Illycaffè sells €70m bond to secure coffee market share

Illycaffè has sold a €70m bond as the Italian family-owned company decides to go it alone in the rapidly consolidating global coffee industry.

In a private placement underwritten by Pricoa Capital Group, the company has the option to increase it to €140m.

The move by Illycaffè comes amid a period of consolidation in the $80bn coffee industry, which executives compare to the beer industry tie-ups of the past decade.

Mondelez International of the US and Netherlands-based DE Master Blenders 1753 agreed to merge a year ago, posing a threat to market leader Nestlé and triggering a rush among smaller companies to reconsider their strategies.

Lavazza, Illycaffè’s larger Italian rival, last month made an €800m binding offer for France’s Carte Noire.

Andrea Illy, chairman and chief executive of Illycaffè, said the money raised would be used to try to get more market share in the premium hospitality industry by developing targeted product ranges for the sector.

The company, which was founded in 1933, is also seeking to push into home consumption of premium coffee, which is dominated by Nestle’s coffee capsule brand Nespresso.

Illycaffè earlier this year instructed Roland Berger, the strategy consulting company, to look at strategic options including the possibility of a stock market listing.

The bond issuance meant the company had ruled out that option, Mr Illy said in an interview.

“We are a family business and we have two things to protect. One is the dream of the founder to offer the greatest coffee in the world and the other is our family name. This requires a long-term vision and cannot be achieved with quarterly results,” he said.

In 2014, Illycaffè’s total consolidated revenues reached €391m, up 4.5 per cent compared with 2013. Under a strategic plan drawn up with Roland Berger, Illycaffè aims to double its revenues in the next decade and open 600 sales points worldwide as it seeks to boost its profile to the consumer.

Mr Illy added his long-term aim was to make Illycaffè eligible to join the Henokiens Association, a group open only to companies owned by the same family for 200 years or more.

Illycaffè is led by Anna, the widow of founder Ernesto and honorary chairman of the company, and their children Francesco, Riccardo, Andrea and Anna.

Illycaffè produces and markets worldwide only one blend of high-quality coffee, made of nine varieties of pure Arabica beans.

According to the company, almost 7m coffee cups are made daily with the Illy blend of coffee. Illy coffee is sold in more than 140 countries and is available in more than 100,000 bars.

Around its core coffee product, the Illy family has built the holding company Gruppo Illy Spa, that owns premium food and beverage companies including chocolate maker Domori, tea business Dammann Frères, and Tuscan vineyard Mastrojanni.

It also holds stakes in Agrimontana, a confectioner of high-quality jams and preserves, and Grom, a chain of premium ice-cream parlours.

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