Nespresso has shot at larger coffee sale
February 19, 2014 12:01 am
Nespresso has shot at larger coffee sale
By Shannon Bond in New York
Nespresso is betting that a new machine that brews larger coffees will help double its US sales to $600m in the next two years as the single-serve coffee maker seeks to boost its international growth.
The subsidiary of Swiss food group Nestlépioneered single-cup machines using coffee capsules nearly three decades ago, but the category’s trajectory has lifted in recent years.
Since 2007, the global retail value of capsules has grown at more than five times the rate of the overall coffee industry, according to Euromonitor International. Sales of capsules reached $10.8bn in 2013, with Nespresso’s $3.4bn share of that making it the market leader.
However, in the US Nespresso’s $300m in sales are a small dose of what the company estimates is a $4.9bn market for coffee pods.
The US scene is dominated by Green Mountain Coffee Roasters, which acquired the Keurig brand of brewers in 2006. Green Mountain has deals with Starbucks, Folgers, Twinings and others to sell its branded “K-cups”, and posted $2.3bn in capsule sales last year, Euromonitor estimates. This month it announced apartnership with Coca-Cola
for its forthcoming cold drink maker.
While Keurig uses low pressure to brew drip-style coffee, Nespresso’s focus has been smaller espresso shots. “That represents a barrier for the US, where coffee consumed at home is mostly filtered drip-style coffee,” said Dana LaMendola, Euromonitor beverages industry analyst.
Jean-Marc Duvoisin, Nespresso chief executive, acknowledged: “Our business in the US is still small because we are focusing on espresso drinkers.”
He hopes to double US sales in the next two years with the introduction of VertuoLine, a machine meant to appeal to American tastes. The $299 brewer, which launches in the US and Canada on Wednesday, brews 8-ounce “long” coffees as well as 1.35-ounce espresso shots.
“When we look at the North American market, people like large cups. They sip on it for half an hour or an hour, they drink it while they are driving in the car,” he said.
When we look at the North American market, people like large cups. They sip on it for half an hour or hour, they drink it while they are driving in the car
– Jean-Marc Duvoisin, Nespresso chief executive
Despite the focus on long coffees, Nespresso says the machine is not being targeted to win over Keurig consumers. “We are not looking at who we are going to compete against,” said Mr Duvoisin. “We think there is a large market of coffee consumers who want a premium product.”
In a further nod to American preferences – in line with the multiple varieties offered by competitor systems – the 12 capsules sold in the VertuoLine include a half-caffeinated variety and two flavoured coffees, vanilla and hazelnut. Like other Nespresso products, it will be sold in a small number of stores; capsules are only available from the company’s website, call centres or boutiques.
Coffee pods for the Keurig as well as Starbucks’ Verismo and Kraft Foods’ Tassimo machines are widely available at several US retailers, including Walmart, Bed Bath & Beyond and grocery stores such as Kroger.
Mr Duvoisin, who has been at Nespresso’s helm for nearly a year, has said that bolstering sales outside its core European markets, such as France, Austria and Switzerland, would help the company to maintain its sales momentum against increased competition.
Nespresso has lost some of its patent protection in Europe against cheaper capsulessold by competitors. The new machine, which uses laser-read bar codes correctly to brew its capsules, has patent protection until at least 2030, the company said.
In the US, analysts expect trends to support further growth in coffee capsule demand, particularly at the higher end of the market. “There is more consumer awareness and a trend toward premiumisation of coffee in all forms in the US and that will benefit Nespresso,” said Ms LaMendola of Euromonitor.
Single-serve coffee sales have risen to 35 per cent of the value of the US ground coffee market from 3 per cent in 2009, according to Bernstein Research. “As single-serve offerings continue to expand with new machines and licensing deals, penetration of single-serve coffee could well increase to the 50 per cent-plus levels seen in the more mature European markets,” Bernstein’s analysts wrote in a report last week.
“Compared with 10 years ago, people are expecting better coffee,” Mr Duvoisin said, comparing it with the evolution in Americans’ taste for wines in recent decades. “The market has evolved a lot.”
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