Illy confronts Starbucks with a low-cost indy strategy

IllyCaffè SpA may not have a company-owned store near you, but it's a good bet you know the company's coffee. Illy's espresso machines and coffee beans are available to purchase online at the company's website, on Amazon.com, and a wide variety of retail outlets. Its art-inspired cups are a favorite of Italiaphiles (a good friend whose husband is Milanese was my introduction to the designer series of tiny espresso cups and saucers). And, after three years of success in Italy, the company has expanded its Artisti del Gusto (Artist of Taste) certification to the U.S., with 28 shops around the country serving Illy coffee, and about 100 more planned by 2012.

In Tuesday's Wall Street Journal, Illy is said to be using this strategy to compete with Starbucks (SBUX) through the "backdoor." It's a bit of a reach -- after all, 128 coffee shops is about 1.1 percent as far-reaching as Starbucks, and far less of a threat to market share than Dunkin' Donuts or McDonald's (MCD), both of which have challenged Starbucks with their low-priced, high-volume and ubiquitous coffee.