francine: the illy story started in 1993 with a single cafe. within two years the founder developed the blue print for modern espresso machines, revolutionizing how coffee was made. since then the business has grown into a global enterprise, selling its products in 100,000 bars and restaurants in 140 countries. but some things haven't changed, it remains a family run operation. today on "leaders with lacqua" we meet andrea illy, the chairman of illy.

thank you very much for joining us. italian coffee has always been a thing. when did this coffee phrase infect other parts of the world? >> as a matter of fact espresso started to become global in the '80's and '90's. it started maybe with us, maybe, i don't know, because we started exporting italian espresso to inexporting italian espresso to the u.s. in the mid-'80's and after that, there has been a big boom. i don't pretend we were premier but for some within we were there at that time. >> do you know why, has the taste of people's changed? even london a few years ago it was difficult to find a good cup of coffee and now every street corner has something good to offer. >> i would say the overall experience besides the taste. before that time in the u.s. it was not possible to get decent coffee out of home. even in restaurants, coffee was served, drip coffee for free.

they didn't charge you. you can imagine the quality that it was. other than that, you could go to a deli to get some really lousy boiled coffee sitting for hours. so the cafes, the original idea was to kind of replicate the italian bar, italian coffee bar model and then adapt it to the united states, making coffee much more proximal for consumers. and because these italian bars were centered around italian consumers. and because these italian bars were centered around italian espresso, the proposal was the authentic one initially but then there had been kind of a pushback from the american consumer to that, let's say, high body concentrated italian espresso so cappuccino was the boom. cappuccino, latte. americans had a great, say, milk drinkers.

so this espresso-based drinks became the success. >> who is your biggest competitor? is starbucks a competitor or do they have just a different offering? >> i want to avoid any direct competition. so if we see somebody's coming on our turf, we try to move away. we have thousands of competitors or none. and starbucks that you mentioned, not necessarily because they are really in a different business. they are retailers. their core business is really operating their own coffee shops. the several thousands they have, tens of thousands they have all over the world. we are not in the same business. >> so what is your business, high end? is it for restaurants? is it for bars? is it for consumption at home? >> the dream upon which my grandfather founded the company was to offer the greatest coffee to the world. and this dream is now let's say

converted in our mission, which is clearly to be leader in quality. we seek the best possible quality working hand in hand with our coffee growers, developing technology, and experiences in order to enhance this coffee. this is what we do. and we don't seek for volume. we don't seek nothing else than quality leadership. >> does it mean you can have higher margins because you charge more? >> yes, we charge more definitely but the goal is to have a sustainable, let's say, supply chain to really be a stakeholder company in which the profit is a mean, and not an end. so for sure a different model from the so-called share company, they are the parties directly or indirectly involved in the business and we have consumer customers, talent working for us, suppliers

without we wouldn't have this great coffee, the communities and at the bottom of the pyramid the shareholder, which is our family supporting the business. not trying to pull out the resources from that. >> how tough is it working for a family run business? do you always have to get along or do you have to get independent advice? how does it work? >> well, it is, of course, a great responsibility because there is a legacy two generational already and the next generation ready to start working in the business. so it's not only a family business, it also has the family name so this is a double responsibility. so my job is to grow the company by maintaining its consistent with the legacy in which our traditions. so it's constantly interpreted tradition we are looking for in maintaining uncompromised

quality and ethical, let's say, standards. you need to sacrifice from time to time. you need to sacrifice volumes. you need to sacrifice profits, you need to sacrifice time and also freedom, you know. but this is really really worth doing. >> you talk about having thousands competitors or no competitors. >> we try not to. >> so are there too many coffee producers? do you feel that maybe the industry at some point needs to be consolidated? >> the industry is definitely under consolidation. there have been in the last five years nearly 50 u.s. billions invested in order to constantly date that industry. this is all started by a german family office from the reinhart family with their job by making so many acquisitions of so many

brands around the world. of course, the leading company led with very brave acquisitions. yes, there's a consolidation ongoing. i must say it's kind of a scary one on one side. but it happens very of on. at the same time you have the consolidation you have the fragmentation on the opposite side. so now we're in the so-called third wave where the so-called specialty coffee is kind of now overcome by these micro-roasters in little shops in towns that are operated by kind of coffee geeks and they are very numerous. so in the fact that the number of brands and possibilities for consumer isn't growing is him and official because at the end of the day what can really make this industry exciting and successful and also creating

value is get the consumer engagement and the more diversity, the more differentiation you can find in the market, the better the market. >> still to come -- what kind of leadership does it take to grow a global coffee business sustainable? ♪

francine: illy made the quintessential italian brand but its supply chain reaches across the globe. it's arabica beans are grown in 40 regions across four continents. with an aim of sustainability, they found the illycaffe, an initiative that works side by

side with farmers offering them free training to implement best practices with a low environmental impact. andrea illy is still with me. were you always a coffee geek because of your family? or did you sometimes think let's not get into the coffee business? >> i have the arrogance to describe myself as a coffee scientist but this is only because of my background and how i spend my life. i'm a chemist by background and i started chemistry for the specific goal of knowing how to further improve quality and this is why we work so much in the economic process and industrial processes and technologies but it's a little bit beyond the coffee geek. francine: is that why you're worried about sustainability? andrea: sustainability is really relevant, both the

socioeconomical one but you have to remember that coffee is loved and consumed by rich countries. they're rebalancing with emerging counters and coffee producer counters. still, it would not be the number one, with two-thirds of the coffee consumption but with 100% of the coffees grown in the south of the world. most of them are developing countries still struggling. and this is not the only problem under development. him the other big problem is the agriculture qualities go up and never down.

on top of this the coffee price is very volatile, different factors, let's say market factors other than the coffee themselves. for instance this is very much anchored to currency and the price of oil. that means we really have to do great efforts in order to make this coffee sustainable for growers. and together you're stronger and that is sustainable? >> that i would say the industry is cutting edge?

that is to my knowledge there's not so many industry cooperative at precompetitive level in order to strengthen the industry. so the collaboration with the colleagues in the industry, this is one of the reasons why i call them colleagues and not competitors is quite, let's say, extended to many, many areas. i will give you an example. even talking about sustainability and climate change, which is now the current threat. we have been able to reach incredible positive results with coffee and health. more than 25 years ago, the belief was coffee was maybe so, so for humans. but now after 25,000 scientific studies all confirming coffee is not bad for health, but even let's say directly correlated with longevity, we can now say coffee makes you live better and longer, which is great --

francine: not everyone believes that. andrea: but there are now scientific studies confirming that. and even scientific studies from the international agency for research on cancer which reclassified coffee more positively two years ago and it's all great because, of course, this creates confidence also from emerging coffee consumers like china and india and middle east who consume more coffee because it's good. francine: when you come to sustainability, can you give me a concrete example of something you worked on either in a specific country or specific project? this isn't only about fair trade, right? >> no, fair trade, we will talk later if you like. what i introduce before the real priority now is climate change. because yes coffee is impacted by climate change. two-fold, quality first and productivity second.

this is countries making big losses. francine: because of natural disasters? andrea: could be natural disasters. as a matter of fact, they estimate 50% of the currently suitable land for coffee agriculture will not be suitable any longer by 2050. but this is really significant because in the meantime thanks to the positiveness of coffee that i just described, consumption is growing 2%. so by 2050 we need to produce twice as much we do today. so that means we have to invest in agriculture in order to make coffee resilient. francine: but this is different ways to harvest coffee beans? andrea: yes, first what we need

to do is improve the economic practices. make them more sophisticated, science based, technologically empowered. secondly, we will need to have new ways for climate change. if these are not sufficient, we will need to have new areas like higher latitudes and altitudes. all of that will require more investment and we need require more investment in the farms. francine: this cannot only be a private practice, right? a partnership with the public and politician. >> absolutely. this is why we are working together with a coffee trading

association, the world's largest consolidating over 50% of the coffee trade in order to have a mass and i.c.o., international coffee organization and all of the relevant associations, we are trying to develop an organization in order to broker, in order to really attract sources, institutions, philanthropical in other countries. francine: when i say fair trade, is it 100% true i as a consumer is doing a little bit less evil for the world? andrea: fair trade has been, i believe it belongs a little to the past. it's been a very good first step towards sustainability. but not sustainability, it's the commitment to pay premium price to the coffee that you would pay less on the marketplace.

so it's kind of a market distortion which the consumer by seeing a label believes that the coffee has paid a fair price, but unfortunately, these expectations did neither create a huge consumption because most of the consumers by the coffee not for the quality but because it's fair trade. so they tend to kind of limit their choice to sometimes, not always, you know. you take your preferred coffee and sometimes you take fair trade one. and on the other side, the expectation that created with growers may create an oversupply. the problem is now there's too much certified coffee and the premium became very, very thin. so this is why the system is a little bit broken unfortunately. and we have to look ahead into

certification schemes which are more sophisticated, really certifying the sustainability of the supply chain. not only solidarity. francine: up next -- representing italy in style. we talk andrea's mission of promoting companies from fendi to ferrari next. ♪

francine: as well as acting as chairman of the company that bears his name, andrea illy also leaves a foundation whose mission is to increase the

competitiveness of high-end italian brands from food to fashion. some of its members include fendi and ferrari. today italian brands make up 10% of total consumption of luxury goods across the world. how can they preserve and grow that market share? mr. illy, thank you so much for still being with us. when you look at the italian magic, there are very many italian high end names, and this is despite the political turmoil that we saw in 40, 50 years. what is the secret illy has? andrea: italy has an enormous heritage to such a wealth in nature and whatever is intangible in culture. we are the country of beauty

though and we are at the very center of the cradle of civilization with the mediterranean, with all of this kind of natural competitive advantage, there has been so much beauty and heritage sedimenting in the country that inspires creativity and ingenious in terms of technology and innovation of our best minds. so with that this luxury market is great because it's over 1 trillion. and italy is a co-leader with our colleagues in france but we have two great, strong points. we are the countries with the highest amount of luxury -- we miss only one, consumer electronics. other than that, we have all. automotive, you mentioned ferrari, lamborghini, we have and jewelry, sport, food,

hospitality and so on. i don't want to mention them all. and the other great competitive advantage we have is we're the counsel province where the product is made. francine: italian companies look at further expanding. have they looked at scaling up? andrea: the purpose of the foundation is how to strengthen competitiveness and grow. we have ideas how to double that business, which is already a contribution to the italian g.d.p. of 5%. that industry, the brands you were mentioning before among the other 100 of them, are the best culture ambassadors of the italian lifestyle. do people fall in love with an italy products, brands, point of

sale abroad? and then they are willing to visit our country and describe the beauty. and it is gigantic because of 10% world g.d.p. if you have a leadership position in that industry, you have a significant contribution to the g.d.p. there is another great opportunity, which is now let's say facing upper to our country, which is a new road involving 8-k investment in italy ahead. italy has always been let's say a harbor for other great opportunities. so we don't welcome opportunities. francine: no, certainly don't lack opportunities. with opportunities also come hard work. how many coffees do you have a day and what kind of coffees? andrea: i have an average of four. could be three, four, five. francine: espresso, cappuccinos? andrea: a new one i love called brue. generally pure coffee, not milk. francine: illy, thank you very much. andrea: my pleasure.

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