Chief Executive Officer, Luigi Lavazza S.p.A. (Lavazza Group)
Oscar FARINETTI, Antonio BARAVALLE - È nata prima la gallina
Festival della Comunicazione 2022 www.festivalcomunicazione.it.
About Antonio Baravalle
Antonio Baravalle, CEO of Lavazza, has described the company as "the biggest of the small" among global coffee players, noting that it competes with much larger corporations such as Nestlé, Coca-Cola (which acquired Costa Coffee), and JDE. He has stated that the coffee market will face a "tsunami of consolidation" and that Lavazza must evolve its governance and management to avoid being acquired by larger competitors. Baravalle has emphasized the need for continuous change, saying that when a company performs well, it should immediately ask itself what it is doing to stay ahead, because other firms are already planning how to overtake it. Baravalle has also spoken about the importance of investing in people and education, arguing that innovation is not just about supporting startups but about creating a culture that accepts failure and encourages trying new things. He has called for greater transparency and professionalism in the relationship between companies and advertising agencies, opposing the practice of agencies being paid through media negotiation rights and arguing that clients should not try to replace agencies with in-house capabilities. He has noted that Lavazza's ownership structure, with two families holding 100% of the shares, allows the company to take a long-term view without the pressure of quarterly earnings reports.
Transcript (3 segments)
O
Oscar Farinetti0:05
I'll start first because of age, though I'm younger in spirit. I'm very happy to be here with Antonio Baravalle, whom I consider the greatest living Italian manager. It's a pity I can't afford his salary. Lavazza has more cash than Italy, so maybe when he retires I'll get him at half price. I like Antonio because he was one of Sergio Marchionne's protégés, raised by the greatest of all. He combines power and lightness. He is a gentle person, but that doesn't stop him from being powerful. Now, let's do a simple experiment: raise your hand if you think the egg came first. A plebiscite for the chicken. I hope the chicken wins on September 25th, but I fear the egg will. This is a dilemma. We face many dilemmas in life. Those from the Aristotelian-Darwinian school say the chicken came first; Plato's followers say the egg. Aristotle says the creator comes before the created. In life, we always face dilemmas, which we now call crises. Crisis comes from the Greek word for choice. I've been working since 1978 and I don't remember a period without crisis. The 1980s saw interest rates at 24%. Today we worry about 8-6%. We've had energy crises, financial crises, 9/11, Lehman Brothers. Crisis means you are at a crossroads; you must choose. Standing still is not an option. The chicken moves. That's why we titled this talk 'The Chicken'. We are both condemned to move. I have 9,600 employees; he has fewer but produces double and earns more. Now, my task today is to show why we must choose the chicken. We are both in business; I'm an entrepreneur, he's a manager, but we do the same job: running companies. We face choices every day. In 45 minutes, we will try to create a plan: what should a company do in times of crisis? We won't talk politics, though we have our ideas. The role of politics is to create scenarios so we can create value, jobs, innovation, and improve well-being. We live in a model that has improved well-being, but we've moved to consumerism: buying what you don't need with money you don't have. Now, let's do analysis. I'll briefly describe the world as I see it. We are walking on a wide boulevard with 8 billion people, but they walk in strange groups. On one side is a deep chasm: environmental emergency. We've discovered that consumerism has put too much CO2 into the atmosphere. We've changed the climate. In 1999, there were 15 catastrophic climate events; in 2019, 1918. Most scientists say we are screwed if we don't change how we produce and consume energy. The planet will survive, but our species may not. We have only 300,000 years as a species; we could have 4.7 million more, but if we continue, we may die out in a few generations. On the other side of the boulevard, there are strange structures of machines and numbers: the digital disruption. We are in a new digital era, wonderful but unsettling. It is dominated by five companies (oligopoly). Data is the new currency, and we don't know what happens to our private data. Wikipedia is a beautiful exception: it doesn't ask for data, no ads, and it's accurate. Then there is artificial intelligence and the metaverse. These are new words we pretend to understand but they scare us. We have environmental emergency, digital disruption, and then there are 'isms': individualism, populism, sovereignty. We must avoid these. We need a new humanism. The wind of migration pushes us; we can't stop it. We have to choose. The choice is vital: we must change our lifestyles. Companies have to anticipate what's around the corner. For example, the coffee of the future might be Turkish coffee, but that won't happen. We must choose: we can either hit rock bottom or anticipate. I'm an optimist, but optimism requires realism. We can solve problems. In this scenario, companies must do something. I give the floor to Antonio Baravalle.
A
Antonio Baravalle25:06
Good morning everyone. You see the difference between an entrepreneur and a manager: an entrepreneur can go around like that. Managers have to manage companies and report. As you might have noticed, this wasn't exactly the direction we had planned, but I've known Oscar for many years, so we had a toast first. I looked at you and you all voted for the chicken? I changed? First, a premise: I don't like the term 'chicken and egg' because I am a biologist and biochemist. Scientifically, the egg came first, from reptiles, which then generated the chicken. So I don't like to deny science. In this context, the complexity and risk facing any company today is unprecedented. I'm turning 58 in December, and I've never seen anything like this, not even after Lehman Brothers. The number of variables is enormous, and they are all moving in the same direction, making it extremely difficult to manage. For example, in our coffee business, the raw material price has doubled, shipping containers from Brazil went from $2,000 to $8,000-10,000, energy costs 5 times more. And we buy coffee in dollars: we buy about $1 billion of coffee per year, so every cent of dollar exchange rate movement costs us $10 million. The euro-dollar rate has gone from 1.15 to 1.12, and if someone had said two years ago we would see dollar at 0.99, no one would have believed it. In total, in two years, we have had about €650 million in cost increases. You can only recover 20-30% through price increases and efficiency. So all companies, not just ours, are facing incredibly tough choices. In this situation, you must choose the chicken: you have to move quickly and make important decisions to guide your company through 2024 in the best possible condition. The opportunity in crisis is that you can choose where to invest and where to cut. I've experienced cutting budgets by 50%: it's easier than cutting 5% because when it's 50%, you focus on what's essential. We are privileged at Lavazza because we are not listed. We have good governance but no quarterly pressure. We can decide to prioritize the company's long-term health over short-term profits. We have 125 years of history. In a listed company, you would have to explain to analysts why costs are up, but eventually you have to deliver. So we are privileged. But we must seize the opportunity to come out stronger. I recently read about pareidolia: the brain's tendency to force new things into known patterns. We must do the opposite now: see things where they don't yet exist. We cannot predict the future, but we know that the impossible has become possible. The only thing we can do is to look for opportunities. Draghi visited Lavazza in April and gave a spontaneous speech: he said our job is to create conditions for businesses to operate with less bureaucracy, simpler laws, and a faster tax system. Now, seeing how things have changed in a few months is disheartening. Much of what I hear said these days is 98% nonsense that will never happen. I'm not ideological, but mathematically, spending 170-180 billion euros on top of our debt is impossible. If a company did that, it would go bankrupt. But unfortunately, that's not the case now. I'm an optimist by nature. On technology, data, AI: there are lights and shadows. AI can be dangerous if it polarizes discourse, but it also offers fantastic opportunities, such as in agriculture. We are experimenting with Microsoft to reduce water and pesticide use through precision agriculture. AI can also enable telemedicine in remote areas. So it needs careful management, but it's an extraordinary opportunity for societal evolution. On generational conflict: we have five generations in Europe today. New generations drive evolution; the old generations have the duty to provide tools and conditions for them. We cannot look at things with the same lenses. I have children aged 7, 10, and 23, and I try to see through their eyes. But it's impossible. So I conclude: this period is very tough, 2023 will be dramatic, and I hope society can hold together. We have an opportunity to build something new. I'm not very optimistic about the 25th (election), but I am more optimistic about the European context, where we will be forced to do the right thing. Thank you all.
U
Unknown45:10
Thank you Antonio Baravalle, thank you Oscar Farinetti. We now know everything about the chicken and the egg.