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Espresso Armando

Table of Contents

I. For the Love of Great Coffee

Trends and cultural activities in a country are often influenced by other nations or regions. A trend that has exploded in the last few years in the U.S., is the consumption of gourmet coffee drinks. Espresso bars and coffee shops offer the newly enlightened American consumer a wide variety of gourmet coffee drinks. In most major cities, it seems that you can't walk more than one or two blocks without running into a Starbucks, Seattle's Best or Timothy's coffee shop. Furthermore, successful television shows, such as "Friends" and "Frasier," have glamorized coffee shops and fancy pastries. The morning ritual of having a "good old cup of Joe to get your motor started" is now for any occasion, and for any age. Coffee consumption has become a daily ritual for many demographic groups. It pervades many aspects of our daily lives: from the workplace to studying to socializing.

The machines that create these varieties of coffee drinks, almost exclusively come from Europe - Italy, Spain and France. In particular, the well-crafted espresso machines, and brewing expertise of the Italians have made them the de facto worldwide, industry leaders. However, does an American know how these machines function, and more importantly, how to brew these drinks?

One man who knows exactly how these machines function, and who decided to improve them - so he could always get the perfect espresso every time - is Armando Conti. Armando is the founder of "Espresso Armando." His company is considered the premier domestic espresso machine builder. A self- proclaimed perfectionist, Armando has spent the past five years designing, building, testing and selling a commercial espresso machine. His machine has won rave reviews from some of the top coffee experts in the U.S., and the world. Located in Hollis, New Hampshire, Armando and his wife Geri, hope to capture a significant share of the commercial espresso machine sales in the U.S., by convincing consumers that their method for brewing espresso is the purest way to make an outstanding drink every single time.

II. From Music to Mocha

A little more than five years ago, Armando began to "build the world's best espresso coffee machine." Although, he was not unfamiliar with creating a new business. His first entrepreneurial venture led to the founding of "Espresso Armando." "I was an audio fanatic and was selling retail audio equipment part-time at night out of my house that was by appointment only selling very expensive equipment. In 1985, I decided to build my own turntable because as a dealer I was carrying other people's turntables and none of them satisfied me." He designed a turntable with a fluid-damped isolation system (essentially shock-absorbers) to keep records from skipping during a vibration. "I received some positive feedback from customers and manufacturers and dealers that the device was very good."

His success in developing a technically superior audio component, presented a common problem of many entrepreneurs who start out of the gate quickly, "Between the turntable production and the retail audio business and my full-time job nothing was happening properly. The retail business was way behind and the production for the turntables was backlogged." Something had to give, so he decided to quit his full time job and go out on his own. "I had always wanted my own business and here was a chance to lead me to a venture that would take me to a next greater venture."

After starting on his own company in 1987, he and his wife - who had left her job to work full-time in the audio venture - decided to quit the retail business, and focus exclusively on the turntable business. In 1990, they moved the business out of their the house into a 1500 sq. ft. facility, and hired their first full-time employee. That venture continued as their sole business activity until October of 1991.

Armando understood the turntable business was finite because of the growth of compact discs (CD's). "When my wife quit her job to work with the audio business full-time I knew I had to start looking for what would be my 'retirement company. The audio business was an off-the-cliff company and I needed to find a venture that I could work at for 20 years or sell someday and retire from it." In 1989, Armando began searching for what could be his next company. "There was no formal evaluation process, mostly just mind share. I wanted to build a real value-added business that I could hopefully sell someday." Armando had no preconceived limits on his next venture. "I think a lot of entrepreneurs think this way in that every product you touch or service you see you start to think what is the buy-in to this industry? Is there room for a niche player? What expertise is needed? How can I get in?"

III. The Search for Great Espresso

The espresso venture idea came as a result of his purchase of a home espresso machine. Armando wanted a machine that would allow him to make good espresso at home. Until then, his interest in coffee was mostly as a casual drinker. He enjoyed the coffee and cappuccino that he and his wife would buy at the Italian North End of Boston, Massachusetts. After losing interest in most coffee drinks, Armando tried espresso, and he liked the stronger, more flavorful beverage. "I really liked the espresso because of its complexity and its density and the ability to taste many different characteristics within it." According to Armando, his $300 machine did not produce a quality coffee drink. He considers quality to be of the utmost importance. "I started buying gourmet ground coffee and still could not get it to look and taste as good as the espresso shops were making." To remedy the problem, Armando bought a used, commercial espresso machine.

machineTo find a commercial espresso machine, he called restaurant suppliers, but none of them could help him track one down. Finally, one supplier led him to an espresso dealer. "It was during this hunt that I started to wonder why was it so hard to find them, and why wouldn't these distributors want to know where to buy them?" When he bought the used machine he decided to rebuild it, and what he saw inside was "horrifying." "There was peeling plating, brass turning black and copper eroding. When I saw that I thought to myself do I really want to drink out of this, or do I just want to sell it when its rebuilt?" He realized that coffee shops had these exact machines, so they must be in the same condition. Even so, he decided he wasn't going to stop drinking coffee. As Armando describes it, his altruistic nature came through to inspire him to conclude that, "Someone has to build something safe to drink from."

His next idea came as he was trying to locate spare parts for the machine. Many parts were hard to locate, and then on back order. He saw a business opportunity in this industry. "In my efforts to locate spare parts for the espresso machine I purchased, I learned from industry participants that every owner of a commercial espresso machine was facing the same problems." Most of the machines that were being sold had come from Europe, and the spare parts all had to be purchased from Europe. Service organizations and distributors in the U.S. were many times low or out of critical spare parts needed by their customers.

When he rebuilt his machine he started making espresso on a regular basis. He realized the machine produced inconsistent coffee. "Sometimes it was burnt, other times it was not. Sometimes it would be three weeks in between having a great espresso. That frustrated me because I wanted the same damn thing every time."

Armando's strong technical background as a mechanical engineer allowed him to analyze the brewing process, and to conclude that water temperature was critical. He believed he could build a machine that would maintain a consistent water temperature throughout the entire brewing process. He would employ a dual pressure vessel system: one system for the coffee's water, and the other for the steam boiler. In 1991 he finished rebuilding the machine, and then researched his idea for the next eight months. To help with his idea, he sought input from industry professionals, such as a coffee distributor in Boston. He also read industry trade journals to look at the industry's expansion potential.

In October of 1991, he decided to start his espresso machine business. "I didn't pursue the audio industry due to its niche nature, the capital requirements, and the technical expertise it required. I was a mechanical engineer and needed electronic expertise." He felt that a big industry player was probably at the $10MM level. He thought there was a $50MM potential, if he branched out to products based on the espresso machine, such as drip brewing. "There were no limits beyond our business abilities...this is what made me finally decide on this industry. I also felt that the service in the current industry was terrible and that it would not be hard to shine in this business."

IV. Getting Things Brewing

Designing the new espresso machine began in October, 1991. By Memorial Day, 1992, they had a boiler, a handle, a vessel, and a brewing head bolted together, and screwed onto a work bench. "It was very crude with no casing or switches. We had two plugs, one for the boiler heating element and one for the water pump." This prototype brewed great coffee. It took a total of a year-and-a-half to complete their commercial espresso machine.

Six months later, they introduced it to Armando's coffee dealer contacts in the Boston area who were surprised to see that it looked like a real commercial product. They loved the coffee, and agreed to carry the product. In December, 1993, they shipped their first machine to a Boston customer.

Just what makes an Espresso Armando machine better than the competition? "First there is the dual boiler which is a great key to ensure controlled temperature." The machine also has a unique heating element system on several points of the water flow path, maintaining a consistent water temperature throughout the entire process. "All of our materials are a high level of stainless steel that is great for taste control and for safety. Existing machines all use copper and brass in the brewing system mainly in the piping and feeding." The last significant technical feature is the brewing head that distributes the water through the coffee. "Some machines are not very good at distributing the water through the bed of coffee to ensure an optimal use and even extraction of the elements from the coffee. I feel ours does this very well." The Espresso Armando machine is a triumph of layout and design. All of the components are neatly laid out, and the wiring and tubing is numbered for easy reference. Furthermore, the majority of the components are sourced from the U.S. which provides Armando with a steady supply source.

V. The Coffee Industry - Taste and Technology

cup of joeThe production and sale of espresso machines is dominated by Italy, France, and Spain. Apparently, espresso was developed by the French for a World's Fair in the 19th century. The Italians quickly adopted it as their preferred way of preparing coffee. The first commercial manufacturers of espresso machines were Italians. By the 1950s, it was the main way to drink coffee in Italian coffee shops. This fashion resulted in a big demand for these machines. Armando estimates there are 200,000 commercial coffee bars in Italy. Apparently there is no dominate brand of espresso machine. Regional manufacturers dominate their territory because of their proximity to customers.

"This is a new thing in the U.S. therefore all of the expertise comes from Italy so it makes sense to import their machines over to here." Surprisingly, the large distributors in the U.S. allowed foreign manufacturers to control the domestic market, rather than developing their own technology and expertise. This was an advantage for Armando. "They were all bringing it over from Europe. To the U.S. this was a commodity business therefore there was not a lot of expertise on these issues for developing fine coffee preparation in the U.S." The most significant lack of experience lay within the marriage of the two most important elements to this entire business according to Armando, "The lack of experience in the combination of the tasting expertise to understand the quality of the coffee beans themselves, with the expertise in the manufacture of the machine development." Armando considers this combination to be one of his company's strengths.

Armando educated himself on coffee, largely by practice. "I am a fanatical personality and when I get into something I want to learn everything about it, on the fast path." He believes that self teaching is an effective way to learn . He felt his tasting ability was just as accurate as the coffee experts.

When Armando started meeting more influential people within the industry, he refined his coffee tasting expertise. He regularly tastes coffee with the founder of a New England coffee store chain called Coffee Connection. It was acquired by the larger Starbucks chain a couple of years ago. The Coffee Connection's founder is considered one of the top five coffee people in the U.S. "It being a passion, the love for espresso and tasting it a nd enjoying it, makes the work to build my expertise on tasting and evaluating it much more enjoyable and fun. If it were work I would not enjoy it nearly as much or be as good at it."

VI. Current Operations and Early Successes

All production - assembly, quality control and shipping - goes on in their New Hampshire facility. Sheet metal, boilers, and brewing heads are fabricated to their specifications. Armando does all of the design work, and all of the coffee tasting relating to the design. The management of the business is divided between Armando and Geri. She does the parts ordering and accounting. Armando also handles most of the sales with the remainder handled by a part-time sales associate. "Anything other than the ordering functions, the accounting functions and the assembly functions is my responsibility. Steering the business, dealing with customers, much of the sales efforts and design and prototyping is my responsibility."

Unlike many entrepreneurs who have learned these various functions by trial-and-error, Armando's prior professional experience has guided him along the way. "I worked for a small company that did electronic devices all for the aerospace industry. My jobs were design, manufacturing, sales, engineering, production management. It really was a great primer for running my own manufacturing company because I did virtually everything there at one time or another except for accounting." He was there for five years, and it was his last job before he went on his own.

One of Armando's most potentially lucrative customer is Starbucks. He met Starbucks through his work with Coffee Connection. "There was a chance before the buyout for my machines to be used in the future stores of Coffee Connection, but just before that began the deal went through with Starbucks." Starbucks saw his test machine in the Coffee Connection lab, and continued its testing. They have purchased several units for field testing. As far as Armando knows, the machines have performed very well. Someday they hope to be a supplier to Starbucks.

Current dealers are coffee roasters working primarily out of Alaska, Colorado, Texas and Boston. "We have made direct sales and are in a national French bakery and cafe chain called La Madelaine which are experiencing positive results from the machine's use.

VII. Critical Success Factors and the Future

By competing in an industry largely dominated by established competitors, Espresso Armando faces a formidable challenge to gain market share. The current line of Espresso Armando machines, while technically superior and rapidly growing in reputation, is priced higher than the existing products from the foreign competitors. To counter this price difference, and to entice the coffee stores and restaurants in the U.S., Armando has formulated a strategy to increase their competitiveness. "We intend to make a less sophisticated machine for people who cannot afford the top machine and would want to make espresso but may not want the expense. A large base for that would be restaurants who only purchase one or two for their entire business." Without going into detail, Armando has identified several facets of the machine's construction that will allow him to decrease the production cost, while maintaining the same high level of performance and quality.

The second step their success will be Armando's ability to raise capital. Until now, the funding for this venture has mainly come from of the ongoing audio business. They have also received additional funding from Small Business Association (SBA) loans. By raising capital, new technology development and production can be undertaken to assist the organization's growth plans. "This is a very competitive business and were dealing with a commodity product. Because of our size and the size of our competitors we are not able to price our product at the level like the other manufacturers. Our economies of scale are not as efficient as the other companies. When we start making more machines we will be able to improve the price."

With increasing resource requirements, competing against established companies, and convincing buyers that a better coffee-producing machine will more than offset the Espresso Armando's purchase price, the company has a significant task in front of it. This looks to be a promising year for Espresso Armando. The company hopes to sell 100 to 200 units. From there, the sky's the limit in their quest to gain a significant share of the domestic espresso machine market , "and doing it always at the best price to performance ratio than the competition." - ###

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