Eataly: Reimagining the Grocery Store

1. Introduction

There's nothing more convivial, no better occasions, than those that involve food.

Oscar Farinetti, Founder

Part supermarket, part high-end food court, and part culinary arts school, Eataly was fashioned around the concept of Europe's open markets and designed to bring together multiple aspects of consumer interaction with food.

Eataly opened its first store in 2007 and within seven years, in a highly competitive, low-margin industry, expanded to 27 locations around the world.

By 2013, Eataly's Italian-based operations covered more than 600,000 square feet of space and generated

revenues of 137 million, up from 106 in 2012.

Eataly opened a 50,000-square-foot store in New York in 2010 with an initial investment of $20 million1

and a 63,000-square-foot store in Chicago in 2013 with an investment of $28 million.2 Eataly's 2014

revenues for the New York City and Chicago stores were estimated to be $75 million and $55-60 million

respectively. With plans to open additional sites in the United States, Eataly expected U.S. revenues to

increase to $600 million by 2018.3

Eataly's success with American consumers was immediate and nearly overwhelming. For weeks after the opening of the New York store, customers waiting to enter would form lines around the block. After a blockbuster opening weekend in Chicago, Eataly closed the store on Monday to give exhausted employees time to restock shelves.

However, there was no guarantee that Eataly could sustain its initial success. Was Eataly a fad, or was it about to change the entire supermarket industry?

2. Eataly: The Concept

"In many ways, it's really a return to the way markets were 100 years ago, where you have a central-market feeling

with areas to eat and taste."

Adam Saper, CFO, Eataly U.S.

Origins

Founder Oscar Farinetti began developing the concept for Eataly in 2003, after he sold UniEuro, a 150- store Italian electronics retailer.

While working to establish Eataly's first retail location, Farinetti started an online operation to sell Italian food products on a trial basis. "Little by little as we went out into the countryside and identified highquality suppliers who shared our values - good, clean, proper - we began to put them on the web," he said.

In January 2007, Farinetti opened a 30,000 square-foot store in a converted vermouth factory in Turin,

Italy. From the start, Farinetti focused on a model that could eventually expand internationally.

International Expansion and Business Partners

By 2014, Eataly operated stores in multiple locations across Italy and expanded to four other countries.

The stores in Dubai and Istanbul were opened using a franchise agreement with local partners. In opening stores in New York City and Chicago, Eataly partnered with celebrity chefs Mario Batali and Lidia Matticchio Bastianich, restaurateur Joe Bastianich, and investors Adam and Alex Saper, who were actively involved in the stores' operations.

Eat, Shop, Learn

Eataly's model involved three strategic business units designed to complement each other.

Eataly prominently featured Italian wines in its restaurants and in retail wine shops within each store.

Customers and Competition

Eataly officials described their model as a unique concept, but one that targeted a broad range of

consumers. While unique in its offering, Eataly considered everyone a competitor.

3. Operations

We wanted to create the possibility for these small-scale products to emerge from the niche market.

Cristina Goria, Chief Buyer

Suppliers/Sourcing

Eataly relied on a small but growing network of suppliers, typically small artisanal producers. In

selecting suppliers, Eataly was guided by the principals of the Slow Food movement, which was founded

in Turin, Italy in 1989 to promote local sourcing, traditional cuisine, and ecologically sustainable food

production.

Human Resources

In 2014, Eataly employed 4,000 people worldwide, with an average employee age of 28. With each new

store, the company added several hundred employees. Training and performance reviews were informal.

Marketing

Eataly eschewed traditional forms of marketing, favoring in-store promotions over paid advertising.

Performance Metrics

Eataly utilized few formal metrics. Company officials gathered data on average customer spending and kept an eye on the balance of revenue between retail and restaurants, which varied from store to store. In Europe, where labor costs were higher, the revenue balance skewed toward retail, while it was more

evenly balanced in the United States.

eCommerce

In 2013, Eataly launched a digital platform - eataly.net - in Italy, Japan, and the United States.

4. The Future

"I hope that Eataly can be the microphone of Italian food. That's my real goal."

Nicola Farinetti, CEO, Italy and Worldwide

Expansion Plans

Eataly had ambitious expansion plans, targeting major cities around the world with populations of five

million people or more.

In looking to the future, Oscar Farinetti pondered an IPO as a way to advance his original vision - to build a narrative of Italian food that could be exported internationally.

The Road Ahead

While Eataly enjoyed enormous success in its first seven years, the company's future remained uncertain.

Would the initial buzz and excitement about Eataly fade over time? Consumers were known to be fickle in their choice of restaurants, which led to an almost 80% failure rate among new restaurants in largecities. In mid-1990s, eatZi, a Dallas-based retailer, tried a similar concept - part theater, part restaurant, and mostly prepared meals and specialty items. The concept was so successful that eatZi planned to open almost 100 such stores within a few years. But it failed quickly as consumers' enthusiasm waned.

Eataly's success depended on sourcing unique products from small producers in Italy, paying personal attention in the stores, and creating a unique environment in huge stores. Could Eataly scale this model as it expanded globally?

Grocery retailing was a very low-margin industry where even the giants such as Tesco and Walmart struggled. In July 2014, Tesco's CEO Philip Clarke stepped down due to Tesco's poor performance. Could Eataly maintain its profitability in a low-margin and highly competitive environment?

Consumers' need for convenience was shifting grocery shopping to online channels. In 2012, Ocado, a UK online supermarket achieved $1.1 billion in sales, and Peapod, a U.S. online grocer, had revenues of $700 million. Amazon and Google also entered the market for fresh grocery delivery. Would this trend threaten the future growth of Eataly?

Finally, it was unclear how easily Eataly would be able to transform itself from a family owned business to a professional organization as it followed its ambitious growth plans.

1. Would you invest in Eataly?

2. What is Eatalys value proposition, and how did it create this?

3. What does Eataly suggest about the future of retailing?