Nespresso: A unique route to market through Ultra-premiumisation Analysing Nespresso success through marketing researches 1 - PESTEL-DG ANALYSIS 2 - PORTER ANALYSIS 3 - INTERNAL ANALYSIS - Tangible resources - Intangibles resources - Human resources - Capabilities - Core competences - Value Chain 4 - STP - RECOMMENDATION

2. INTRODUCTION
• Instant coffee – No specific
appliance
• Coffee pods – Specific machine
• Ground coffee – Classic coffee
maker
• Coffee beans – Automatic coffee
maker with grinder

3. INTRODUCTION
• Coffee shop
• In the street
• In-home
• At work
• Handpresso

4. INTRODUCTION
Coffee
Market

5. INTRODUCTION
FOCUS ON :
Coffee Pods market in the UK
// global coffee market in the UK

6. t
PESTEL
ANALYSIS

7. POLITICAL
Stability in government
Cost-cutting plan by Cameron
Britain's corporation tax rate reduced from 24% to 20%
BBC iCan and the Royal Society of Arts have launched
the Coffee Shop Challenge in association with Starbucks,
Costa and Caffé Nero to throw again the idea of UK
Coffee house
• Trading agreements WTO = World Trade Organisation &
ICO/A = International coffee Organisation/ Agreements
•
•
•
•

8. ECONOMICAL
56M£
UK coffee pod
Market value1
7,5% growth
in the coffee market
in 20122
1The
2
X
2
in the past
6 years2
rise of coffee pod machine, The Guardian, 10 April 2013
Hospitality and catering news.com

9. ECONOMICAL
• Economic crisis since 2008, 3rd recession
• The UK deficit is expected to reach 6.1% of GDP in 2013
• The UK’s lost top AAA credit rating for the first time since
1978
• Income inequality
• Inflation’s steady at 3%
• UK = 3rd rank in the top 10 total purchasing power
• Flexible economy

10. SOCIOCULTURAL
COFFEE, SO TRENDY!
> Barista is the new job
> Latte art trend
> A cup in every hand
22-28 April 2013
UK Coffee Week
500’000 participants
in 4’000 coffee shops
3-6 April 2014
The London coffee festival

11. SOCIOCULTURAL
FROM A DRINK
TO A PASSION/DEGUSTATION

12. SOCIOCULTURAL
CONSUME
FRESHER
&
MORE ARTISANAL
PRODUCTS
&
PROVIDE INFORMATION
ON HEALTH ISSUES
+/-
MORE
TRANSPARENCY

13. SOCIOCULTURAL
SMALLER HOUSE
Redesign smaller machines

14. SOCIOCULTURAL
COFFEE SHOP FEELS
LIKE HOME

15. SOCIOCULTURAL
ALWAYS
ON THE MOVE
+
LONGER
WORKING DAY

16. SOCIOCULTURAL
CRM
&
LOYALTY
PROGRAMS MEAN
A LOT

17. TECHNOLOGIC
• Biodegradable pods / reusable / washable
• Digital allows the brand to optimize communications
> Reducing budget + Eco-friendly
• Hyper connectivity : Mobile and tablet device
• Multiple payment methods : Fingerprint on mobile/ pay with a
tweet/ paypal/ contactless payment
• Internet shopping trends

18. ENVIRONMENTAL
•
•
•
•
•
•
Reusable & Greener cups & pods
Composting of coffee ground
Include water-saving technology in machines
Recycling in store
Development of hybrid vehicles > delivery
Sustainable energy shifting
> solar panels, wind power in factories

19. LEGAL
• Labelling of ingredients is mandatory in Europe
• Scotland has a GM-free policy, as does Wales.
• In 2012, the GM industry met with ministers to promote the
return of GM crops to Britain. In late 2012, Environment
Secretary Owen Paterson and Prime Minister David Cameron
began to make public statements in support of GM crops.
• Employment laws : working time, age, minimum wages rate
with farmers
• Food standards agency is controlling food hygiene for safer
goods

20. DEMOGRAPHIC
63M
Of citizens in the UK
in 20121
A cosmopolite country
with 4 millions of foreigners
> Various tastes
1 Demography
of the United Kingdom, wikipedia

21. DEMOGRAPHIC
AGEING SOCIETY

22. DEMOGRAPHIC
GENERATION Y
Headspace availability,
fickle,
instant gratification
Children

23. DEMOGRAPHIC
Regional GDHI per person UK map, 2011

24. DEMOGRAPHIC
Proportion of people with no qualifications

25. GLOBAL
• OECD international tax reforms
• International coffee organisation was created in 1963 and is located
in london, in charge of Improving quality, promotion, sustainable
coffe, diversification, consultation, private sector, information
provider, food safety
• World Trade Organization (WTO): regulation of trade between
participating countries; it provides a framework for negotiating and
formalizing trade agreements

26. IN BRIEF
PESTEL IN BRIEF
P: Coffee shop Challenge initiated by the
government
E: Still in crisis, but coffee is considered as an
affordable indulgence
S: Passion for coffee, but as a strong trend it will fade
away
T: New means to facilitate consumption and
payment
E: New means to lower the footprint carbon & be
more eco-friendly
L: Labelling mandatory & GM future policy?
D: Ageing society
G: Great # of coffee organisations

27. PORTER
ANALYSIS

28. RIVAL FIRMS
A VERY
STRATEGICAL AND ATTRACTIVE MARKET
70 million
# cups of coffee drunk
74% of english people
drink coffee and
48% drinks coffee pods
each day
In 2011, consumer retails
spend on coffee was 941M£.
The market is set to
grow to a £7bn turnover by 2015
Mintel Coffee UK April 2012 Report.

29. RIVAL FIRMS
HIGHLY COMPETITIVE MARKET WITH
APPROXIMATELY 50 RIVALS
•
•
•
•
Coffee Shops chain
Independent coffee shops
Traditional cafetieres
Pods machines
Nespresso owns
34%
of market shares
The most sales are made by
Nescafe Dolce Gusto and Tassimo
Britons spent £56.1m on pods between February
2012 and 2013, up 45.1% year on year.
Nespresso is the best known brand.
The rise of the Coffee Machines, the Guardian, April 10th 2013

30. RIVAL FIRMS
NOT MUCH DIFFERENTIATION
Senseo
Filter pods
NESPRESSO
Aluminium pods
Tassimo
Plastic pods – T discs
Machines + pods
Different
beverages
Only
Coffee called
Grand Crus
and Variations
Different
beverages
Same global approach but Nespresso is the only brand to provide a
19 bars power
Coffee, “du rififi dans nos capsules”, Arte, April 10th 2013

31. RIVAL FIRMS
FIXED COSTS & ECONOMY OF SCALE
Fixed costs are heavier for the Nespresso brand
than for the competitors
Stores rent / Own employees are part of this feature
Economy of scale is largely developed for all brands, as their
production capabilities are enormous

32. RIVAL FIRMS
EXCESS CAPACITY & EXIT BARRIERS
Excess capacity is a reality in coffee marketing, but tend to
decrease with the Fair Trade organisation work
High exit barriers:
• Specific assets
• Existing contract with customers
• Block by the brand importance
• Cost of exit
• Loss of bargaining power with different parts
• Loss of the shareholder confidence
• Psychologic and affective reasons

33. SUPPLIERS
HIGH CONCENTRATION
&
A CERTAIN DEPENDENCY TO SUPPLIERS
• Numerous suppliers and high concentration but Nespresso choose to
build strong and long-lasting relationships with farmers from the
rainforest alliance
• Employees solidarity and strong sense of firm’s belonging
• Supplier switching costs are really high as the pods market has setted
new habits
• Nespresso choose an ultra premiumisation for its product

34. NEW ENTRANTS
STRONG ENTRY BARRIERS
• Initial investment costs are high
• Need a lot of time to make the firm profitable
• High communication and advertising campaign investments to
position a new brand : Nespresso /Star endorsement
• Loyalty is very strong in the coffee pod market
• Brand awareness of existing competitors
• Norms and technical standards are required to start a business
• Cultural barriers, even if coffee is growing, the main beverage in the
UK is Tea
• The expected retaliation is very strong, as all the existing competitors
will join to block the new one

35. BUYERS
NUMEROUS CUSTOMERS
&
NUMEROUS BRANDS
50
70 million
Rivals
In the global
coffee market
# cups of coffee drunk
each day
3
Major competitors
in the pod market
Mintel Coffee UK April 2012 Report.

36. BUYERS
DIFFERENT RETAIL /
DISTRIBUTON STRATEGY
300 Own stores,
Online,
Appliances retailer
stores
No other
distribution channels
Different distribution solutions
Multiple retailers / Online
More accessible to the customers
Also more dependency to the
retailers

37. BUYERS
BUYER SWITCHING COSTS ARE HIGH
Machine: 61£-150£
0,16£ per pods
Different ranges
Machine: 100£-130£
0,25£ per pods
A lot of different range
+
Partnerships:
Costa/ Kenco
Machine: 89£-500£
0,29£ to 0,35£ per pods
« Premium » coffees
Grand crus
Impossible to use other
brands pods
NESPRESSO = VENDOR LOCK-IN EFFECT

38. BUYERS
EACH BRAND ITS STRATEGY
• Price sensitivity is low as they all have a specific market area. No
alignment strategy.
• Differential advantage is high, each brand try to build its own image
Nespresso : Premium – Eco-friendly
Tassimo : Optimisation of the consumption thanks to the bar code,
variety of products
Senseo : Cheaper, easy, practical
• Recency is High. Coffee market is old but the pod ones is new
• Frequency is High as it’s a day-to-day product
• Monetary is High. Coffee isn’t that expensive in general but the pod
products are much more expensive : 3 times more expensive

39. SUBSTITUTES
LARGE SUBSTITUTES CHOICE
Buyers can easily change their consumption for a subtitute like:
• Tea: Cheaper
• Hot chocolate: More expensive
• Chicory: Cheaper
• Energy drinks: More expensive
• Sodas : More expensive
• Fruit beverages: More expensive
• Subtitutes are generally expensive. People tend to prefer coffee even
if the price per Kilo for Nespresso is 60£. Coffee is still perceived as an
more affordable indulgence.
• The perceived level of product differenciation is high as the
customer of coffee pods almost belong to a specific community

40. NESPRESSO IN BRIEF
•
•
•
•
•
•
•
•
Not a coffee è A Grand Cru + Variations
Product presented in a case (Jewellery reference)
Specific store in premium areas, no prices posted
No sales assistants è Coffee specialists
No classic retailers
Online buying implies registering
High investment in advertising = Star endorsement
Vendor-lock in effect
=
EXTREME PREMIUMISATION

41. INTERNAL
ANALYSIS

42. TANGIBLE
RESOURCES
INTERNE
FINANCIAL
Nespresso SA is affiliated to Nestle SA
Nestle : A very profitable company with great financial
capabilities
•
•
•
Value estimated: 228 Billion CHF
Net margin around: 11,4%
Cash flow: 15,8%
Nespresso sales progression: +20% (2011/2012)
Nespresso annual turnover= 3 Billion CHF in 2013
Comfortable leader position

43. TANGIBLE
RESOURCES
INTERNE
PHYSICAL
• 2 factories for the pods + 1 more to come
• Over 300 Nespresso Stores in 2012, compared to 1 in
2000
• In almost 60 countries
• One step ahead the competitors thanks to regular
competitive intelligence
HUMAN
• Over 8300 employees around the world including 1’300
coffee specialists

44. INTANGIBLE
RESOURCES
INTERNE
TECHNOLOGY
• Great innovation based on Nestle strong R&D capabilities
• Nestle was able to partially change the coffee value chain
• Nespresso system, a UNIQUE system: The only machine with 19
bars power
• 1700 patents, made public since 2012

45. INTANGIBLE
RESOURCES
INTERNE
REPUTATION
The Unique Coffee Luxury Brand
12’300 cups of Nespresso coffee drunk every minutes
AAA quality coffee
Nespresso Club: the most efficient CRM system in coffee
market: 7 millions members
• Transparency policy
• Recycling: Begin to implement it, but not convincing enough
•
•
•
•
CULTURE
• New way to consume coffee: Indulgence
• Belonging sense / The club
• Coffee culture : Total expertise

46. HUMAN
RESOURCES
INTERNE
SKILLS
•
•
•
•
Perfect knowledge of coffee industry
Unique R&D department focused on innovation/ Technology
Unique route to market
Nespresso = The big Coffee brother
COMMUNICATION & COLLABORATION
Only few partnerships : Raw material/ the biggest firm of
cafetieres manufacturer
Advertising+ CRM with big advertising through Star endorsement
Nespresso as a sponsor

47. HUMAN
RESOURCES
INTERNE
MOTIVATION
•
•
•
•
NCS as a chance of being more flexible & agile
Change in management to improve efficiency
Innovative climate
Salesforce considered as Coffee Expert

48. STP
RECOMMENDATION

49. STP
Segmentation:
Drinkers
Hot drinkers
Coffee drinkers
Espresso drinkers

50. STP
Main target: Coffee drinkers
•
•
•
•
People between 24-80 yo,
On average 7 coffees per week
Looking for really good quality
Easy serving method
Persona: Kate, 32 years old, saler, she has a part time job and she is a
very demanding person

51. STP
Core target: Coffee Aficionados
•
•
•
•
•
•
•
25-60 yo
More than 7 coffees a week
Considering themselves almost as coffee Expert
SPC++, very active workers
In search of headspace availability
Easyness and instant gratification
Coffee is a energizer/ and a degustation = daily indulgence
Persona: Georges 52, years old manager in an international
company, working 9 hours/day,he can’t begin his day without a
Grand Cru coffee

52. STP
Secondary target: B2B / Business
Offices: Companies, and firms in search of a more
qualitative coffee
Hotels/ Restaurants
Travel: First class in Airlines/ Trains
Influencer group target:
Press journalists Offline/Online
Bloggers
Vloggers

53. STP
Advantage for main target:
Tasting and discovering new affordable, premium and easy
coffees at home
Advantage for core target:
Enjoying the most premium and easy-making coffee on a day to
day basis, with services that make their lives easier (Delivery…)
Advantage for secondary target:
Serving premium coffee to their customers, benefiting of the
worldwide quality reputation of Nespresso
Advantage for influencer group target:
Talking about a trendy and innovative product/brand

54. 4P
Product: Machine + Pods + Services
Wide range
STP
Place: Unique route to market in own distribution
networkOnline/ Call-centers/ appliances retailers stores
Price: Machine from £89/1530
Pods from £0,26-0,35
Constant promotion on the machine = Vendor lock-in
Promotion: Advertising campaigns, Social Media, SEO/SEM,
Buzz, dedicated platforms, Event, partnerships, sponsoring,
co-branding, mobile, CRM program, Nespresso magazine,
limited editions, app, stores, mailing, goodies.
A premium brand providing a highly qualitative all-in-one
offer that allow people to consume the best coffee at
home

55. STP

56. STRATEGIC OPTIONS
FOCUS DIFFERENTIATION
• Creating highest quality « Grand Cru » coffees
• Creating long-lasting consumer relationships
• Creating sustainable business success
Positioned between
selling existing products to existing customers
and
developing new products to sell to existing customers
groups

57. STRATEGIC OPTIONS
FOCUS DIFFERENTIATION THANKS TO
•
•
•
•
•
•
•
•
Luxe / image of exclusivity
Based on high-quality products
Specific vocabulary
Extensive customer service
Premium pricing
Unique route to market
Exclusive club of like-minded « coffee experts »
Lifestyle / feel to belonging / elite group of customers

58. RECOMMENDATION
Machines
• Create a new coffee machine range è Smaller ones
• Including Water-saving technology
• Machine pre-adjustable which make coffee one itself at a precise time,
on the morning è Woke up by the smell of a fresh auto-served coffee
Services
• Implement an easier collecting service for used pods è the delivery man
takes the used pods
• Deepen the experience in store to make a “at home” space for
customers è Hybrid space
• Selling branded greener cups è Your Nespresso follows you
• Coffee workshop to become a Coffee expert
• Implement a new tab on the website to help people repairing
their machines thanks to an interactive FAQ or a video chat
system.
CRM programs
• Sponsoring your friends in a Win-Win offer
• Try the machine for £5

59. RECOMMENDATION
Possible integration
Invest as much as possible in the firms which make our
machines like Krups or Magimix
Development
Develop Pop up stores in smaller towns to test profitability
If profitable install new stores
Invest in a eco-friendly delivery system è Hybrid vehicles

60. THANKS FOR YOUR ATTENTION
Q’S & A’s