Nespresso Company

Global hot drinks market
The global hot drinks market grew by 4% in 2009 to reach a value of $68,030.9 million. In 2014, the global hot drinks market is forecast to have a value of $81,432.3 million, an increase of 19.7% since 2009.

Coffee is the largest segment of the global hot drinks market, accounting for 54.2% of the market's total value. Europe accounts for 44.6% of the global hot drinks market value.

Kraft Foods, Inc. is the leading player in the global hot drinks market, generating a 9.9% share of the market's volume. It is followed by Nestle at 7.6%, and Sara Lee at 5.4%. The global hot drinks market is fragmented, with top three players holding 22.9% of the total market volume.

Nespresso by Nestle
Nespresso is the brand name of Nestlé Nespresso S.A., an operating unit of the Nestlé Group based in Lausanne, Switzerland. Nespresso machines brew espresso from special capsules (also known as ‘coffee pod’) containing ground coffee.

The Nespresso systems was first introduced in 1976 to the business market in Switzerland – it didn't have a great reception and it took another two decades and a new Chief Executive (Jean-Paul Gaillard) to reinvent it as a premium brand. Nestle filed first patent protecting Nespresso capsule system in 1996, outsourced manufacturing of the machines to big names like Krups and Magimix, and kept capsules manufacturing, distribution, and customer management strictly in-house.

Nespresso does not allow the customer to purchase coffee capsule from other sources. As a result, choice of flavors is limited and there is limited competitive downward pressure on capsule prices. Nespresso seeks to position the brand as an exclusive luxury good.

Packaged portions of espresso coffee like those from Nespresso has become one of the fastest growing segments of the coffee market, accounting for 20 to 40 percent of the value of ground coffee sales in the European coffee market which totals USD 17 billion.

In August 2010, it was reported that Nespresso sales have been growing at an average of 30 percent per year over the past 10 years and more than 20 billion capsules have been sold since 2000 at a current selling price equivalent to about USD 0.43 to USD 0.62 per capsule.

The unique business model

At the heart of the NESPRESSO concept is the unique Nespresso Trilogy, an unparalleled combination of three pillars of excellence:

  1. THE GRAND CRU COFFEES perfectly portioned to suit every taste sourced from the world’s top 1% of the world’s green coffee production, specially roasted and offered as a full range of espresso and lungo blends and single-origin coffees in hermetically-sealed capsules to ensure perfect freshness;
    1. A permanent collection of 16 premium (B2C) coffees for enjoyment at home
    2. A permanent collection of 7 premium (B2B) coffees for enjoyment at leisure and work:
    3. Exceptional specialty coffees: two extraordinary and rare Nespresso Grands Crus are typically introduced for a limited period each year: the Limited Edition (spring) and Special Club (autumn) blends offered in both the B2C and B2B channels.
  2. THE COFFEE MACHINES smart and stylish, easy-to-use machines with a patented extraction and brewing system that manages the interplay of all factors necessary to produce consistently highest-quality coffee
  3. THE EXCLUSIVE CUSTOMER SERVICE available 24/7 through the Nespresso Club.

The three pillars deliver The Ultimate Coffee Experiences, moments of genuine pleasure and pure indulgence designed to continually delight coffee connoisseurs wherever, whenever, and however.

As Nespresso patents starting to expire the company faces pressure from the big guns like Sara Lee and P&G that have been courting lucrative portioned coffee market to a while. 2010 saw few companies launching their own Nespresso-compatible coffee pods, the biggest player being Sara Lee with its L'OR EspressO. Nestle is in litigations with all rival companies that launched in 2010, however the prospects for Nestle are not great as they have just lost one of the cases.

The obvious threat for the market is with big players saturating coffee pod niche it might become a commodity product. Very healthy margins Nespresso enjoys will be under threat this way or another. However several senior Nestle executives and market analysts have commented recently that patents exposure would unlikely dramatically affect Nespresso sales. Nespresso enjoys a very loyal customer base, the know their customer extremely well (in-house CRM), and carefully manage interaction with the customer via Nespresso Club. If anything, the wide selection of coffee pods will drive portioned coffee segment.

3 Mar 2011, 05:14