Lavazza CEO Targets Expansion in the US and China to Compete with Leading Coffee Brands

As the heirs of Luigi prepared to hand over their century-old Italian coffee roasting business to its first external manager, they treated Antonio Baravalle to dinner, where they set forth their expectations.

The family foresaw that “sooner or later, consolidation in the industry would begin,” as recounted by the Lavazza Group CEO. His role was to ensure that when they returned to the restaurant with rivals, the Lavazza lineage would be “perusing the menu rather than being featured on it.”

To avoid the latter outcome, growth was essential, especially in a swiftly evolving market to remain competitive with giants like Nestlé SA and Starbucks Corp.

Upon assuming leadership in 2011, Lavazza derived about 70% of its revenue from Italy, making it relatively small and largely dependent on its home market. Fast forward fifteen years, and the company has undergone a noteworthy transformation, significantly expanding in China and the US.

“Today, over 75% of our turnover comes from international markets,” Baravalle stated during an interview at Bloomberg’s offices in Milan.

Read: Italy’s Illy coffee attracts interest from JAB and Nestlé

The journey continues, with the privately-held Lavazza targeting €5 billion ($5.95 billion) in annual revenue in the coming years, following a projected 16% rise to €3.9 billion by 2025. The aim in North America is to double revenues to $1 billion by 2029, focusing on e-commerce and retail growth.

“We are making significant investments in the USA,” remarked the 61-year-old executive.

Luigi Lavazza, the great-grandfather of the current owners, opened his inaugural shop in Turin in 1895. He dedicated himself to understanding the origins and characteristics of various coffee beans, along with the art of blending them to match customer tastes.

The company flourished with a dynamic Italian coffee industry, as coffee bars transformed into social hubs during the early 20th century. The thriving economy of the late 1950s prompted the family to pivot towards large-scale production.

Decades later, Starbucks introduced gourmet coffee to the global stage, further accelerated by Nespresso machines for home use. Each innovation compelled others to adapt. Today, drinks such as matcha and the Instagram-friendly ube, made from purple yams, are becoming increasingly popular.

“Lavazza has a rich heritage and a unique position in the market,” said Jeffrey Young, head of London consultancy Allegra Strategies. However, one of its main challenges is “the rapid market changes and the necessity to adapt to contemporary coffee trends.”

Read: Coffee prices expected to continue rising into 2025, according to Lavazza

China exemplifies this evolution, with Shanghai boasting the highest number of coffee shops per capita of any major city globally, according to Baravalle.

In 2020, Lavazza formed a joint venture with Yum China Holdings Inc, the mainland licensee for KFC, Pizza Hut, and Taco Bell. New products are launched every two weeks to keep pace with fast-evolving trends.

A recent visit to a Lavazza café in central Shanghai revealed a seasonal camellia-flavored buffalo-milk latte priced at 36 yuan ($5.27).

“I value innovation,” Baravalle remarked. “It ensures that the category evolves and doesn’t become merely a commodity.”

Buffalo milk beverages have emerged as best-sellers for Lavazza in China, receiving praise on social media for their rich sweetness and nutritional merits.

Lavazza aims to operate 200 shops by year-end, up from the current 145, Baravalle noted.

The original goal of reaching 1,000 coffee outlets by 2025 has been postponed due to the global Covid-19 pandemic.

Despite this, it remains a long-term objective, according to Baravalle. He expresses satisfaction with the Yum China collaboration. The stores, designed with a refined blue-and-white aesthetic, embody a light interpretation of Italian luxury.

Read: China’s coffee unicorn invests millions to challenge Starbucks

He believes these outlets are vital for enhancing Lavazza’s standing as a premium choice for home consumers. “In China, the only way to build brand equity is through coffee shops,” he explained.

Celebrating Success

In contrast, the US presents a different landscape—a crowded yet profitable market with the potential for better margins than Europe. Doubling Lavazza’s market share from 1%-2% would call for “champagne celebrations,” Baravalle noted.

The strategy includes investments in marketing and infrastructure, ensuring Lavazza can efficiently manage stock rotations at major retailers, Baravalle added.

The company is upgrading the production capacity of its West Chester, Pennsylvania plant, which produces 50% of Lavazza coffee sold in the US.

Last year, revenue from North America jumped by 27%—which also includes Canada, where Lavazza owns Kicking Horse coffee—mostly driven by retail and e-commerce sales.

Despite the anticipated revenue growth in 2025, the volatility of coffee bean prices and US tariffs have affected profitability, resulting in a 0.5 percentage point contraction in the earnings before interest, taxes, depreciation, and amortization margin to 8.8%.

Although prices have dropped, they remain 300% above 2021 levels, Baravalle noted. Strengthening its US presence will help mitigate tariffs and counteract the currency impacts associated with dollar-priced coffee purchases, which total $1.6 billion annually.

Read: Rising coffee prices are changing how and where consumers buy caffeine

The company’s size also enhances its access to credit markets, recently securing a €900 million five-year loan facility with numerous banks.

“I was taught to seek help when times are good, not just when challenges arise,” remarked Baravalle, a marine biologist who previously collaborated with Sergio Marchionne at Fiat Chrysler and led Italian publisher Mondadori.

Baravalle dismissed the notion of an initial public offering and indicated that Lavazza has no plans for any transformative deals. Historically, the Lavazza family has consistently declined offers from potential acquirers.

Primarily, the funds are meant to ensure preparedness for emerging opportunities, as Baravalle explained. When he joined in 2011, the company was at a crossroads—either the largest of the small or the smallest of the large coffee roasters.

At this stage, he asserted, Lavazza is “capable of crossing the river on its own.”

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