Eataly: life is too short not to eat well
Italian Food and authenticity at scale: Eataly is leading the way #Italianfoodatscale
As a passionate Italian, proud of its culinary tradition, I have always been frustrated by the usual statement: “Italian firms are about quality not business scale”. Italy is one of the countries with the richest food variety in the world, still Italian firms seem unable to exploit this potential and the majority of large scale retail businesses are not Italian (e.g. McDonalds, Starbucks,..).
This article is about Eataly, an Italian firm in the food sector that has been an exception and that has combined high quality with scale. I would definitely consider Eataly as a winner firm thanks to its ability to align its business model with the operating model. As an example Forbes named Eataly as the 23rd most disruptive brand in the world in 2015 (VI).
What is Eataly and what is its Business Model?
Eataly (from eat + Italy = Eataly) is food marketplace where customers can eat food at restaurants, can shop high quality food and learn more about food through cooking classes. The key aspect of its business model is to offer customer an amazing Italian food experience while they eat at restaurants or shop or learn about food.
Eataly was founded by Oscar Farinetti in 2007 with a store in Turin. Today Eataly has more than 25 stores (of which 8 abroad) and generates 350M$ of revenues. Eataly plans to IPO the firm by 2017 and to reach 100 stores globally.
Eataly has big stores (e.g. the New York Eataly is over 50,000 square feet,..) where customers are immersed in a unique food experience. (III)
Which are the key success factors of Eataly operating model?
There are several aspects of its operational model that have helped Eataly gain a dominant position while several competitors have been forced to close.
1) Store concept: big bazaar and innovative layout
Eataly aims at providing to customer an amazing food experience. Deciding to build big and expensive bazaar in the centre of cities was definitely a risky move but it turned out to be one of the winning factors of Eataly operating model.
Eataly is not the traditional restaurant nor traditional grocery store nor traditional place where to learn about food. It is a combination of the three that provides an overwhelming and fascinating food experience to the customers. The customer is offered the opportunity to try new dishes at the restaurant, to buy ingredients of the food they ate (the stores are appropriately located next to each restaurant) and then to take also cooking classes. (IV)
The presence of big stores and the way they are designed to immerse the customers in a unique food experience through small-stores and restaurants is a key element of Eataly operating model.
2) Choice of business partners
Farinetti’s choice of partners has been instrumental for Eataly success.
For instance, when Farinetti set up his firm he partnered with Coop (a cooperative of consumers’ cooperatives operating the largest supermarket chain in Italy) that still own 40% of Eataly. Coop was a strategic partner since it allowed Eataly to quickly sign partnership with several high quality suppliers which are very important to offer customers a great food experience. (I)
In addition, also internationally, Eataly has relied on important partners that allowed the firm to enter quickly in the market, to know better customers and to sign partnerships with other key stakeholders/suppliers. For example, when it opened in New York Eataly partnered with Bataly hospitality group that has strong connection in the food scene in NY. (III)
Choosing experienced and well selected partners has allowed Eataly to establish quickly in the market, to sign important partnerships with suppliers and consequently to offer clients a top class food experience in line with Eataly business model.
3) Excellent relationship with suppliers and internal restaurants
Since the inception Eataly has been able to establish excellent relationships with key Italian and also international suppliers. Suppliers are offered the opportunity to scale globally and Eataly the opportunity to offer customers an amazing food experience.
Eataly often has flexible payment terms with suppliers (e.g. sometimes they are paid in advance) allowing suppliers to make the needed investments to produce top quality food. (II)
In addition, also as it relates to restaurants, Eataly has been able to sign important partnerships with several Italian restaurant chains. Eataly offers several retailers the opportunity not to have to pay for rent in the store as long as there is a 40-50% profit sharing (VII).
The excellent relationship of Eataly with its suppliers is a distinctive aspect of its operational model. It allows Eataly to provide customers the best food experience thanks to top quality suppliers.
4) Adaptation of each store
No Eataly store in the world is the same. Eataly has been very keen to customize each store, especially abroad, based on customers’ feedbacks. For instance, also the two current US stores in Chicago and New York are different in their menus. (V)
Eataly ability to adapt to local needs, to be receptive to customer feedback and learn from it, is an important aspect of its operational model that helps the firm provide a great customer experience.
Conclusion
Eataly’s ability to promote the Italian food through an innovative operative model has been a key driver of its current and, hopefully, glittering future success.
Last but not least: Eataly is coming to Boston in 2016!!
Sources:
(I) http://www.naplesforumonservice.it/uploads/files/MONTAGNINI_CO-CREATING%20VALUE%20IN%20RETAILING_THE%20EATALY%20CASE.pdf
(II) http://www.entrepreneur.com/article/238450
(III) http://www.entrepreneur.com/article/238389
(IV) http://www.fastcompany.com/3041563/most-innovative-companies-2015/eataly-charms-the-world-with-italian-fare-and-flair
(V) http://openforbusiness.opentable.com/features/the-business-of-eataly-how-restaurants-retail-drive-revenue-together/
(VI) http://www.forbes.com/sites/avidan/2015/11/29/the-25-most-disruptive-brands-of-2015/
(VII) Customer interviews
Perhaps the thing that fascinates me most about Eataly’s success is what it says about shoppers’ preferences. How is it that in many parts of the US malls are dying, yet a mall for food in Chicago and New York is a huge hit?
The vicissitudes of human fickleness aside, do you think Eataly has sustainable differentiation? Why? Is it because of footprint (i.e., where they’ve located)? How much has Eataly benefited from the pop culture interest in chefs? Is Eataly’s success just a fad? And if not, what will Eataly do to stay relevant when there are fewer cooking shows on TV–as there inevitably will be someday? What makes Eataly different from Wholes Foods, which hasn’t been doing so well of late?
Thanks for the comment Josh.
As you are saying the fact that in so many parts of US, stores are shutting down whereas Eataly is growing (as I wrote in the article Eataly will come in 2016 to Boston, on the top floor of Prudential Center) is a signal of how strong is Eataly.
I think that Eataly differentiates itself both for its business model and also for its operating model.
First, of course the business model is great and the product they offer is very good. I think that having these big stores was a fantastic idea. If you have visited Eataly you will understand how great it is. I agree with you that the locations they have chosen are another important ingredient of their success (as for most retail businesses).
However, I think that it is not only their business model that is helping them to succeed but their operating model is a key driving force. They are doing lots of partnership with suppliers and restaurants in their stores and they are able to scale globally. I can tell you that in Italy there are lots of other very nice stores/retailers (for instance gelato places) and even though they offer an amazing customer experience, they not growing as much as Eataly. For instance, in NY there is an Italian gelato place, Grom (you might have heard) and even though Grom is a fantastic place still was not able (or willing) to grow internationally as much as Eataly did (Grom was two months ago acquired by Unilever). Lots of other Italian business fear that growth/scale is antithetic to quality and in my opinion often prefer not to grow (a bit as it happened with Chateau Margaux 🙂 ).
As it relates to your point what makes Eataly different from Whole Food, I think Eataly is more than a supermarket it is an experiential place. You go there to shop but not only to do that ( you shop, eat and learn – that is not only a slogan but it is totally true :). That is why people are willing to spend a premium at Eataly and nowdays when you go to NY for instance tourists love to go there.
In addition, I think that Whole Foods is proportionally more expensive than Eataly ( on this point however this is just my high level point of view and i should do a more detailed analysis to precisely compare Eataly’s pricing with Whole Foods).
To sum up I think that Eataly is not a fade. I would personally invest in Eataly (of course depending on their future valuation 🙂 ) or I would be very happy to work for them (to tell you how much i believe in their model). I think that Eataly is one of the few Italian food business involved in retailing that is trying to scale globally keeping high quality. Few others have done it and succeeded. I think the business opportunity is huge !!
And by the way Eataly is not only an International business (they are very strong in Italy) and Italians love eating there!
Hi Marco,
I have always understood that high quality comes in small quantities. Now your article is telling us that Eataly is capable of bringing a quality experience in bulk quantities and in plenty of locations.
What is your impression regarding the scale up of this initiative? How will Mr Farinetti be capable of widening the footprint of Eataly and, at the same time, of protecting quality and brand?
Thanks for the question.
I do believe that sometimes scale and quality are not so easy to combine. However, in order to build a solid business model being able to scale while not losing quality is needed.
That said I think that as of now Eataly has been able to combine quality and quantity (Of course Eataly has not to be compared with Michelin stars restaurants in terms of quality). Also going forward I think that controlling quality level is going to play a key role for the success of Eataly.
Very interesting article about a successful and innovative business, but as for any innovation I think there might be the risk of customers losing enthusiasm in this new concept… what is your view on this point? Eataly stores are usually outside the city centre but very big in size and operating in scale, therefore if I were Mr. Farinetti I would be very concerned by the risk of (even small) declines in sales
Thanks for the comment. I definitely agree with you that the sector is very competitive and that after the initial enthusiasm there might a certain risk not to be able to grow at the same rate.
However, I think Eataly has shown ability to adapt and to offer always better value propositions for instance by changing menus or restaurants.
Eataly’s ability to keep adapting and putting the customer at the center in my opinion will determine its future.
Very cool post on a super interesting organization. Andrea Guerra, a friend of mine who recently ran Merloni and then Luxottica took over recently as executive chairman. I am excited about what he might bring to the table as well. I think it is another testament to the hopes for reaching even greater scale. We should ask him directly about this fascinating challenge! I am quite intrigued about the ability of an organization like this to reach a significant volume as well…
Thanks for the comment.
I think that Andrea Guerra joining Eataly is a fantastic news. Having such a seasoned and credible business person as Guerra will help so much in so many ways, for instance 1) when Eataly is going to expand in other Asian countries (that is such a great opportunity) 2) if Eataly decides to IPO Guerra gives even more credibility to the ability of the firm to scale its operations.
As it relates to getting to know Guerra’s perspective I would definitely be super excited!! He really showed to us Italians how Italy can be global number 1 leader (as he did with Luxottica). Next year Eataly is opening in Boston, it would be very cool to bring Farinetti and Guerra at HBS (hopefully they will come to Boston when the store opens) to share their perspective on the opportunities and challenges laying ahead. I will keep this in mind for the second semester.
As you suggest, Eataly is in a terrific situation but still several challenges lie ahead when you want to scale.
I really enjoyed this write-up and would be curious to understand what potential stumbling blocks might exist to introduce a similar concept for a different type of cuisine (i.e. less available/attractive supplier and restaurant partnerships).
Hey Steven, thanks for the smart question.
As I wrote I think that Eataly has been great at exploiting a great business model and aligning it with a compelling operating model. However, I think that using a brand such as the made in Italy for food (food and fashion are in my opinion two of the Italian most distinctive products) was a great advantage.
To answer your questions, what are the conditions that would allow another cuisine/country to succeed:
1) Cuisine that is loved by lots people:
I think that if you focus on food you need a country whose food is highly respected/loved and it accessible in terms of pricing. For instance, French or Japanese cuisine is something that most people like a lot (even though sometimes the Japanese cuisine might be a bit too expensive). Or also a Chinese Eataly equivalent would make sense, especially if you consider the huge share of Americans with Chinese origins and how the Chinese culture is still a bit exotic/ fascinating.
2) Ability to bring lots of high quality partners from the country (i think this is very important)
3) Need to have either a seasoned entrepreneur/manager in retail/food or someone willing to ask for help / partner with someone who knows this competitive sector well
4) Strong ability to execute operations.
Another idea could be to have a country store. Eataly is focused on food but for instance it would be great if there were some big stores where apart from food you could buy original brands from the country and get to know more about the country. In Milan we hosted the expo (http://www.expo2015.org/) and there were more than 20 million people. Basically there was a building dedicated to each country where the focus was on food and culture. Having something similar permanently I think could be an interesting idea.
This is an interesting conversation and I would love to hear any thoughts/comment you might have on it.
What about Eataly Internet presence? Do they have it or are they planning to build it?
In addition, do they have different store formats? Are they envisioning for specific markets smaller stores or are they envisioning to be in very small stores around the city (e.g. as Paul, the French bakery, does in some European cities)?
Thanks for the interesting comment.
As it relates to the Internet presence they are building it up. https://www.eataly.com/ Do not know how big it is but they appointed a specific digital CEO.
As it relates to the second point I find it very interesting. I believe this is a model they could be pursuing in the future for the expansion in new markets. The majority of their stores is pretty large. Not sure if they have already some small stores as you are mentioning. However, i do believe this could be an interesting path to follow.