E180 | Andrea Illy and illycaffè

Yeah, this is an old kind of family tradition because my grandfather, who was an inventor and a genius, founded the company with the dream of offering the greatest coffee to the world, which is a dream we are still pursuing. And he turned to his son, my father Ernesto, and said, you have a better time to go study chemistry Because you will be capable of doing better coffee. This was happening at the end of the Second World War. So you can imagine what stage was the chemistry as a science. It's quite young as a science. It was more kind of alchemy than let's say the contemporary chemistry, and how difficult it was as a choice because my father studied chemistry in Bologna. There was no university in Trieste, and in Bologna under the bombing during the war. Can you imagine that? Just to do coffee.

Oh, man.

So, it was kind of natural for me to study chemistry in order to do good coffee, which is— there are no limits how much you can improve the quality of coffee, you know.

Amazing. What an amazing story. Yeah, I would love to learn more about that.

Well, I wrote a book which is called The Dream of Coffee, where I narrated all these anecdotes. If you like, I can send you a copy or we can share.

Oh, perfect. Yeah, we'll definitely want to read that. We'll encourage the listeners as well to check that out and read it. I want to continue on here. You're talking about sort of this vision even when you were young, your first taste of coffee around 2 years old and having this feeling of a destiny to be in coffee. You go to study chemistry like your father before you, and now where are we after you study chemistry? Where does the story go after that?

Oh, that's interesting because thanks to my 2 brothers who brought marketing into the company. In the '80s, the company started to grow like crazy, 25%, et cetera. So beginning of the '90s, we were growing maybe too much and we started having quality problems in the factory. So I had been asked to join, even though I was still a student, to help developing a quality system. So we did work as a team with a few collaborators. We went to Japan studying total quality management at Toyota Company, which was the model.

Yeah.

And so I finished my studies as a chemistry, as a worker. And actually it was a, I was even a father at that time. And this put us in the condition to completely revolutionize the way we were producing. Because when I joined the company, it was a kind of a top-down model because we have the laboratory directing the factory, do this and do that. For example, roasting temperatures or grinding coarseness, et cetera, et cetera. And what we did was the exact opposite and say, we are going to develop quality specification for each and every product attribute, and then develop a measurement system, and then teach the shop floor people, you know, the talents in the factory, how to self-control quality, train them, et cetera, et cetera. So we reversed the pyramid, empowering them. And this allowed us in less than 3 years to become nearly zero defect. I remember it was a challenge. Because I insisted that I want zero defects. And all the engineers came to me, this is impossible. We have to have a minimum defect standard. I said, no, the minimum is zero. So we kind of took an approximation of zero and we ended up, I remember the last figures was 0.007% of defects. This was really great. And they kept working on this quality. And, you know, I was directing directly the quality department, the product development one, the production and the IT. So whatever was technical, thanks to my background. But then later on, a few years later, my brother Riccardo, who was kind of complementary competence with me because he was more the marketing guy, had been elected, took the position of mayor of the town, you know?

Oh, wow.

So he couldn't do the 2 things at the same time. So he asked me, can you please take over also my position and become the full CEO of the company? So this is where in 1994, I became CEO of the company, totally lacking any commercial financial experience, et cetera, because I was completely, you know, focused on the technical part. So this is where I had to run, not only lead the company, but also fill my competence gap with many book readings and many university courses in order to become good enough, let me say, In marketing and administration.

Wow. So you joined that CEO position kind of because it was required. Your brother wasn't able to do it, and you had to fill all that gap with more knowledge through books, through education. What you really brought was that technical side of the company, that quality side, and then you kind of became this technical CEO, so to speak, with a huge emphasis on, I imagine, quality, right?

Yeah, yeah, this is a good point because you typically say that when you are a quality leader, you know, as a strategy. You are product-focused. Yes, I was. I can tell you, I even wrote the book Espresso Coffee: The Science of Quality, which is a 400-page book by Elzevir, which was the kind of reference for quality in the coffee industry. Yes. But this helped me to really maximize the possible product quality. And there are 2 fundamental aspects of quality. One is the so-called subjective quality, so which is kind of how much you like it, you know, it tastes good or not. I like the taste. It depends also on cultural aspects and personal, let's say, traits of people who might have one taste or the other. So subjective quality, but then you have the objective quality, which is absence of defects, you know? So it has been great to work and fine-tune as we continue to do the Illy taste. We decided together with my brother at that time, we have to have only one blend because the best can be only one. And why a blend? When we speak about subjective quality, quality is a richness of aroma. It's like an orchestra. How many different instruments, you know, the more you have, the richest is the orchestra. But then it's about elegance. And by blending, you know, you can compensate the peaks of maybe one particular flavor with another one, which is, you know, making a more elegant profile. And last but not least, even as important, consistency, consistency, consistency, consistency. So with that idea in mind, to have a consistent and rich and elegant Illy taste, we decided to go with one blend, which is, of course, as we already used to be, 100% Arabica, but we took 9 origins, the most, let's say, peculiar. Of course, our focus is on espresso because espresso is the quintessence of coffee. And the idea is that, you know, it's kind of a syllogism. If espresso is the quintessence of coffee and Illy is the best espresso, then Illy is the quintessence of coffee, the best coffee altogether. And it works.

Ah.

So this is why we perfected the Illy taste with the espresso as the kind of the ultimate coffee experience. And from there, later on, we adapted the formats of the product also to coffee as a hot beverage, including filter coffee. But yes, this is interesting. Also the parallel that we decided to follow with wine, you know, because the most sophisticated culture, I know, gastronomical or a kind of sensorial culture you have is in wine. So this vocabulary about richness, elegance, et cetera, et cetera, comes from there. But then we had other interesting adventures because as a matter of fact, we could say that this company, Illy Caffè, has been designed Upon continuous improvement, and many times managing difficult periods or addressing crises. I make you an example. As you might remember, at the beginning of the '90s, there has been a terrible price collapse as a consequence of huge overproduction by Vietnam. And of course, growers, the countries where we were sourcing, were not able to produce because the prices were not even covering the cost of production. They were cutting, cutting, cutting quality. By any possible means. So we were only finding lousy coffee. It was impossible to be consistent with our strategy to offer only the best and consistent quality. So this has been a kind of, let's say, milestone in our company because we decided to start this Ernesto Illy Award for rewarding the best international coffee growers, you know? So we went to Brazil, which was the main country where we were sourcing. And we completely bypassed any possible supply chain. No more brokers, no more exporters, no more co-ops, directly working with growers hand in hand. And the very first effort has been to stimulate them about how good quality can be in coffee.

Okay.

Because at that time, growers were not even tasting the coffee they were producing. Can you imagine that?

Yeah. Let me pause you for just a second because I think this will be important for our listeners. We talk about direct trade on the show, and what year was this, would you say? That you were introducing the Ernesto Illy Award?

1991.

Okay. '91. So in 1991, you were doing essentially direct trade?

Yes. So in 1991, I was still in the kind of technical department. And so we started this Ernesto Illy Award, but together with that, we started a trading company in Brazil working exclusively for us in joint venture, sourcing directly for coffee growers and starting paying them premium price, 30% up, you know?

Okay. Wow.

And we did that at the same time as working on the consistency part of quality, implementing the total quality management practice in the shop floor. So this was really a dynamic period, but because at the same time also we started a very sophisticated market effort because we decided to go with a kind of an idea of beauty beyond goodness. The idea to really offer in a cup of coffee a polysensual experience. So we said, we have to make our coffee cups as beautiful as they are good. And we decided, this was my brother Francesco who said, we shall go with artists. They shall paint our cup. Literally, the cup should be kind of a painting. You know, this was not new because this was an old tradition of China painting, which started in China maybe 2,000 years ago, and then has been pursued in Germany and in France, et cetera, Limoges, et cetera. But the idea To have our own espresso cups decorated by contemporary artists made them boom in terms of image internationally. So it was pretty dynamic, the '90s, I can tell you.

Yeah. Y'all were doing things in the '90s that I think people today are trying to claim as new. Direct trade, for example, in the '90s is pretty progressive considering that's what a lot of the specialty sector likes to talk about.

We have been absolute pioneer. The very, very first.

That's what I'm gathering. Yeah.

Yeah, yeah, yeah. My family started learning Portuguese because nobody was speaking English in Brazil. And you also have to understand the local kind of accent they speak in the producing areas. So, it has been quite a journey. Interesting.

Amazing. Yeah. And I know we're covering a lot of your story, but I want our listeners to get to kind of know you before we talk about some of these other really fun topics. So, we touched on the Ernesto Illy Award, but we'll come back to that in sort of our next chunk of conversation. I want to continue talking. So you went from sort of this 2-year-old to chemist to this technical role in the company to CEO, and then I believe back to chair or up to chair. I don't know how you would say that. Is that right? And can you kind of tell us about why that transition and what did that look like? What's the sort of background for you personally on the trajectory of your career?

Yeah. My father was enlightened as an entrepreneur. He has really been a great mentor for me. One of his kind of principles is that I should retire early enough to see my kids run the business as an observer so that if needed, I can help. Otherwise, they are ready to do their own experience, their own path. And just in case they really do something wrong, I will intervene. So, he stepped back and he wanted to step back. In 2008, he was 73. And so, somebody would have to take his position. And we decided that because my brother was still involved in politics, because when he started as a mayor, then he started a longer political career which lasted for 40 years. And so, there needed to be a point of reference. So, I became chairman and CEO.

Okay. And what was that transition like for you? Was that hard for you to do? Were you excited to move on to something new? What were kind of your emotions going through these changes?

Well, I started really feeling that I kind of was becoming a successor in some way, but it actually, it didn't change my kind of job. It only changed my accountability profile because I was not only in charge of the execution any longer, but also of the governance. So, I was kind of responsible for the relationship with the shareholder, which basically was only the family. It became a little bit more complex, let's say, as a job. But I think I did okay in that new position because at the end of the day, the company needs to continue to perform and be safe and consistent, most importantly. So it was kind of a natural evolution, no big deal.

Yeah. And you serve as a chair member on a variety of committees and groups. And I want to ask you, so not just Illy things, but other things, Are there any of those that particularly highlight your sort of reputation for being the sustainable coffee guy that you are? I know that's not the best way to put it, but you are definitely a major proponent of sustainability in coffee.

Yes, I have 2 passions. One is the so-called made in Italy because our country is so rich. We have to underline that Italy is considered to be the country of coffee. Sometimes when I travel in the world, people ask me if coffee is grown in Italy. No, it's just the roasting and preparation which became so important, particularly thanks to espresso. And this is an important aspect because espresso has one very significant chapter of espresso history. 2 very significant have been written by my family because the very first pressure espresso machine has been designed by my grandfather. It was the Illetta machine in 1935. And this machine is really the mother of any contemporary espresso machine because he was the first introducing pressure. Before espresso was existing, but it was working in the same principle as the moka pot. You know, you overheat water and the steam pressure makes the extraction, but the temperature was too high. Yes, pressure was too low. It was not good. This is why being espresso such an important heritage for the Italian made in Italy and Italian lifestyle. As it would be for pizza, as it would be Ferrari, as it would be for Armani, et cetera. I always have been extremely engaged in trying to build Italian espresso as an icon of made in Italy. This is why I took a very important position in this Alta Gamma Foundation, which I have been chairman for maybe 7 or 8 years, but I had the privilege to, to kind of grow the foundation. But now I am not involved any longer. My other passion, which is now kind of more an obsession than a passion, is sustainability. And this is even more serious, I would say, because I started studying sustainability as a student in chemistry at the École Polytechnique Fédérale, you know, the University Polytechnique in Switzerland in the '80s. And Switzerland was already 20 years ahead. So they remembered the conversation we used to have at the university or, you know, in the society in Switzerland, it was at least 20 years ahead any other countries because they saw it arriving. So big problem that we have, like the limits of growth, et cetera, et cetera. So this is why as a scientist, because yes, as a chemist, I'm a scientist. And as an entrepreneur, it became more and more and more important for me until kind of it peaked in 2015. 2015 has been a milestone in my life. Because it was the year of the Universal Exhibition in Milan, the Expo, which is an institution, a universal exhibition existing since over 150 years. But it was the first time in history that this universal exhibition was centered around food and beverage. And so we became the official coffee partner and I was representing the International Coffee Organization. So I was a kind of an institutional representative as well as a private institutions. I was wearing 2 hats and we did something really great. We did organize the greatest celebration of coffee in all time. 30 million visitors visited the coffee cluster in 6 months. We did organize the very, very first coffee forum. And this is the aha moment because I invited Jeffrey Sachs, which already at that time was the world's most renowned expert in sustainability. And he came with, you know, kind of a message. He said, you know, by 2050, up to 50% of the currently suitable land for coffee agriculture will not be suitable any longer. So this has been a kind of an alarm bell. And we ended this forum with a declaration, which is called the Milan Coffee Legacy, which simply states that there exists a virtuous circle combining The wellbeing that coffee delivers to those who drink it together with the development it creates for those who grow it. And this virtuous circle should be nurtured with more quality and sustainability, starting addressing the climate crisis. But this is an official document now at the United Nations. And since then, I did really kind of increase my work, a lot of work in sustainability development. So if you want to continue the story, the very, very, very first work we did has been a project we have called Coffee GAP, Global Adaptation Plan. So first of all, we calculated where even coffee security was endangered. Actually, apparently not for the next decades, but other important factors like producing countries concentration, more and more coffee produced in Brazil, particularly, and in Vietnam. which is kind of marginalizing the smaller producing countries in Africa and in Central America, which is something to be avoided. So we came out with a strategy to say, in order to adapt to climate change, we need 3 consecutive actions. Number one, improve agronomical practices. Because agronomical practices in most of these producing countries except Brazil are pretty basic because they have no money. Even the cultivars, the plants are pretty old, up to 50, 80 years old. So we need to invest more for creating resilience in more technology for agriculture and varietal improvement. So improve agronomical practices and plantation renovation. So if really these 2 efforts are not enough, we should consider also migrating some of this coffee plantation to higher altitudes or higher latitudes where we can find milder climates. So we came up with this strategy and we started pursuing it. So the first step for sustainability, for a kind of a climate change strategy, which was based on adaptation, was already in place. So we are still working on that. We are working on a kind of feasibility study for having an international fund Investing consumer countries' money in the coffee plantations, enabling them to increase the investment in those actions that I mentioned: improving agronomical practices and renovation. After having done this project, I started the kind of Mount Everest one, which was mitigation of climate change. And the idea was, how can I make Illy carbon-free but in a circular way? Because I really believe that offsetting is not the way forward because it only incentivizes greenwashing. So how can we decarbonize in a circular way? So I did study, the intuition was it's an agricultural product, so it's vegetation, photosynthesis. The photosynthesis is the only way to sequestrate carbon. They must find a way to make it. And I took a sabbatical. I took a 1-year sabbatical, 1,000 hours work. And I developed a model which is called virtuous agriculture, regenerative for the environment, beneficial for health. Why that? Because I discovered the wonder of soil carbon enrichment, which differently from conventional agriculture, which is all based on agrochemistry, enrich— you enrich the soil and you nourish the soil microbiota. The soil microbiota helps fixing minerals. So it makes the soil more fertile, but also the microbiota, as it happens in our human body, produces many defensive agents against pathogens, against, you know, pests and diseases. So that means that by growing regenerative, you can use much less or if any agrochemicals.

Okay.

But also you don't only enrich the soil microbiota, you also enrich the rest of the microbiota. I don't want to make this story too long, But when I was finished with my model following the IPCC, Intergovernmental Panel on Climate Change recommendation, always find a co-benefit. I said, come on, how can I find a co-benefit? The intuition has been, of course, health. Because if you have less pesticides residues or this kind of stuff, you have a healthier product because you know that pollution triggers inflammation in our body. which is the main cause of noncommunicable diseases, which are the main cause of death in Western countries, starting unfortunately from United States. So I said, oh, okay. So it will be healthier. Makes sense. But then because the plant also has a kind of the equivalent of an immunity system, if you put the plant in condition to defend itself from pathogens, it releases phytochemicals, which might be toxicant for the pathogens, might be in some case, beneficial for our human health because they are either anti-inflammatory or antioxidant. And this is what I want to prove. And so the model is soil health leads to human health because you produce, thanks to this approach, a healthier and more beneficial product. This is what we are doing. And since then, we really accelerated our engagement to sustainability. The company became a benefit corporation. So now the social environmental benefits are mandatory, let's say bylaws. On top of this, we reached a certification as a benefit corporation, which is the B Corp. We have been acknowledged since, I don't know how many years now, more than 10 years in a row by, as one of the most ethical companies by Ethisphere in the United States and so on. And we are in the process now to deploying this regenerative agriculture model. So I'm pleased to say that after I finished my sabbatical, we started immediately implementing. We do work with 3 pilot plantations in Ethiopia and in Guatemala. And as we created the greenfield to be regenerative, so we are experimenting any kind of regenerative agronomical practices. As we generate transferable know-how, we teach to the rest of the growers who work with us through our University of Coffee. This is a very important aspect we have to speak about. And through our University of Coffee, this short knowledge, now I can say that 5 years later, I'm pleased. I'm really honored to say that more than 70% of the coffee growers selling coffee to us adopted regenerative practices. This is what we put in our balance sheet, in our non-financial communication. And on top of this, 2 weeks ago, we launched the very first world premiere certified regenerative coffee. From Brazil. So, this is really becoming intense.

I do want to talk about this. I think that I want this though to kind of sit squarely in our second conversation here. So, let's come back to it. I have one more question for you in kind of the first chunk of our conversation. It's going to feel like left field compared to what we are talking about, but I do want to come and spend the rest of our time talking about sustainability, the Ernesto Illy Award, the Regenerative Society Foundation. Let's hold that for just a second. And this may seem like left field. I had originally meant to ask you about this sooner, but you and I got passionate about sustainability, which is a passion of the podcast and obviously a passion of yours, one of your 2 major passions, as you put it. I want to just ask you really quickly, because our listeners may not be familiar with the world of coffee as much as you are, or as much as I am, Are you able to state your opinion on the current state of specialty coffee culture? Because I want our listeners to kind of understand Illy Caffè, Illy Coffee, as its own historical company that it is in light of what coffee's doing around the globe as far as trend and culture goes.

Great. Thank you for asking. So, my 2 predecessors were obsessed with quality. But they were absolute pioneers. We have been the very first company in Italy, at least, producing 100% Arabica coffee. We have been for sure the world's first company producing 100% espresso because everybody used Robusta in espresso in order to maximize the crema, et cetera. So crazy about that to such an extent that when my father was talking with bankers and tell that their strategy was to improve quality, et cetera, bankers were asking him, are you crazy? Why do you do that? Why do you try to sell your coffee 3 times more expensive than the market? There is no quality segment in coffee. Coffee is a commodity.

Yeah.

So by consistently pursuing this, you know, another guy who made a similar job, of course we made it, it's much, much, much, much, much, much poorer case. But if you think of the guy with Tesla, he's obsessed with this idea of car electrification and he created a movement, you know, he created a movement that everybody's forced to react to this. So, and this has been fantastic because the idea to create a movement of specialty coffee has been collaborative. We did work a lot, both in non-exchange, promotion exchange, any kind of exchange with the specialty coffee. We are part of them and we always had this collaborative approach. And specialty coffee has been serious about the standard definition and consistent. And the good news, That they took espresso as the flagship preparation, as the quintessence of coffee. And also you have espresso, you have espresso-based drinks, and then you have also coffee as a hot beverage for those who prefer to drink it instead of only sipping it. But what is the big picture? Not the small one. The big picture is that coffee has finally been able to decommoditize itself. Coffee was a commodity in the '70s and the '80s. People were waking up in the morning, get their coffee kick just to go working and be dynamic, energized. And, you know, but the quality was so lousy that in restaurants where they were using to offer coffee for free because they had no more value than a cup of water,

you

know?

Yeah.

So this decommoditization transformed coffee from a functional drink where consumers were just getting the kind of physiological function for coffee. Into an experiential drink, which is the one now people, particularly the younger generation, can enjoy. And this also thanks to a couple of colleagues in the industry who have really been good in growing this category, made this segment, gourmet coffee segment, to become the leading one. Now, if coffee consumption are increasing in the entire world and they have been able to conquer even cultures which were traditionally tea drinkers and very, very skeptical about coffee. This is only thanks to this specialty coffee movement or gourmet coffee. For me, specialty and gourmet are synonymous, but the association is named specialty.

Okay. So you make a distinction there?

No, I don't make necessarily a distinction, but I would just want to tell you that when I speak about specialty coffee, I don't refer necessarily to the association, but to a broader sector And I have a segment of high-quality coffee and experiential coffee, which I call gourmet one.

Okay. Okay. Well, we may have to invite you back on the show at another time to get more of your insights. You have a wealth of information. I have so many more questions I want to ask you on this front, but we're going to keep going for the sake of time. In our next episode with Andrea, we dive deeper into concrete paths forward on sustainability. sustainability with a focus on rewarding farmers and safeguarding that virtual circle Andrea mentioned in this episode. If you are enjoying these conversations, please remember to subscribe to The Coffee Podcast on your favorite podcast platform and share with your coffee-loving friends so we can all join in together. Thanks to Ryan Ingerson for his hard work on the background research for this conversation. For now, as always, and until next Until next time, happy brewing. Happy brewing.