.
Getting cool - with Illy
While it considers entering the espresso bar market, Elite is also intensifying its efforts to market Illy in order to increase away-from-home consumption. To this end Elite is extending the Illy brand name to the cold drinks field by launching a series of espresso-based beverages for coffee houses and hotels. Incoming Elite Coffee Services general manager Ofer Alouf says that, in view of its entrance into the summer beverage field, Elite’s sales are expected to grow 30% to NIS 230 million this summer. The introduction of the new drinks, some of which contain alcohol, will be accompanied by sales promotions in coffee houses.
Elite currently operates in 1,500 coffee houses, restaurants, and hotels, marketing hot espresso drinks. In view of the consumer trend towards drinking coffee away from home, Elite is attempting to adapt and become a major factor in the sector. Another factor in Elite’s decision is the lack of growth in home coffee consumption.
Drinking more coffee away from home
72% of the population drinks coffee away from home. The proportion of away from home coffee consumption in Israel stands at 29%. This rate has risen as a result of the higher standard of living, the greater number of single persons, the larger number of women in the labor force, and the transition from a culture of meals at home to an eating out mentality.
The away from home market is based on two key segments: the commercial sector, which includes concerns buying coffee for commercial purposes (restaurants, hotels, coffee houses), and the cost sector, which includes sectors buying coffee for non-commercial purposes (workplaces, hospitals, airlines, etc.).
Elite’s main competitor in the this market is Osem-Nestle, which supplies non-espresso coffee sold in machines. In the espresso field, Elite competes with Segafredo, Lavazza, and other imported brands. The local coffee chains, including Arcaffe Chains, Ilan’s, and Cafe Joe, also compete in this sector. The coffee house market was hit hard in the past six months, with sales falling an estimated 20-30%, but activity has recently returned to normal.
Elite Coffee Services’ principal goals are to penetrate an additional 300 locations in the espresso bar and restaurant market, as well as 100 more hotels. As part of the same campaign, Elite is also trying to acquire market share at the expense of traditional summer beverages, such as soft drinks, milk shakes, and natural fruit juices.
Illy has operated for 65 years in Italy as a family business. Elite has exclusively marketed Illy’s pod-packaged Arabica coffee to the retail and institutional market for the past six years. Elite Coffee Services’s sales have grown from $30 million in 1998 to $44 million in 2000 and are expected to reach $57 in 2001, up 30% over 2000.
Published by Israel's Business Arena on May 14, 2001