Greetings from overcast Key West. I've been catching up with a lot of reading, and this NYT article was a recent highlight. It is about the Italian espresso company Illy, and their plans to build up their retail presence and differentiate themselves from the omnipresent Starbucks. Now, I'm as guilty as any of going to Starbucks for my daily fix, but it's more for the lack of halfway decent alternatives than for the product. After all, anyone who has tasted a proper latte knows that it isn't a large cup filled with warm milk and a little splash of espresso. More on that here.

Some key excerpts:

Illy expects to post $330 million of revenue in 2006, selling coffee as beans, ground and in individual portions, or pods. It is expanding beyond its traditional professional food trade, like hotels and restaurants, and this fall opened the first three of its Espressamente bars in the difficult Chinese market, in Shanghai and Hong Kong. Illy is one of three big Italian coffee makers, along with Lavazza and Segafredo Zanetti, but it is arguably the leader in marketing coffee as a fashion accessory.

and

Last year, it opened Galleria Illy in the Time Warner Center at Columbus Circle in Manhattan as a way to test a new market. The next step will be to introduce Espressamente in the United States, he says, as soon as the company can find a property. Mr. Illy said the company had “solid roots and a reputation” in America. ‘’We believe the cultural barriers are not insurmountable,” he said.

The point is, while Starbucks started out as a well designed, retail chain for discerning coffee drinkers, it has morphed into the modern day equivalent of McDonald's. The quality of the beans has gone down, and the art of making coffee has been diminished. They've automated a lot of the processes (which probably minimizes their training costs), and lost what first made them special. If I were running Illy, I would really seek to capitalize on this with the discerning class and that looks like what they're doing. It will be interesting to see how this pans out in the coming year.