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Basta With The Venti Frappuccinos


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Listen up, Starbucks (SBUX) fans. You think you know coffee? Forget it. You don't know coffee like Andrea Illy knows coffee. The 42-year-old head of Illycaff? will tell you to use a light hand with the steamed milk and skip the caramel syrup. The really good stuff is a rich espresso that rolls over your tongue, leaving subtle hints of buttery chocolate, almonds, and fresh peaches. "Espresso is a miracle of chemistry in a cup," says Illy.

To spread the gospel and position itself as the global leader in luxury coffee, the 73-year-old family-owned company is rolling out hundreds of licensed caf?s called Espressamente. That's a hill of beans compared with the 11,000 outlets flying the Starbucks Corp. flag. And the caf?s are confined to Europe, Asia, and temporary locations in New York City.

Illy doesn't think the land of the Big Gulp is quite ready for his sublime, if diminutive, brew. "In the U.S. coffee is merely a hot beverage, not an elixir," he says. But with sales of Illy beans at upscale U.S. markets such as Whole Foods (WFMI) and Williams-Sonoma growing at 30% annually and 7,000 U.S. restaurants and hotels brewing Illy espresso, the company says it's only a matter of time before Americans will want Illy caf?s.

Even so, Andrea Illy says he's not aiming to unseat Starbucks. Instead, his game is to create an exclusive destination with an emphasis on quality and aesthetics. The Espressamente experience will be oh-so-Italiano, focused on coffee served short and dark with perfect crema, or foam, in a designer demitasse. Illy hopes that great espresso, combined with surroundings that ooze modern cool, will have coffee cognoscenti purring buonissimo with every sip. "Starbucks is less about coffee and more about community," says Wendy Liebmann, president of market researcher WSL Strategic Retail. "Illy is about the elegance of coffee.... It is elitist."

The epicenter of this coffee sophistication is Illy's Trieste headquarters. There, beans endure 114 quality tests, with samples eyeballed and scratched -- and every bean put through a laser-driven sorting machine that rejects one bean before and after any defective ones just for good measure. Rooting out that one bad bean is essential because it can spoil an entire tin. That's why Illy pays 30% above market rates to top farmers. "We are completely obsessed about quality -- close to crazy," says Illy.

SMALL IS BEAUTIFUL

Ah, perfection. It's not easy to maintain, especially when you're licensing coffee bars from Brussels to Beijing. To keep standards up, the Illy family is taking charge of everything from training the baristas to interior design, created by noted Italian architects Luca Trazzi and Claudio Silvestrin.

For an elite brand, staying small is O.K. The fastest-growing market for Illy cafés is France, where 20 Espressamente shops will open by yearend. The next frontier is Asia, where Illy has a venture with a Chinese partner to sell beans in 12 cities and has set up an Espressamente in Shanghai. And India's largest coffee shop chain has agreed to buy and distribute Illy coffee and machines to hotels and restaurants. Illy figures the push into new markets will help double sales over five years, to some $600 million. Profits rose 33% in 2005, to $19 million. Tiny, yes, but growing.

Illy aims to bring its cafés to the U.S. only after careful study. This fall the company will open a temporary three-floor "coffee galleria" in the Time Warner (TWX) Center in New York, combining a coffee bar with art exhibits. Miami and Los Angeles could be next. "What we really need," says Illy, "is to develop coffee savoir-faire."

By Gail Edmondson


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