La vita dell'Impresa - Intervista Antonio Baravalle AD di Lavazza

Good morning everyone, I'm Biancamaria Detto Lee, a student of International Management at Bocconi University in Milan and a mentor for MentorsForYou. It is my pleasure to introduce the second session of today, in which we host the CEO of Lavazza, Antonio Baravalle, who will be interviewed by Andrea Bertoncello to tell us about the evolution of a company symbolizing Italian coffee, from leader in Italy to global giant. Antonio Baravalle has been CEO of Lavazza since 2011, market leader in coffee in Italy with a turnover of over 1.3 billion euros, present in 90 countries. Dr. Baravalle began his career at Di.Vi.Geo. Italia in 1992. In 1999 he joined Fiat in communication and marketing functions for various brands of the group. In 2004, with the arrival of Sergio Marchionne at Fiat, he became part of his team, holding the position of CEO of Lancia and subsequently of Alfa Romeo. From 2008 he was at the Mondadori Group as CEO of Mondadori, of Edizioni, and of the former publisher, before joining Lavazza. Dr. Baravalle graduated in Biology here at the University of Turin and earned an MBA from the same university. Andrea Bertoncello is Managing Director of HDI, a private equity fund specializing in the agri-food sector, part of the De Agostini Group. Previously he worked in the capital society of the LVMH group, which manages private equity funds specialized in brands, consumer goods, and retail, and previously dealt with extraordinary finance at Mediobanca. Dr. Bertoncello also studied here at the University of Turin, obtaining a degree with full marks in Business Administration. Enjoy listening.

Stefania, Dimitrios, they have, have used the metaphor of the film to discuss and allow us to tell the various stages of the company's development. Brian has well narrated the phase in which the protagonist of this film, in his youth. Today I will try to stimulate Antonio to tell you instead the phases of growth and maturity. Antonio has the privilege, shall we say, of being tied for five years now to an Italian reality of great prestige, with over 120 years of history, family-owned. So let's focus on the aspects of Lavazza's leadership and then its development as a global big player. Let's start from the early days. Tell us a bit about how this company was born to consolidate positions on markets.

Abandoning for a moment the symbolic value of which Brian spoke, can you tell us instead what was, to be particularly aggressive, the killer application? That is, the key success factors of Lavazza that then made it the Italian leader with such a significant market share in that phase?

So, I would say, until very recently, Lavazza sought expansion abroad essentially organically, under its own steam, while, as Ferrero has recently done, it has moved on to acquisitions abroad, particularly with Carte Noire in France and with Merrild in Denmark. This is also an aspect that I think can be stimulating to understand how, starting from one thing... And I say this, the foresight of a family that at a certain point decides to realize that to take the big step, it must structure itself differently. I was hired in 2011, and before that, several shareholders had an active role within the company. At some point, the shareholders said: if we are to play a different game, we must totally change the company's governance. And so, even before I arrived — and chapeau, because that was the real choice — the family stepped back. Now I'm on the fourth floor, they are on the fifth floor, we have constant relationship together. And they decided to open the board to independent members, very strong and very structured, each with a particular area, so that they would be a great challenge and stimulus for discussion for the future M&A, growth, etc. For example, Bob Kunze-Concewitz, the CEO of Campari, a similar family-owned company, though listed, that grew through acquisitions in the industrial sector; there's Antonio Marcegaglia, who heads Marcegaglia, all metal transformation, everything about factory — how much I buy, at what cost to transform, nothing else; then we have Pietro Boroli, head of De Agostini, a very structured family that also made an important step in corporate governance, as you know well; on the other hand, Galateri for any financial needs. So they decided: we step back, we bring in managers from outside, and we equip ourselves with an important structure for discussion. This is a joke to give you an idea of what it means for a shareholder — and I'm not saying this was said in the board, but a little insight from the board. Someone said: have you noticed that in Via Bologna there's our new headquarters that we are building? Managerially speaking... I'm looking at the easy things: before investing in renovating Turin, I invest in normal coffee. From this point of view, I say fortunately there are families that decide to invest more than 100 million euros to renovate an entire neighborhood, which next year will see an internal garden open to the outside, a restored skyline, a center for exhibitions and debates, a headquarters made by Cino Zucchi, a restaurant, and music. It will become a fantastic thing for the city. One looks at it from a profit-and-loss point of view and says: maybe I'd rather buy a coffee company abroad than put the money here. But the first, as you can understand, for a shareholder is like building their own home. So an incredible pride. And one of the independent board members said: we can stop this new headquarters project. The family said: wait a minute, no. And he said: every time I've seen a company build its own headquarters, I've seen it fail soon after, generally. And I must say that here in Turin we have some examples, for other reasons more in the financial sphere, like Seat Pagine Gialle. From this point of view, it's quite explicit for the Turin crowd. Just to give you the sense of how deep the board discussions are. With Marcegaglia, being a production-line man, at my first meeting with him — our boards used to last 40 minutes, more like a lunch among friends — he asked me: what's the difference in ordinary and extraordinary maintenance costs for the fourth line in Settimo compared to the fifth line in Gattinara? These are two different plants. So, that depth means raising the level. And that's where a path started where we find ourselves in the midst of an incredible consolidation process in the coffee category. What is happening in coffee is what happened in beer some time ago. Maybe you, not drinking beer, don't realize, but today the beer world is in the hands of one company — two until recently: AB InBev and SABMiller, which merged in a 120-billion-dollar deal. So what is called the profit pool of the category, i.e., the ability to make money in the category, is practically controlled by a single large player plus some others. So today Heineken and others are trying to figure out what to do. If you go to a supermarket in Japan, the guy from the other company got there first, occupied space, gave different conditions. So from a management point of view, it's much more difficult. If you think, there is no category that hasn't consolidated: beers, spirits — I worked 12 years at Diageo, the world number one, which bought practically all companies in the world, today has enormous bargaining and distribution power; chocolate, same thing; pet food, you'd think animal feed is one of the most consolidated categories. Coffee was the only category not yet consolidated, similar to beers twenty years ago: very few global brands and a lot of local brands, very few industrial investment needs — what is called capex, very little, because you don't need much. I spent 11 years in automotive; to make a car you need 500–600 million investment; in our world you travel at 10-15 million. So financial giants look at the coffee world: there are the 22 families that are in beers, plus a German family called Reimann — they are from Reckitt Benckiser — who practically consolidated the entire household world: creams, shaving foams, you name it. And then Warren Buffett's trusted banker in America. These people have enormous financial resources. They see coffee as beer 20 years ago: very few brands, only one global brand: Nestlé, with Nescafé and Nespresso, is the only true global brand. So looking from outside, they say: very few global brands, many local brands, enormous possibility of synergies, a category that grows because coffee, beyond all else, grows steadily with the GDP of countries. Think that in Greece last year the market grew because — I love Greece, a Greek friend told me: they've taken everything from us, but at least leave us fish, coffee, and sun. Those who go often to Greece know how much coffee they consume; they drink it always. So from a health point of view, there are also many positive things emerging. So they decide: OK, let's do what we did in beers. In two years they put 35 billion dollars of investment, buying one company after another. In these contexts, one must know that we have this point of strength and weakness: we are absolutely the largest of the small. To give you an idea, so you can grasp the size: we are four times Illy in size, but we are the smallest of the large. So we are in a quandary: either you decide to be the Ferrari, but to be Ferrari we already had 3500 employees and six plants, meaning we were already too big for that. The only possibility, as I said to the shareholders in a meeting, is either you sell or you grow. I think any one of us who has run a company understands that floating in the middle is practically impossible. And we use this metaphor in our internal discussions: one of the mandates given by the shareholder is: help us build a company that, in terms of skills, management, way of being, culture, can one day sit at the restaurant table with the big players, opening the menu with them, and not becoming the first item in the menu at a fixed price. You see that in the coffee world, Italian brands are enormously coveted because the world of coffee is expanding with cappuccino and so on. We have gone from saying no to these gentlemen. To give you an idea: they have bought brands for 20-23 times EBITDA, so huge multiples, almost like fashion. So, with us they would have gone much further. So you also need entrepreneurs capable of saying no. We had offers including 250,000 euros from a big player. Mr. Fernandes yesterday struggled a bit... but the answer was: we have been here since 1895, we have a lot of people; finance doesn't interest us; it's our people. I say fortunately for the system that there is someone who says: let's play the game. So from those same people who were knocking on our door, we acquired Carte Noire in France to become global, and we are now evaluating a whole series of other operations.

I would say he well represented, from beginning to end, the evolutionary path of a historic and successful company like Lavazza. Touching, if you will, many of the points that also concerned Brian in the early phase of a new enterprise. Then I would like to pick up some points he made: from ideation to early successes, identifying key success factors, growth abroad, openness and the need to be contaminated by new ideas and professional experiences. There is one last point I would like to address, in this case somewhat provocatively from my side, which Brian also touched on earlier: Italianness, i.e., the value that Italianness can have in a business like yours. And here, let me say a small note. Also because time permits, I sit on the board of directors, so for work, I have often thought that in Italy many times we rest on our laurels. So if I think of this city that hosted me for many years, we are an example. Indeed, I want to mention it: Lavazza invented the house... Fiat invented the modern utility car and then reinterpreted it in a cool way with Smart — first Mercedes with Swatch, then the Mini — and then Fiat reinvented itself with the cool 500. Another example: fast fashion — it could be very young, but fast fashion was started by Italians with some chains including ones Dimitrios knows well, but in fact we were overtaken by the Spanish with Zara and by the Turks with... Coffee is another example. So we can go on: pizza is global. But if we think of companies that had undisputed leadership — because Italian coffee, after all, even though it has different origins, in Italy we have allowed a Swiss, of all unromantic people in this world, to invent a way for the whole world to drink good coffee, call it a success. And Lavazza, on the other hand, was one of the first to innovate in that world. So is there, from your point of view, an aspect in these examples where Italianness, which should be a success factor, has almost become a limit to innovation or progress?

Some final considerations, having made a provocation?