In the world of coffee, the summer of 2010 was a hot one – as it was for half of all Italians, forced to abide (in these days of “middle class austerity”) to the idea that trendy holidays are those you spend at home. Among the few entertainments available to these people was surfing the net: a pity that this was often a rather painful experience. Such as the story of Ciudad Juarez, the Mexican city on the US border where the gunfire was so heavy that the bullets were landing in El Paso, Texas, across the border.

Stuff that seems straight out of Machete, the latest film by Robert Rodriguez. He of all people! The director of the three Nespresso ads with Clooney and Malkovich in paradise, which we discussed last winter. And by coincidence or by a whim of fate, while Machete (a movie described by viewers as “messy, violent, shallow and tasteless”) premiered on the US screens, and while it was really raining lead in Ciudad Juarez, the honorary citizen of Laglio (Italy) George Clooney shot the continuation of the famous trio of ads. Of all cities, he did it right where we Italians invented espresso, Milan.

The director of the sequel was Grant Heslov, previously Clooney’s director in The Men Who Stare at Goats, a film with a funny tagline (“No Goats, No Glory”). In the movie,  Clooney plays Lyn Cassady – an American soldier who is a key player in a special military project nicknamed the “New Earth Army”. A project so special that during training, Lyn kills a goat using only the power of his gaze. In the movie! Really funny. Unless you consider the fact that the plot was inspired by an absolutely true story from United States military history, dead goat included.

The fact remains that not even Clooney could permit himself a long holiday and had to toil in Milan’s muggy climate, on location near the Arco della Pace, a monument by Cagnola originally planned for Napoleon and then – after Waterloo – astutely recycled for the Austrians, who had worked for Napoleon’s downfall. You know, things like these happen all the time.

 “The Times They Are A’Changin’” (as Bob Dylan sang during the time of the secret military experiments on goats) and indeed they are. Today our hero Clooney’s gaze kills no quadrupeds. Directed by a transnational business over whose empire the sun never sets, he seduces millions of coffee drinkers in order to draw them irresistibly towards a Nespresso boutique. And the boutique, as it was once the case with triumphal arches for great military leaders, was ably created from nothing – in Milan’s Sempione district: the difference is that this modern monument would be destroyed immediately after, created only to resurrect in the glory of super-HD flat screens.

The ones having a bad time today are not goats, or digital leaders. In reality they seem to be Nespresso’s competitors, of the “Clooney’s clones” variety. Remember? We left one another months ago with the prediction (which promptly came true) of a venomous legal reaction on Nestlé’s part against those who announced the launch of capsules compatible with Nespresso machines. And whereas the suits filed in defence of Nespresso have not yet produced a definitive result (one Court hearing is set for October 28th), there’s no doubt that the entrance on stage of Vevey’s lawyers (between 15 and 22 June) was impressive: a reality show that was a mirror image of Clooney’s foray into the realm of cinematic coffee fiction. As analyst James Amoroso put it: “Nestlè will not want the floodgates [of their patented system] to open”: nothing surprising therefore about the arrival of the lawyers, which occurred around a seminar (21 June) held by the Swiss colossus for its own investors.

The CEO of ECC, one of the two “cloners”, did not appear overwhelmed: in thanking Nestlè for the unhoped-for publicity, he has recounted the story of when – before the eyes of the stunned staff of a supermarket belonging to the Casino chain – Nestlè employees showed up, identified themselves and demanded to purchase 2000 units of his capsules. Then, two Nestlè lawyers showed up on the premises of two ECC suppliers, this time in the company of a policeman, a serrurier (or “door opener”) and a magistrate in charge of the compulsory sampling. The other “cloner”, Sara Lee, had to do without any choreographed mise-en-scène: just a fat pile of papers served by the competent French court. Infringement, according to Nestlè.

For both companies, the Swiss reaction, albeit foreseen, implies cost, energy and money – proof of how IP (intangible assets such as patents or trade secrets) is now one of the most powerful weapons in the world of coffee. These legal hatchet blows against the “clones” will presumably slow down – but not stop – the launch of Nespresso-compatible capsules. Perhaps for this reason, and careless of Vevey’s attack strategy, monsieur Gaillard has counterattacked, accusing Nestlè of “industrial espionage” and – doubling up on the mediatic opportunity – he has hinted that ECC might shortly hire as many as 400 employees and go public on some stock exchange. Sara Lee - mincing their words, as oligopsonists should - have instead correctly observed that their capsules are different in colour, shape, and material: which is no small deal, either way you look at it. Because image – in mass consumption – counts for almost as much as it does in politics. To be sure of this I fished out from the library of a diplomatic friend an old book (in French) by Edgardo Sogno.


Almost unknown, “Le rôle de l’image dans la propagande totalitaire” (“The role of image in totalitarian propaganda”) is the transcription of a conference held in Strasbourg by Sogno on the image and creation of ideologies and regimes. Sogno summed things up like this: first comes doctrine, the pivotal idea; then comes the popularization of the idea, in a condensed form that all can memorize (e.g. the Communist Manifesto); then the slogans are grafted on and finally the symbolic image: which to be powerful and to sink in must be “strictly and habitually associated with the idea or the methods it is called upon to propagate”. The creation of a brand/symbol is not so very different.

Similarly, the form of the capsule and the proprietary coffee machines are important to the creation of a deeper feeling of belonging. Experts may note that in Nespresso-compatible capsules the system of extraction is different, to such a point that even the term “clone” is stretching things a bit. True: the two compatibles in question lack certain subtleties that make Nespresso an appreciated coffee (even though its five grams of ground coffee are not enough to satisfy traditional-espresso purists). And, by way of proof, in a comparative test held for French tasters none of the two clones obtained average results better than Nespresso’s.


But this is not the heart of the problem. In any case, the clones do not provide the same product: which is only in part a coffee drink. Nespresso compatibles may not have the quality (although we should agree that quality is often a... state of mind), but above all they lack the form of the capsules that have become an architectonic element in the boutiques, an object of desire in advertising, and a status symbol in the Nespresso magazine.

It was a journalist with “The Guardian” – on leafing through one single issue of the “exclusive” magazine intended for the “Members of the Nespresso Club” – who counted 281 images of their capsule. They were scattered all over: in the home of the owner of Chopard, on the Kerala coast, obviously together with Clooney, artistically photographed, placed together with cars and photos of the Guggenheim in Bilbao and so on. Because the symbol must be repeated: “only incessant repetition and continuity of the statement can crystallize opinion”, to quote Edgardo Sogno again.

So capsules without that form start at a disadvantage. And they also lack the support of other Nespresso symbols. They lack “the stare that kills goats” (or that annuls the resistance of consumers) and they lack the feeling of belonging to an elite: “compatibles” are found in suburban supermarkets, but the “originals” are on show in boutiques so elegant that when you go in you feel like one of those poor wretches in the movie Miracle in Milan who went to applaud the rich in their fur coats outside the La Scala opera house. In other words, the copies lack the status built up by a viral marketing (and this is the sublime paradox) that uses its own clients as the ambassadors of the brand – the ones who queue up to buy the capsules and then advertise them. A brilliant but not original idea: Karl Marx got there before Nestlé, in his Grundrisse.

This is one of the great secrets behind the true earthquake of the summer of 2010 in world coffee: the agreement by Lavazza to purchase newly issued shares of Green Mountain Coffee Roasters (GMCR, the gourmet roasters quoted on the Nasdaq) that is approximately 7% of GMCR’s current outstanding shares. Price tag: 250 million dollars.

For some months the rumour had been going around that McDonalds and Coca-Cola were interested to acquire GMCR. To read that Lavazza had sneaked in to snatch this American pearl from such companies aroused amazement and pride in the Italian world of coffee.

The move was a bold one, if we think that the two companies are similar in size, but GMCR is growing at breakneck speed (sales went up 61% and profits +105% in fiscal 2009), unlike Lavazza, which is relatively stable. In other words, Lavazza has invested the largest sum in its hundred-year-old history for a minority share in a company that (acquiring Van Houtte a few weeks after the Lavazza deal) is probably already bigger than Lavazza itself: a courageous move for a family company and maybe an exceptional investment but - ultimately - a deep-sighted strategy. Indeed Lavazza’s interest could ramp up to as high as 15% of GMCR in the next years, although for the Turin-based company it will be almost impossible to get to control GMCR.
 
The raison d’être for this commercial agreement is clear: GMCR, with their Keurig brand – and their K-Cups, which produce a coffee poles apart from espresso – is the undisputed leader in US portioned coffee, where all the other systems put together (my rough estimate) do not match Keurig’s turnover – who sold 2,3 million machines in 2009. Here too, the form of K-Cups (a kind of mini yoghurt tub) has become a status symbol: it represents cup-by-cup consumption in the homeland of the 20 oz.-coffees served in polystyrene cups. On the average, a K-Cup is about as close as you can get to European refinement – at least in Wichita, Kansas, or Omaha, Nebraska.

The agreement announced on August 11 gives Lavazza access to GMCR’s distribution and hence they can offer Keurig’s clients an Italian espresso or cappuccino, something currently impossible both for Keurig (whose proprietary technology is of the low pressure type, and hence Keurig would need years to create another for espresso, from scratch) and for Lavazza (the USA is enormous and Lavazza would need a lot of capital and time to get to where Keurig is now).

GMCR and Lavazza are bound by one point in common: their development strategies hinge on “proprietary drinks systems”, that’s to say a market that – on its own – is worth between 19% of the value of the US and European markets combined, according to a Reuters study. “Proprietary” stands for “not copiable”: and that’s something Kraft will remember well after their Tassimo system clashed with a Keurig patent a few years ago, and they wound up paying 17 million dollars for the licence and closure of the dispute.

Technology has been announced as the “dynamic” heart of the GMCR/Lavazza agreement, given that the Turin-based company is counting on developing espresso machines with and for GMCR. In fact, it is certain that the acquisition of capital is only the first step. As Lavazza’s CEO mr. Mele put it: “We are confident that this investment is but the first step in a wider-ranging collaboration with GMCR in R&D, innovative technology and international expansion for both companies”.


“Innovative technology” is a term often used but far more rarely practised. Nestlè like to point out how technology lies at the base of their flattering successes in portioned coffee. Nespresso is protected by the paradigmatic “1,700 patents”, a “totalitarian state of the art” that no other company can boast in the sector (they are still just a few when you compare them to the 20.000 patents defining the IP space of Apple's iPhone). It is also thanks to this strategic defense initiative that Nespresso’s sales grew in each of the last three years by a value (500 million Swiss francs) equivalent to almost half of Lavazza’s sales.

Nespresso is the industrial response to the purists: it may not be a certified espresso and (following Ernesto Illy’s golden rules) it’s not even “true Italian” espresso – but at the end of the day who cares, with figures like these. For the future, Nestlè has Dolce Gusto, another closed system protected by a torrent of patents that intersect with Nespresso concepts to create a formidable defensive barrier, in addition to the offensive weapon of a colossal brand (Nescafé), which is thus smartly changing its skin – from soluble to ground coffee. Make no mistake: Nestlè foresees it and indeed Dolce Gusto will rapidly become a BB – a “Billion Brand”, a brand with sales of a billion Swiss francs. They plan, by end of 2010, to have sold seven million machines through a classic business model (distribution in supermarkets), offering a youthful (and not balding or greying), denim-clad public a wide range of beverages (especially: coffee with milk). In this case too the coffee is not “certified” but, once more, who cares: low cost, more extravagant machines, careful attention to detail and crushing innovative and distributive strength. These are the keys that will ensure the success of the new closed system from this oligopsonist of global coffee, which – ad maiora – is launching another closed system, this time for tea, where the machines modulates the parameters of infusion according to the type of product.

Strength: this is what is expressed by the distribution network of GMCR or Nespresso, or the barrier of patents the cost of whose maintenance alone ranges in the millions of Euro per annum. And “the creation of a climate of strength” is precisely what Edgardo Sogno points to as “the best means with which to act against opponents” in the titanic struggle between opposed ideologies he describes in his short book. The same applies to the struggle between the top brands.
Isn't this what is expressed by the reaction to “Clooney’s clones”? Or by blanket patenting, which extensively utilizes the rights of industrial property for what they really are: barriers against the competition?


This is what they are talking about in the most advanced coffee circles: no “open” system for beverages has enjoyed the success of closed systems, which rule the roost at the top of the world rankings. Nespresso, Senseo, Keurig, Dolce Gusto, and Tassimo are the systems that are converting the world population to cup-by-cup consumption: an undeniably historic moment for the global coffee industry and one that accepts no hesitation on the part of players who may merely wish to maintain their own market share.

You may say: hey! Senseo today is an “open” system. True, yet Sara Lee/Douwe Egberts would never have launched Senseo without the reasonable certainty that the system was protected by patents (which proved weak, regrettaby for them). Because what happens to an open system can be seen today by visiting Ikea in Holland: Senseo-compatible pods on offer at a little more than 4 Euro cents a piece – more or less one fifth of what they cost at launch. And who offers less? Not the leaders – they lead technology (with closed systems) and pursue quality, and not the lowest price.

As Italians our reasons for satisfaction are growing. Now we are shareholders and strategic partners in the world’s number three provider of portioned-coffee, as well as being investors in a clone-making company. By this we are referring to 21Partners, the investment fund who recenty disclosed a deal with ECC. Albeit proprietary single-portion coffee systems are undeniably the winners, other selective strategies may co-exist – that is what 21 Partners appears to believe. Time will tell, especially as the matter is too magmatic to comment upon, Nestlè (and competing clone-makers) reactions included.

Alessandro Benetton’s investment fund, though, might have it right – assumed they steer clear from the footprint of those Italian companies who seem convinced they can face the future of coffee using “Lavazza Espresso-Point” clones filled with strictly one hundred percent Vietnamese coffee of bad quality. Which is the equivalent of ricotta cheese in gastronomy: filling and not much more than that.

Sure: half a loaf is better than no bread. And even making industrial ricotta is a serious job. That said, it would be better not to end up like the character “Stracci” (rags in Italian) in the movie by Pier Paolo Pasolini, La ricotta. The plot is a film-within-a-film: a re-evocation of the Crucifixion shot at Cinecittà, Rome, by a pseudo-intellectual director played by the brilliant Orson Welles. Stracci, played by the actor Mario Cipriani, is an important secondary character (he is the good thief) but his ambitions are not artistic: Stracci’s ambition is simply to eat. And when he finally manages to do that, what does he do? He stuffs himself to death with ricotta, in some recess of the barren countryside outside the city. Well, yes – that film does not have a happy ending.

Translation from Italian by Alastair McEwen