Coffee rivals square off in Italy ahead of Starbucks invasion

Two of Italy's biggest coffee houses are reinforcing their brands with flagship cafes in Milan near the spot where US rival Starbucks is set to begin an invasion next year.

Lavazza opens its first flagship cafe in the coffee-obsessed city on Tuesday, not far from the renovated 19th century palazzo where Starbucks will open its first Italian store, a "Reserve Roasteries" outlet offering speciality blends and fine food.

Another top Italian brand, illycaffe, opened its own luxury cafe close to the Starbucks site in May, in a cosy courtyard on Milan's most fashionable street.

Lavazza, which is opening near the city's famous La Scala opera house, and illycaffe both deny their moves are a response to a global rival's impending arrival, a first step in what may become a 200-store expansion.

Industry experts suspect it is no coincidence.

"Lavazza and illycaffe are the purists of coffee, they want to show they are there when Starbucks arrives," says Jean-Paul Gaillard, who ran Nespresso for 10 years before founding the EthicalCoffee Company, a Swiss firm selling coffee pods.

Global coffee competition

Milan's battle of the coffee palaces reflects global competition among major brands to capture a growing market for people who are prepared to pay a premium for quality espresso coffees in upmarket boutique cafes.

Nestle last week bought California-based Blue Bottle Coffee, one of the top boutique US chains whose single-origin and cold-brewed coffees have proven popular with hipsters and have made inroads into the Starbucks franchise.

JAB Holdings, the investment vehicle of Germany's Reimann family, has also been buying up independent start-ups selling premium brews around the world, from Europe to the Americas.

Starbucks Chief Executive Howard Schultz hopes his company's arrival in Milan, which he calls the home of the "perfect espresso," and the inspiration for his Starbucks vision, will show discerning Italian coffee-lovers that "we got it right."

"We are happy to hear about Lavazza's growth," said a Starbucks spokesman when asked to comment on Lavazza's opening.

The US chain will open its 2,400-square-metre cafe in late 2018, seeking to attract tourists, young Italians and the business crowd. If the Milan experiment succeeds, Starbucks and its local partner, Antonio Percassi, could open more than 200 stores in Italy over six years, according to Percassi.

Some analysts are sceptical that Starbucks can crack a market where espresso typically sells for just one euro ($1.20), a fraction of the price of a Starbucks coffee.

But the local brands are also gambling Italians will spend much more than one euro for a restaurant-style experience: illycaffe charges around three times that for coffee brought to the table.

Nestle, JAB Holdings and Starbucks are the three largest players in the global coffee market, followed by several mid-tier players including Lavazza and illycaffe.