NespressoEspresso machine

Group 9Aïssatou BadjinkaPierre DubuyMélanie LechatWilliam Vedreine

318 EMM Industrial Business Project

Keys Facts

Nestlé Nespresso SA in 2007

25 % annual growth since its market introduction in 1988

CHF 600 millions in turnover (€ 389 million) plus 34% compared to 2003

More than 1000 employees

With 18.5% Europeans market leader in espresso machines (Source: GFK)

Present in more than 35 countries

17 subsidiaries

More than 70 independent agents representing Nespresso Professional

76 Boutiques

1,6 million active affiliated Nespresso Club members

200 000 Out-of-Home customers

9 machine partners

19 different machine models (In-Home)

5 different machine models (Out-of-Home)

SWOT Nespresso

Strengths

Nespresso belongs to a big group: Nestlé created in 1886, is the biggest food-processing company in the world and also the leader with $102 billion USD of turnover in 20091. It’s a really well-known brand in the whole world.

Nespresso is the pioneer in making coffee in “capsules” (first patent in 1970, then it tried to supply the restaurant and hotels in vain) and realized a turnover of nearly $2.7 billion USD, so it’s a profitable company.

Nespresso is present in many countries all around the world 3 kinds of hot-drinks (coffee, tea and chocolate) with various tastes. Nespresso is positioned on a premium quality segment and has its own stores Difficult to use products from other brands in its coffee-machines thanks to the 70 patents

that the company owns A positioning unique on this market : the top of the range Nespresso can make important investments in communication (ex.: Presence of George

Clooney in some of its advertising). ECOLABORATION: it’s the project that the company is implementing to be more

environment-friendly; its purpose is to salvage of used “capsules” to recycle them and at the same time stop the criticisms.

Weaknesses

Its positioning on a premium quality market can also be a weakness, because this positioning touches less of persons.

Nespresso’s process is less environment-friendly than traditional ones like brewing or filtering.

Some “capsules” are recyclable but they nearly never are recycled. Professional Nespresso caps are not recyclable; they can only be burnt because of the

materials that they are made of (a mix of aluminium and plastic). Some of the patents that it owns have a flaw

1 http://money.cnn.com/magazines/fortune/global500/2009/industries/198/index.html

Opportunities

The International Association of Air Transport will generate 6% more travelers in the 5 years to come, which means that the fleet will double before 2024. This will enable Nespresso to propose its solution of coffee in planes and VIP waiting-rooms all around the world (because the company is already present in some airlane companies).

A partnership agreement between Nespresso and Lacobucci (leader in coffee machine manufacturing in airline companies) is being realized for first class travels2.

Coffee becomes one of the most popular drinks in the world. More than 1.5 billion cups are drunk, every day, worldwide

Consumer trend: "ready quick" Some of the consumers are ready to pay more for a more upmarket coffee. Companies search Quality and simplicity looked for

Consumers are more and more demanding about the quality of their coffee.

A still not enough weak equipment of the house holds 18% in 2004 Consumers are increasingly taking ethical issues into account in relation to their

consumption of coffee, and hence the fair trade coffee segment has grown strongly.

Threats

Development of copycat products (for both the coffee-machines and the “capsules”) and New entrants, bottom of range

The hard discount channel increasing its influence on this market Some of the patents that it owns have a flaw: thanks to that, Jean Paul Gaillard, the former

president of Nespresso France (from 1998 to 2007) has started in may to put on the French market, through a retailer’s brand (Casino) new “capsules” that are compatible with Nespresso coffee-machines. And those ones are 20% cheaper than Nespresso’s capsules3.

Premium quality segment means high prices. Many criticisms from environment-friendly organizations and eco-warriors like the World

Wide Fund for Nature (WWF). FSA (Food Standards Agency) recommends not drinking much coffee or tea because it’s

harmful for health4.

2 http://www.nespresso-pro.com

3 Source : an article from the website of Ouest-France, a French newspaper, published on March 6th 2010 and titled “Casino attaque Nespresso sur le marché des dosettes à café” (www.ouest-france.fr).4 www.eatwell.gov.uk and www.food.gov.uk

External market analysis Nespresso

Macro-Economic PEST :

Politic :

The United Kingdom, as a member of the European Union, is bound by the consumer protection directives of the EU. That’s why there are a lot of laws to protect consumers.Consumer Protection issues are dealt with when complaints are made to the Director-General of Fair Trade. The Office of Fair Trading will then investigate, impose an injunction or take the matter to litigation. Examples of laws : Consumer Credit Act 1974, Unfair Contract Terms Act 1977, Unfair Terms in Consumer Contract Regulations 1999, Unfair Contract …

Economic :

In England unemployment is increasing substancially(7.8% of population), which means a decrease of purchasing.

The Austerity plan voted in October 2010: The British government announced it would slash 81 billion pounds in spending through 2015 in order to reduce the country's crippling deficit. This decision will increase unemployment with 500 000 employments that will disappear and social benefits will decrease.

Consumers aren’t in climate of trust, their anxiety can dissuade them to consume premium quality product that are going to be considered as too expensive and not necessary.

Social :

United Kingdom Population Pyramid for 2010Age and sex distribution for the year 2010:

Our target represents an important part of the population. We have an ageing population and Nespresso's products have an intuitive technology which make their use easier every day. And we know that old people look for simplicity.The potential target represents 75% of population. (to refer to graphic : target)But generally the more of 65 years are not receptive to new technology. Moreover this age bracket isn’t really concerned about this product because there are not enough outlets and those people often have no internet access.People under 20 are not concerned too because they usually don’t drink coffee.But the city dwellers increase and the core target are people between 30 and 60 years old.

Moreover the activity in Service sector’s increase, this transformation permits it to consume material more and more sophisticate.But people who belong to the upper socio-professional categories are a small part of the population (Nearly a 17%).

Technology :

Nespresso invented a revolutionary concept, that's why the company has deposed 70 patents. There are important budgets for Research and development.But in 2012 the patents will belong to public domain and therefore there will be more competitors in the market. Capsules are not ecological, very bad thing for corporate image.

Core Target

Core Target

TargetTarget

Micro-Economic Porter’s 5 forces :

Rivalry among existing competitors : STRONG

Nespresso (leader in the European's market of espresso machine with 18.5% of market share) : upmarket modelTassimo (Krups) : Middle of range.Senseo (Philips) : Entry of range, very cheap.

Bargaining power of suppliers: WEAK. Because there are lot of producer (coffee is in the second range of global trade of food industry product

Threat of substitute product or services: STRONGCoffee maker (with coffee filter)Instant coffee , brewed teaCoffee in a café, restaurant …Tea, hot chocolate

Bargaining power of buyers : WEAK

Threat of New Entrants : STRONG Brand like « Maison du café » make capsules cheaper. Hypermarkets and supermarkets who create capsules cheaper.

Our product

Nespresso

Launched in 1991 It’s a product top of the range Capsule’s price : Between £0.29 and £0.32 It targets urban people with high incomes Customised marketing

Competitors’ profile

Nespresso has several competitors, but we are going to content ourselves with both main competitors that is SENSEO and TASSIMO.

These three brands have no same characteristics, and we are going to show you it.

Espresso machine

Senseo by Philips

Tassimo By Braun

Launched in 2002 It’s a product of entry of range . Cheap ( nearly £59) Capsules’s price : Between £0.13 and £0.19 Its target is large : middle class , student… Undifferentiated marketing Since 2001, 7 million machines were sold in Europe.

Launched in 2004 It’s a product of middle range (nearly £115) Capsules’s price : Between £0.22 and £0.28 It proposes not only coffee but tea, hot

chocolate … in capsules . Principal target: the family . Focused marketing

Analyse’s competitors

multi-BEVERAGE

DIVERSITY OF COFFEE CAPSULES

MACHINE QUALITY

ACCESSIBILITY (Capsules buying)

POSITIONING (top of the range)

COMPETITIVENESS PRICE MACHINES AND CAPSULES

ACCOUNTING ALL BRANDS

SENIORITY ON THE MARKET

Nespresso

Tassimo

Senseo

+

Capsules

When we have Nespresso’s Espresso we haveto buy Nespresso’s capsules, but recently some companies have started to propose capsules that are compatible with Nespresso’s machines at a lower price. Example : Maison du café or hypermarket like Casino . It’s a real competition.

Our Innovation

For our future project, we have imagine the same system with capsules but to make cocktails!

NOW

Segmentation, targeting and positioning

Segmentation

The segmentation criterions are :- Socioeconomic variable (income)- Mode and place of purchase- Attitudes and behaviours towards the product

Targeting

The target aimed by Nespresso is the consumer who is looking for top of the range products. In fact , the core target are urban people with high incomes (the well-off) . Between 28 and 49 years. Who like taste and quality.

More generally the target is people between 30 and 60 years, it’s every person who drinks coffee.

Positioning

The positioning of Nespresso is luxury and premium quality. In fact there are lot of aspects:

- The price of the coffee machine and capsules is higher (£164 for a Nespresso coffee machine; £59 for a Senseo one ; and Nespresso's capsules are three times more expensive than this one’s)

- Place of distribution is exclusively Nespresso's stores and internet (never in hypermarkets and supermarkets) this dimension show the aspect precious and rare. Shops are beautiful and prestigious.

- "Nespresso's Club" symbol of mystery, inaccessibility and elegance.

- Personalized customer service: Desire to do of each customer someone unique.

- Celebrity campaign with the famous “What else” of Georges Clooney. With this action Nespresso associate the brand with a figure elegant, refined and manly of Hollywood.