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A new way to sell coffee

How to sell roasted coffee

Reasons of a closed market (concentrated)

The world consumes more than 6 millions tonnes of coffee; green coffee beans are the 2d commodity in the world after Petroleum. Roasted coffee which represent a huge market for agro-industrial companies, gathered 3 big majors that share 75 % of the market (Kraft,Sara Lee and NestlÐ"©).

This concentration of companies in the market has different historical causes but we also can find some reasons in the retail channel or the steps in the supply chain where coffee takes value. This last one is quiet important to be aware of if we want to understand the success and the revolution of Nespresso.

Coffee beans increase in value when it’s roasted (product creation) and when it’s prepared (service). Coffee beverage taste well just after it’s prepared , because of that, this step has kept an artisanal aspect or an art (as Italian says) which is enjoyed by the barista of the restaurant or coffee shop or all of us when we prepare a hot fresh coffee. In this context, coffee roasters companies had no choice than concentrate all their ambition on selling grind roasted coffee.

We can identify 2 retail channels

- CHR. A B to B market where customers buy big amount but in majority looks for the cheaper price.

- Supermarket retailers. A B to C market which is the one that interest us.

Characteristics of the Supermarket retailer market

To sell coffee through supermarket retailers have the advantage to access to mass market but also impose the rules of this retail channel. The first one, known by all companies which sell by this way, is the war price. In the case of the grind coffee there are other limitations as the packaging (only by 250 or 500 grams) or the trend to sell a more or less dark roast coffee which allows blending different green coffee qualities without affecting the taste .

In this context before Nespresso, coffee brands have a strong positioning about their image (tradition, veloutÐ"©, etc…) more than about the coffee characteristics (like different origin, terroir, roast, etc…) . They had to play on classical competitive advantage in a supermarket retailer context.

NestlÐ"© history / R&D

NestlÐ"© has been known by their innovation in agro-industrial industry as its history show it. The company has been created in 1850 by a chemist who developed infant milk for premature baby. In 1936, Brazil, as a precaution against an overproduction of coffee, asked for NestlÐ"© to create a new method to stock and sell this coffee: instant coffee was developed. During 50 years, NestlÐ"© is going to compete in mass market with this innovation. The competitive advantage was that it’s an easy use product and that they can stock their product for much longer than with roasted coffee . The other side of the innovation was a less quality product impossible to improve at the level of fresh roasted coffee.

In the 70’s, NestlÐ"© looks for a way to upmarket stretch its brands keeping the attributes of instant coffee (easy use and offer always the same taste). They ask to Monodor to find a way to deliver a perfect cup of coffee, a good positioning to target was the Italian coffee culture of espresso. By this way Monodor developed the integrated system (1974) known as Nespresso. The integrated system is based on the development of a portioned cap with keep all the flavour and feet in an easy use espresso machine. It represents a revolutionary innovation in the industry if we think that the last ones was instant coffee and espresso machine (1900).

In 1986, NestlÐ"© start with Nespresso concentrating in a B to B market (office/restaurant) in 3 countries: Switzerland, Italia and Japan. A joint venture was created with Sodal, a Switzerland distributor, and the production of the machine to Turmix . The joint venture bought the machine to Turmix and the coffee to NestlÐ"© then delivers and maintains the product. But this first try failed but NestlÐ"© give to Nespresso an other chance.

Portioned coffee on B to C coffee market

In the 90’s, the context has changed. Companies as Starbucks and Max Haavelar label gave to customers new expectations around coffee beverage.

In B to C market, Nespresso system gives a competitive advantage to NeslÐ"© just because of the concept which allows selling a product and a service. The concept by itself provides an important brand differentiation that Nespresso was awarded enough to don’t sell it through mass market; the revolution of portioned coffee in the closed coffee market was coming.

Awarded of this advantage, Nespresso set up a radical new segmentation based on a socio-economical selection which starts with the price of the machine , a high level brand image and an independent retail channel. Let’s have a look of this positioning.

Taking into account the new needs of customers as the expectation of a technological appropriation, designing their own products, one to one marketing, decreasing in mass media impact or brands communities, Nespresso is going to built up its positioning to full field that new needs.

Marketing Mix вЂ" Product

Nespresso coffee makers offer a large range of design (classical, modern or ultra-modern) which adapted easily to different interior home design. More than 22 different machines which are not produce nonetheless market by them.

They propose 12 different tastes as well as 2 more limited editions per year, depending on customer’s habits of consumption they want to target.

Moreover they propose a lot of accessories as cups, caps box, NestlÐ"© chocolate, sugar bowl, apron, etc … which divulge the brand image through “happy” customers.

By the end they offer high quality services favouring exclusively direct contact with customers who can only buy the caps through their shops, a website or by phone that allow them to reinforce a sophisticate brand image. They also propose 24 hours per