Post on 03-Nov-2015
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NESTL SA IN HOT DRINKS (WORLD)
September 2014
Euromonitor International PASSPORT 2 HOT DRINKS: NESTL SA
Disclaimer
Much of the information in this
briefing is of a statistical nature and,
while every attempt has been made
to ensure accuracy and reliability,
Euromonitor International cannot be
held responsible for omissions or
errors.
Figures in tables and analyses are
calculated from unrounded data and
may not sum. Analyses found in the
briefings may not totally reflect the
companies opinions, reader discretion is advised.
Nestl is the global leader in
hot drinks and it is accelerating
its expansion in the US
following the formation of
Jacobs Douwe Egberts (JDE).
The companys presence in standard fresh ground coffee is
weak and it has been making
efforts to develop coffee pods,
particularly in Western Europe.
Multi-beverage Nescaf Dolce
Gusto outperformed Nespresso
but both are facing competition
from compatible products and
private label. The companys initiatives in tea pods are bold
and encouraging.
Scope
SCOPE OF THE REPORT
All values expressed in this report are in US dollar terms, using a fixed exchange rate (2013).
2013 figures are based on part-year estimates.
All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data are expressed in current terms; inflationary effects are taken into account.
Jewellery Confectionary
US$185,477 mn
Refrigeration
Appliances
144,010
Microwaves
60,669 Home
Laundry
121,107 Large Cooking
Appliances
132,745
Home Laundry
Appliances
121,107
Microwaves
60,669
Small
Appliances
1,724,022
Hot Drinks
US$138.1 billion
Coffee
US$80.8 billion
Tea
US$40.2 billion
Other Hot Drinks
US$17.0 billion
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
COFFEE OPPORTUNITIES
TEA AND OTHER HOT DRINKS
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
Euromonitor International PASSPORT 4 HOT DRINKS: NESTL SA
Nestl has seven core business segments: Powder and Liquid Beverages (hot drinks included
here); Water; Milk Powder and Ice Cream; Nutrition
and HealthCare; Prepared Dishes and Cooking
Aids; Confectionery; and PetCare. According to the
company, Water accounted for 7.3% of the groups
CHF sales in 2013, and 5% of trading operating
profit.
Within its beverages business, the Nespresso platform is a high-growth revenue generator and
receives plentiful attention in terms of media
attention and R&D. Nestls 2013 annual report
combined instant coffee, the Nespresso business
and other powder and liquid beverages together,
showing no split between them.
Nestl sits at the top spot of global hot drinks by value, ranking number one in both coffee and other
hot drinks in 2013. Its Nespresso business
continues to grow globally although it showed a
marked slowdown in Western Europe amid
growing competition. The company is expanding in
the US by introducing new machines to take on
Kuerigs dominance.
0
5,000
10,000
15,000
20,000
25,000
2008 2009 2010 2011 2012 2013
US
$ m
illio
n r
sp
Nestl SA: Global Hot Drinks Value Sales 2008-2013
Nestl SA
Headquarters: Vevey, Switzerland
Regional involvement: Global
Category involvement: Coffee, other hot drinks
World hot drinks off-trade value share (2013):
16.0%
World hot drinks off-trade value growth (2012-2013):
8.6%
Nestl presence in hot drinks focused on coffee
STRATEGIC EVALUATION
Euromonitor International PASSPORT 5 HOT DRINKS: NESTL SA
Nestls more moderate but more profitable growth for FY2013 STRATEGIC EVALUATION
For the fiscal year 2013, Nestl posted growth slightly below the 5% long-term target for organic growth, but its
trading operating profit margin rose slightly for the year.
Zone Europe delivers positive growth
Nestls FY2013 results offer unusual reading. In contrast to the patterns of recent years, 2013 saw
minimal reported revenue growth in Zone Europe and
levels of growth in the reporting segments
encompassing emerging markets well below recent
levels.
Although the groups organic growth was broad based, Europe posted 0.8% growth, Americas 5.1% and the
AOA region 7.4% year on year.
Nestl Nutrition remains the high-growth/high-profit
division
The infant nutrition business, enhanced by the Wyeth Nutrition acquisition, had a very positive year in
FY2013, particularly in infant formula and infant cereals.
The business delivered double-digit growth in Brazil and
Russia. The US benefited from the continued rollout of
innovations to help prevent colic and allergies, and
strengthening of the Gerber brand franchise.
Nestl SA: Reported Results (CHF million)
FY2012-FY2013
2012 2013 Y-o-y
growth
Zone Europe 15,388 15,568 1.2%
Zone Americas 28,613 28,375 -0.8%
Zone Asia,
Oceania and Africa
(AOA)
18,875 18,859 -0.1%
Nestl Waters 7,174 7,231 0.8%
Nestl Nutrition 7,859 9,826 25.0%
Other 11,813 12,299 4.1%
Group Total 89,722 92,158 2.7%
Operating trading
profit 13,464 14,012 4.3%
Profit for the year 10,677 11,060 3.6%
Profit margin (%) 11.9 12.0
Source: Nestl Annual Report 2013
Euromonitor International PASSPORT 6 HOT DRINKS: NESTL SA
In the first half of 2014, Nestl delivered organic growth of 4.7%, with total sales reaching CHF43
billion. In Q1, the extension of the Grand Cru
coffee range, innovative services and new
machines ensured that demand for Nespresso in
established markets remained solid despite
significantly increased competition. Geographic
expansion was accelerated with 14 new boutiques
opened across the world. In North America there
has been a good response to the launch of the
VertuoLine system delivering the long-cup coffees
preferred by US consumers.
In zone Asia, Oceania and Africa, the premium businesses continued to be a growth driver for the
Zone. The continuing rollout of Nescaf Dolce
Gusto delivered double-digit growth. Innovation
also contributed with new launches including Yinlu
Walnut Milk in China (included in soft drinks) and
new portioned packs of Milo in Australia. There
was solid growth for Milo in cocoa and malt
beverages and Maggi in ambient culinary. Russia
saw good growth for Nescaf Dolce Gusto.
Nestl SA: Sales Overview by Business Segment
H1 2014
Business segment Jan-June 2014
(CHF million)
Jan-June 2014
% organic
growth
Powdered and
Liquid Beverages 9,835 5.3
Water 3,410 5.8
Milk Products and
Ice Cream 8,085 5.7
Nutrition &
Healthcare 5,659 7.6
Prepared Dishes
and Cooking Aids 6,394 0.0
Confectionery 4,184 3.4
PetCare 5,414 5.3
Total Group 42,981 4.7
H1 results in 2014
STRATEGIC EVALUATION
Euromonitor International PASSPORT 7 HOT DRINKS: NESTL SA
Nestls Four Operational Pillars Innovation and
portfolio development
Efficiency - highest quality - lowest cost
Consumer communication
Product availability across all
distribution channels
Nestl continuously reformulates products
to enhance their
nutritional profile, by
reducing unhealthy
elements and/or
increasing their nutrient
content. Central to the
groups innovation strategy is the
development of
branded active ingredients, through which Nestl aims to
highlight its science-
driven approach and its
R&D capabilities.
Nestl's cost-saving strategies have been
implemented as per the
Nestl Continuous
Excellence programme.
The group has
improved operating
margins over the years.
In 2013, both the cost of goods and
distribution expenses
rose, but the
companys trading operating profit grew by
4% and its trading
operating margin
increased by 20 basis
points on 2012.
Intense innovation in line with ongoing trends
and efficient
communication of
added-value benefits
will be key to the
success of the groups portfolio improvement
and to enable strong
pricing positions to
recover significant R&D
investment.
Investment in advertising will also be
key to increasing the
groups competitive edge and differentiating
itself from its rivals.
One of Nestls strategic pillars is the
broadening of
distribution to increase
consumption
opportunities. Its
multiple channel
strategy, ranging from
traditional retailers to
modern grocery and
online, especially
targets impulse
opportunities, such as
street vendors, kiosks
and vending machines,
which are vital to, for
example, ice cream
and confectionery
sales.
Nestls strategic directions STRATEGIC EVALUATION
Euromonitor International PASSPORT 8 HOT DRINKS: NESTL SA
STRENGTHS
OPPORTUNITIES
WEAKNESSES
THREATS
With Nespresso and Nescaf Dolce Gusto
expanding globally,
Nestl continues to lead
the global coffee pods
market, despite its share
being eroded by Keurig.
Strength of pod coffee
With a strong global footprint, Nestl's global
value share of instant
coffee stood at 48% in
2013. Its dominance
here is and will remain
secure for some time to
come.
Instant coffee North America
North America has traditionally been a
weakness for Nestl in
hot drinks. It is now
addressing this by
introducing Nespresso to
foodservice and
launching a new
machine.
Standard fresh coffee
Nestls bold move with Special.T is interesting
and the premium tea
segment is certainly
worth exploring further
especially in developed
markets.
Special.T
The category is growing and Nestl needs to
continue to sustain its
presence in Western
Europe and penetrate
key coffee-drinking
markets.
Coffee pods
Nespresso-compatible products and private
label are cannibalising
Nespressos share of
coffee pods.
Threat to Nespresso
The competition is changing, with Keurigs
partnership with multiple
brands and the formation
of major rival JDE.
Keurig and JDE
SWOT: Nestl SA
STRATEGIC EVALUATION
While Nestl leads instant coffee and coffee
pod sales, it has virtually
no presence in standard
fresh ground coffee and
it is weak in coffee
beans.
Euromonitor International PASSPORT 9 HOT DRINKS: NESTL SA
The emergence of Nespresso-compatible products is a huge
threat to Nespresso. The fact that
these brands are available in both
multiple grocers and online
makes them more accessible to
consumers. DE Master Blenders
(DEMB)s LOr Espresso is
emerging as a key challenger to
Nespresso in Western Europe.
In Western Europe, Nespresso continues to hold 41% of the
coffee pods market and private
label accounts for around 11%.
Nestl has been fighting for
patent protection but it seems
likely that it will not keep the
technology to itself. While a
devastating blow to the company,
it also highlights Nestls
leadership in innovation.
Nespresso compatibles
Nestls bold move in single-serve tea-specific machines, Special. T is
still at the experimental stage.
Premium teas and making tea
drinking a long-lasting premium
experience are being explored by
various manufacturers including
DEMB and Unilever. This is a
manufacturer-led movement and
manufacturers are trying to
convince consumers of the
premium nature of their teas and
the method of tea preparation.
Therefore, marketing expenditure is
likely to be high in this space.
Following Nestls launch in tea machines, Unilever responded with
Tea Fusion endorsed by Lipton.
Tea machines is a niche segment
but competition is growing.
Premium tea
Although Nestls innovation is copied and used by other players,
this has not stopped the company
innovating further. Its launch of
new machines in the US and the
Nespresso boutique retail concept
are encouraging moves.
Nevertheless, technology creates opportunities for Nestl, opens up
possible new sales routes, but,
also invites new competition.
Technological innovation does not
guarantee success.
The formation of JDE is also a threat to Nestl, as the combined
resources for coffee are enormous
and the economies of scale
derived from optimising
technological innovation and
marketing for its widened portfolio
of brands considerable.
Innovation
Challenges in hot drinks
STRATEGIC EVALUATION
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
COFFEE OPPORTUNITIES
TEA AND OTHER HOT DRINKS
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
Euromonitor International PASSPORT 11 HOT DRINKS: NESTL SA
Nestl continued to outperform the global hot drinks market in 2013, thanks to healthy growth in instant coffee in major emerging markets and expansion in pods in developed markets. Its strong growth continued
to be supported by Nespresso, Nescaf Dolce Gusto and Nescaf. Nestl will face a greater challenge
following the merger between Mondelezs coffee unit and DEMB.
Mondelez marginally outpaced the market thanks to the strong performance of the beverage system brand Tassimo. Its multi-beverage capability and relative affordability compared to Nespresso helped it appeal to
the mass market and secure healthy volume sales. The availability of Tassimo in grocery stores has also
proved an advantage in targeting mass-market consumers.
DEMBs overall performance was hampered to some extent by its limited geographic presence and slow sales of Senseo, which has been one of the losers in the global single-serve coffee boom in recent years.
Going forward, DEMBs acquisition of Norways Kaffehuset Friele may help its development of single-origin coffee beans in European markets. However, Keurigs expanded collaboration with established brands and
its potential interests in international markets are likely to see it emerge as an international player in the
medium term.
0
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4
6
8
10
12
Nestl Mondelez Unilever Total Hot DrinksMarket
DEMB Strauss/So Miguel Strauss Group Ltd
% y
-o-y
va
lue
gro
wth
2
01
2-2
01
3
Global Hot Drinks: Selected Companies % Y-o-Y Growth 2012-2013
Nestl slightly outperforms the global hot drinks market in 2013
COMPETITIVE POSITIONING
Euromonitor International PASSPORT 12 HOT DRINKS: NESTL SA
Compared to soft drinks, hot drinks is a very fragmented industry, with the top 10 hot drinks players making up only 38% of the global
market in 2013. Nestl continues to occupy the top spot in the global
hot drinks market. Its leadership is underpinned by its consistent
growth in both instant coffee in emerging markets and fresh coffee in
developed markets, while its presence in tea is limited. Its strong
presence in other hot drinks also helps to support its overall hot drinks
position.
Despite the split from Kraft, Mondelez maintained its second position and kept a solid distance between itself and Unilever. Unilevers third
position is due to its strong leadership in tea, with wide geographical
coverage. However, tea is an industry lacking a coffee pod moment,
meaning there is no single tea category or type driving large-scale
consumer trading up across developed markets. Unilevers potential
expansion of the newly-acquired Australian T2 premium tea retail
brand will help Unilevers ambition to expand into premium tea.
Mondelez and DEMBs future partnership - JDE - will move to the top of global coffee by retail volume, but it will stay in second place
behind Nestl in retail value terms. The combined strength of
Mondelez and DEMB will be a compelling force in the global hot
drinks market and a real threat to Nestl.
Global top 10 hot drinks companies by value in 2013
COMPETITIVE POSITIONING
Top 10 Hot Drinks Companies
2013
Company % value
Nestl SA 16.0
Mondelez International
Inc 6.9
Unilever Group 3.6
DE Master Blenders
1753 NV 3.4
Green Mountain Coffee
Roasters Inc 2.0
Tchibo GmbH 1.5
JM Smucker Co, The 1.3
Associated British
Foods Plc 1.3
Tata Global Beverages
Ltd 1.2
Lavazza SpA, Luigi 1.1
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
COFFEE OPPORTUNITIES
TEA AND OTHER HOT DRINKS
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
Euromonitor International PASSPORT 14 HOT DRINKS: NESTL SA
Asia Pacific and Latin America are set to be the growth engines for hot drinks over 2013-2018, with the two regions contributing over half of global growth over the forecast period. Strong growth in both Brazils coffee
and Chinas instant tea markets is set to be key to this growth. Nestl has invested in Chinas Yinlu local
beverages but it is unlikely that Nestl will be interested in expanding into instant tea. In Western Europe
and Australasia, hot drinks growth will be more subdued, with CAGRs of 1-2%. North America appears to
show a more positive picture. In the US, Nestl introduced the VertuoLine system especially designed for
the local long-cup market, a bold move given Keurigs dominance.
Nestl SA: North America remains a weak spot
MARKET ASSESSMENT
Asia Pacific
Australasia Eastern Europe
Latin America
North America
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Market size 2013 (US$ million rsp)
Nestl SA: Hot Drinks Presence 2013 and Growth Prospects 2013-2018 by Region
Note: Bubble size shows company share of region in 2013. Range displayed 3.8-43.2%
Middle East and Africa
Western Europe
Euromonitor International PASSPORT 15 HOT DRINKS: NESTL SA
Instant coffee is Nestls primary interest in hot drinks, a category it dominates with a 48% retail value share in 2013. Instant coffee sales are expected to post a CAGR of 3% in off-trade value terms over 2013-
2018, with emerging markets Asia Pacific, Eastern Europe and Middle East and Africa key growth
contributors. Nestl, as the global leader in the category, stands to benefit disproportionately and it has
dominant positions in key growth markets such as China (75% share), Mexico (74%) and the UK (42%).
While Nestl was late to standard fresh ground coffee, it has focused on growing its presence in premium fresh coffee pods with Nespresso and Nescaf Dolce Gusto. Mid-ranged Nescaf Dolce Gusto is being
rolled out globally and achieved higher growth than super premium Nespresso. Nescaf Dolce Gusto is
now present in 73 countries, according to the companys annual report.
Nestl leads global other hot drinks sales through its Milo and Nesquik brands based largely on its emerging market presence. It also has an emerging presence in premium tea with the Special.T system (a
pod-based system similar to Nespresso), although its sales here remain modest.
Nestl SA: Dominant in instant and focusing on growing pod coffee
MARKET ASSESSMENT
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Market size 2013 (US$ million rsp)
Nestl SA: Hot Drinks Presence 2013 and Growth Prospects 2013-2018 by Category
Note: Bubble size shows company share of category in 2013. Range displayed 0.8-47.7%
Standard Fresh
Ground Coffee
Fresh Coffee Beans
Fresh Ground Coffee Pods
Instant Coffee
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
COFFEE OPPORTUNITIES
TEA AND OTHER HOT DRINKS
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
Euromonitor International PASSPORT 17 HOT DRINKS: NESTL SA
Global opportunities will remain biased in favour of fresh coffee
COFFEE OPPORTUNITIES
Within the major coffee growth markets, fresh coffee will generate much higher value growth over 2013-2018 than instant coffee. Globally, growth in instant coffee will be driven by emerging markets, primarily in
Asia Pacific, headed by China. Some developed markets, such as Canada and Germany, are likely to see
sluggishness or even decline in instant coffee.
Brazil, the US, Canada and Spain are major forces for growth in fresh coffee. In Brazil, Nestls weakness in standard fresh ground coffee affects its pace of share gain in overall coffee. Its key competitors are
Strauss/So Miguel, DE Master Blenders and potentially the entity, JDE, formed by the merger between
DEMB and Mondelezs coffee unit. Currently, there is little competition in coffee pods and Nespresso
dominates the category.
In the US and Canada, Nespresso is expanding and taking on Keurigs strong position there. It is crucial for Nestl to grow the new beverage machine VertuoLine by scale and its beverages should be designed to fit
local consumers palates and lifestyles.
-500
0
500
1,000
1,500
2,000
Brazil US Canada China UK Spain Mexico Russia Ukraine Germany
Ab
so
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wth
(U
S$ m
illio
n)
20
13
/20
18
Fresh vs Instant Coffee: Strongest Absolute Value Growth Markets 2013/2018
Fresh Coffee Instant Coffee
Euromonitor International PASSPORT 18 HOT DRINKS: NESTL SA
Nestl leads the global coffee market, with a retail value share of almost 23% in 2013. Nestls strong position is underpinned by
its successful expansion via instant coffee in emerging markets
and coffee pods in developed markets.
Jacobs Douwe Egberts (JDE) will be a strong second player by retail value sales, with a potential 16% share, thanks to
Mondelezs good international coverage and DEMBs wide
presence in Europe. At the time of writing, DEMB is in the
process of acquiring a premium coffee bean company,
Kaffehuset Friele (owner of House of Coffee), based in Norway.
DEMBs target market for its bean business is mainly Western
Europe.
Keurig (GMCR) currently operates in the US only; however, international expansion cannot be ruled out. The Coca-Cola Co
recently acquired a 10% stake in Keurig, and the partnership will
allow Coca-Cola in a capsule format to be dispensed in Keurigs
cold beverage machine. The partnership may give Keurig further
confidence to expand beyond its domestic comfort zone.
Strauss and its Brazilian joint venture Strauss/So Miguel both appeared in the top 10 in 2013. However, Strauss Group has
seen its global share decline as a direct result of its slow entry
into pods.
Nestls position still strong in overall coffee in 2013 COFFEE OPPORTUNITIES
World Top 10 Coffee Players by Retail
Value Share 2013
Company %
value
Nestl SA 22.7
Mondelez International Inc 10.9
DE Master Blenders 1753 NV 5.4
Green Mountain Coffee Roasters
Inc 3.4
Tchibo GmbH 2.5
JM Smucker Co, The 2.3
Lavazza SpA, Luigi 1.9
Strauss/So Miguel 1.5
Strauss Group Ltd 1.5
Kraft Foods Group Inc 1.5
Euromonitor International PASSPORT 19 HOT DRINKS: NESTL SA
Nestls global position in coffee may be challenged by the arrival of Jacobs Douwe Egberts. In May 2014, Mondelez and DE Master Blenders 1753 (DEMB) jointly announced the decision to combine their
respective coffee businesses to create the worlds leading coffee company, with annual revenues of over
US$7 billion. The new company, called Jacobs Douwe Egberts (JDE), will be based in the Netherlands.
This deal will be one of the most significant in the global coffee market in many years, and is likely to
reshape the competitive landscape.
The parties have entered into an agreement to combine Mondelezs wholly-owned coffee portfolio (outside France) with DEMB. In conjunction with this transaction, Acorn Holdings BV (AHBV), owner of DEMB, has
made a binding offer to take over Mondelez's coffee business in France. The parties have also invited
Mondelez's partners in certain joint ventures to join the new company. The transactions remain subject to
regulatory approvals and the completion of employee information and consultation requirements. In 2013,
Mondelez's wholly-owned coffee business generated revenues of around US$3.9 billion, and DEMB
generated some US$3.4 billion. Upon completion of all proposed transactions, Mondelez will receive cash
of approximately US$5 billion and a 49% equity interest in JDE. AHBV will hold a majority share in the
proposed combined company and will have a majority of the seats on the board, which will be chaired by
current DEMB chairman Bart Becht. AHBV is owned by an investor group led by JAB Holding Company
Sarl. Mondelez will have certain minority rights. The transactions are expected to be completed during the
course of 2015, subject to limited closing conditions, including regulatory approvals.
The proposal includes DEMBs tea business, which is highly complementary as Mondelez has little presence in tea. However, Mondelezs chocolate drinks are excluded from the deal. JDE will be the global
brand owner of all the coffee and tea brands of both companies. As this is only at the proposal stage, the
details regarding how these brands will cross leverage each others networks have not yet been disclosed
or discussed in public.
New rival: Mondelez/DEMBs partnership proposal for JDE COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 20 HOT DRINKS: NESTL SA
If the deal is approved, JDE will assume the number one position in the worlds coffee market by retail volume, with a 15% share, overtaking market leader Nestl (12%). However, in value terms, JDE will be
placed second, with a 16% share, overshadowed by Nestl (23%). Nestls high value positioning is
underpinned by its strong presence in coffee pods, and its wide coverage in instant coffee, particularly in
emerging markets.
The deal is a strategic fit and highly complementary for both Mondelez and DEMB, particularly in terms of coffee brands and geographic profile. JDE would have a much wider brand portfolio than the two
companies have at present, encompassing Jacobs, Carte Noire, Tassimo, Kenco, Douwe Egberts, LOr,
Pilo and Senseo, and these brands will potentially have immediate access to an established network in
key markets. For example, Mondelez is absent from Brazils coffee market and can leverage DE Master
Blenderss strong leadership in Brazil to make a relatively smooth entry. DE Master Blenders can also use
Mondelezs strength in China to expand.
From a competitors point of view, the deal is a threat to Nestl, as it must face not only JDE globally but also Keurig in the US. The Coca-Cola Cos acquisition of a 10% stake in Keurig has made the situation
even more challenging, as Keurig has strengthened its financial position. The emergence of copycat
Nespresso-compatible products, private label and generic single-serve products has already put pressure
on Nespressos share. Nestl may have to expand aggressively into the US coffee pods category and
strengthen its position in major emerging markets. Nespressos recent launch of VertuoLine in the US,
which allows the machine to produce a large cup of espresso, is a good experiment.
The potential impact of JDE
COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 21 HOT DRINKS: NESTL SA
JDE
(15.3%)
Nestl (11.8%)
JM Smucker (4.1%),
Strauss/So Miguel (4.0%),
Tchibo (2.3%), Kraft (2.2%),
Melitta (1.9%), Lavazza (1.8%)
Others
JDE will lead the global
coffee market
by volume with
a good margin
between itself
and Nestl.
Nestl is
unlikely to be
challenged by
those
companies
below. Over
2013-2018,
Nestls key
battle will be in
the US and with
new rival JDE.
New order in competition pyramid by off-trade volume with JDE
COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 22 HOT DRINKS: NESTL SA
Nespresso saw its growth slow down upon the
emergence of Nespresso-compatible products
and rival brands such as LOr Espresso. The
potential formation of JDE and its wide brand
portfolio will represent a threat to Nespresso.
Case study: Challenging landscape in single-serve coffee
COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 23 HOT DRINKS: NESTL SA
Globally, most major coffee players are engaged in the pods business to varying degrees. While
Nespresso has global coverage, Green Mountain
Coffee Roasters is strong in the booming US market.
In March 2014, GMCR changed its name to Keurig
Green Mountain, to reflect its business of selling
Keurig coffee makers. GMCRs Keurig pod system
overtook Nespresso for the first time in 2013 to
become the number one brand by value in pods
globally, thanks to its strategy of allowing established
beverage brands to be made compatible with its
system.
Nestls strong rival will be JDE, which will have four major single-serve beverage system/pod brands in
the top 10: Tassimo, Senseo, LOr Espresso and
Jacobs, covering a spectrum of price points. The fact
that these pods are available in the grocery channel
helps them attract more consumers doing their
weekly shopping. Mondelez recently launched
Nespresso-compatible pods for the Jacobs and Carte
Noire brands in Switzerland, Germany and France to
target Nespressos core markets, and JDE may have
a chance to steal some share from Nespresso.
Global Top 10 Fresh Ground Coffee Pods
Brands by Value Ranking 2008/2012/2013
Brand 2008 2012 2013
Keurig 5 2 1
Nespresso 1 1 2
Nescaf Dolce
Gusto 4 3 3
Tassimo 3 5 4
Senseo 2 4 5
L'Or Espresso - 6 6
Cafissimo 8 7 7
Lavazza Systems 7 9 8
Jacobs 6 8 9
Delta 13 10 10
Global pods: Nespresso overtaken by Keurig amid US growth
COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 24 HOT DRINKS: NESTL SA
Global prospects for coffee pods by market
COFFEE OPPORTUNITIES
0.0
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35.0
40.0
45.0
0
200
400
600
800
1,000
1,200
1,400
US Canada Spain Germany Italy France Portugal Sweden Brazil Belgium UK Switzer-land
Australia
% C
AG
R 2
01
3-2
01
8
Ab
so
lute
va
lue
gro
wth
(U
S$
mill
ion
) 2
01
3/2
01
8
Forecast Value Growth in Coffee Pods by Country 2013-2018
Absolute Growth US$ million CAGR % 2013/18
Euromonitor International PASSPORT 25 HOT DRINKS: NESTL SA
Developed markets the driver
Growth to be found mainly in developed markets due to high initial cost of purchasing the machine and low affordability in most developing markets. It is important for Nespresso to strengthen its position in developed markets in terms of both the machines and the drinks. In Western Europe, Nestl will need to fight hard against Nespresso-compatible products and make a considerable effort to retain consumer loyalty.
In the long term, pod machines will filter through to major coffee growth developing markets, such as China. Nestls strong position in instant coffee in these markets will thus help it to expand in fresh coffee.
Beverage machines or beverage
Beverage machine operators and beverage brand owners have to be clear how to develop their systems and technology in association with their coffee brands.
As patents for machines will expire, the machine owners have to maximise the value of innovation before this occurs. The emergence of Nespresso-compatible pods has alerted both machine and beverage brand owners regarding consumer loyalty to the drinks.
Patents on technology can be vulnerable. Investment in R&D is not a guarantee financial success.
Collaborations
For pod marketers, the investment in machines can be huge and it is a complex issue to market, distribute and maintain the machines. A number of alliances and collaborations have been formed: Starbucks and Keurig, Keurig and The Coca-Cola Co (for cold beverages), Keurig with Lavazza etc.
The direction of development of machines is tending towards user-friendly, interactive and digital formats. However, consumers are increasingly sophisticated and they are looking for good value for money in innovation rather than superfluous modifications.
The future of pods
COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 26 HOT DRINKS: NESTL SA
Brazil has a concentrated coffee market, with the top three players making up over half of total retail value sales. Nestls rivals include
newly-created JDE, the Strauss/So Miguel joint venture, Melitta and
other smaller companies.
Nestl Brasil has a strong position within instant coffee as its brand is well known among consumers. Nestl has 14 exclusive stores and an
online portal to sell Nespresso coffee pods to consumers. At the
same time, its Nescaf Dolce Gusto brand has more widespread
distribution due to its more accessible price.
Nestls key current rival is DEMB, which is long established in Brazil in both the off-trade and on-trade. DEMBs strength lies in fresh
ground coffee, where it has been leader for many years. Standard
fresh ground coffee dominates coffee sales in Brazil and will continue
to do so over the forecast period. However, the pods category is
advancing rapidly and has attracted growing interest from both
consumers and industry players. Nestl dominates the pods category
and Melitta has introduced pods; however, sales and distribution
remain limited. Strauss/So Miguel has not registered category
shares in pods yet. In view of the categorys anticipated rapid growth,
DEMB may build a solid platform for L'Or Espresso and Senseo to
grab share from Nespresso, as consumers are already aware of its
corporate offering and are familiar with its brands in fresh ground
coffee.
Brazil: Coffee by % Company Value Share
2013
DE Master Blenders 1753 NV
Strauss/So Miguel
Nestl SA
Melitta Unternehmensgruppe Bentz KG
Indstrias Alimentcias Marat Ltda
Cacique de Caf Solvel, Cia
Others
Nestls big challenge in Brazil COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 27 HOT DRINKS: NESTL SA
Nestl to see JDE as formidable rival in pods in Western Europe
COFFEE OPPORTUNITIES
Post JDE Competition Landscape in Western Europes Pod Market 2013
Category Major company % value share
2013
JDE % value
share 2013 JDE rank 2013
Fresh Coffee Beans Mondelez International Inc 11.8 16.2 1
Lavazza SpA, Luigi 11.7
Tchibo GmbH 8.2
Alois Dallmayr oHG 6.6
DE Master Blenders 1753 NV 4.4
Fresh Ground
Coffee Pods Nestl SA 41.0
DE Master Blenders 1753 NV 15.2 24.6 2
Mondelez International Inc 9.4
Standard Fresh
Ground Coffee Mondelez International Inc 18.1 26.5 1
Lavazza SpA, Luigi 9.2
DE Master Blenders 1753 NV 8.4
Instant Coffee Nestl SA 47.5
Mondelez International Inc 16.2 18.2 2
DE Master Blenders 1753 NV 2.0
Euromonitor International PASSPORT 28 HOT DRINKS: NESTL SA
Nespresso is facing tremendous challenges in
the US coffee market: Keurig and chain coffee
shops are solid barriers. However, pockets of
opportunity exist in foodservice.
Case study: US - Pod battle
COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 29 HOT DRINKS: NESTL SA
Nespressos business model will continue to have a tough time in the US. Consumers there are very loyal to
their favourite hot drinks brands and will pay a premium
for a Keurig coffee machine because it brews all their
favourite branded drinks at the touch of a button and at a
price that is still perceived as reasonable. To succeed, it
will not be enough for Nespresso to focus on coffee size.
The right pricing and brand awareness and availability in
retail outlets such as grocery are also important.
The North American fresh coffee market is very concentrated, with the top two companies, Kraft and JM
Smucker, jointly commanding over one third of off-trade
fresh coffee volumes. Despite volume sales just one fifth
of JM Smucker, Green Mountain is North Americas most
valuable coffee company as almost all of its sales derive
from its Keurig pods which are premium priced.
In the US, specialist coffee shops are by far the most popular places for consumers to enjoy a cup of coffee
outside the home. In 2013, specialist coffee shops
generated sales of around US$18 billion and this is
expected to rise by a further 13% over 2013-2018.
Starbucks is the major player in this field, accounting for
around 60% of specialist coffee shops sales in 2013.
US Coffee Pods: Competitive Landscape % Company Value Share
2013
Green Mountain Coffee Roasters Inc
Nestl SA
Mondelez International Inc
Others
Nestl faces big challenges on all fronts
COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 30 HOT DRINKS: NESTL SA
In North America, there are only a few coffee brands that consumers brew at home, with one also being the main specialist coffee chain where the same consumers enjoy their coffee when out.
In this context, Green Mountain has been able to thrive. The company has been able to find success by combining its pod technology with stable partnerships with several popular licensed regional coffee brands.
Green Mountain has agreements with 25 different coffee brands to produce K-Cups, including four of the
top five brands by value in the US fresh coffee market - Keurig itself, Folgers, Dunkin Donuts and
Starbucks.
This strategy has helped Green Mountain attract customers who would normally hesitate in purchasing a pod coffee machine but are nonetheless interested in the possibility of brewing their favourite brand of
coffee at the touch of a button. Crucially, this partnership strategy has also limited the incentive for
competitors to launch rival pod systems and is in turn attracting further cooperation agreements. Even
Lavazza, the Italian coffee brewer, which in Europe partners Electrolux for its pod system, has decided to
cut out the Swedish company from its US pod expansion and has partnered with Green Mountain instead.
Lavazza purchased a 7% stake in Green Mountain and in 2012 launched its Keurig Rivo.
The Coca-Cola Co has purchased 10% stake in Keurig and started investing in the cold beverage system. TCCCs investment strengthened Keurigs confidence to expand and ensures that Keurigs innovation
pipeline will not run short.
Currently, Keurigs sales are mainly in North America. As the company grows, its international ambition may become more apparent. By then, Keurig will become Nestls global rival.
The K-Cup barrier: Open system carrying multiple coffee brands
COFFEE OPPORTUNITIES
Euromonitor International PASSPORT 31 HOT DRINKS: NESTL SA
Part of Nespressos plan to boost its share of the US market is to increase its brand exposure via
professional customers, such as restaurants. In
May 2013, Nespresso launched the Aguila, a
machine designed especially for US foodservice
outlets to help with this goal. While Nespresso may
be successful in gaining entry into US restaurants,
it is still unclear whether this will translate into a
larger presence in the US retail coffee pods
market.
Positioned as a premium product, available only through Nespresso boutiques or online retailers,
Nespresso is targeting only high-margin
restaurants to showcase its coffee. The brands
restaurant pitch echoes that of its individual
consumer: Nespresso can offer an unparalleled
combination of convenience and quality. Traditional
espresso machines used by higher-end
foodservice establishments require trained
professionals to operate, substantial maintenance,
and of course, a constant supply of fresh beans.
Exploration in foodservice
COFFEE OPPORTUNITIES
Nespresso machines, on the other hand, are simple to operate, require minimum care, while the
vacuum-sealed pods last up to 11 months.
Furthermore, though a premium product,
Nespresso machines are more economical than
standard espresso machines: not only is the initial
price of a Nespresso machine generally less
expensive, but the running costs are also much
lower. Thus far, Nespressos campaign has been
convincing. According to Nespresso sources, 30%
of the worlds Michelin-starred restaurants, many
within the US, have made the switch to Nespresso
machines.
0
25
50
75
100
125
150
2008-09 2009-10 2010-11 2011-12 2012-13
% y
-o-y
gro
wth
US Coffee Pods: GMCR vs Nestl % Y-o-Y Retail Value Growth 2008-2013
Keurig Nestl Pod Market Growth
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
COFFEE OPPORTUNITIES
TEA AND OTHER HOT DRINKS
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
Euromonitor International PASSPORT 33 HOT DRINKS: NESTL SA
Other hot drinks includes chocolate powder, malt drinks and local products. China represents a strong growth market, but Nestl has limited presence there. Chinas market is highly fragmented, with VV Group,
the market leader, commanding around 7% of retail value sales in 2013. Nestls strategy for China
changed upon its acquisition of Yinlu, which gave it a presence in local beverages and it does not try to
convince Chinese consumers to try Western style drinks. In Brazil, Nestl leads other hot drinks with strong
brand Nescau and Nesquik. Both PepsiCo and TCCC is present but other hot drinks are not their core
beverages in Brazil. Thus, Nestl has a good opportunity to sustain its leadership given its investments in
marketing campaigns and research and development of new products, pack sizes and flavours..
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China Brazil Indonesia Nigeria India Argentina Russia Mexico Venezuela UnitedKingdom
South Africa
CA
GR
% 2
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8
Ab
so
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Gro
wth
(U
S$
mill
ion
)
Other Hot Drinks Prospects by Country 2013-2018
Absolute Growth US$ million CAGR % 2013/18
Global other hot drinks outlook
TEA AND OTHER HOT DRINKS OPPORTUNITIES
Euromonitor International PASSPORT 34 HOT DRINKS: NESTL SA
Chocolate powdered drinks is likely to be the growth driver in the other hot drinks market. Emerging markets are the key growth geographies, including Brazil, Mexico, Indonesia and Venezuela.
In Brazil, Nestl (Nescau) and PepsiCo (Toddy) are the key players. The fact that the combined share of Nescau and Toddy is nearly 70% of the market makes it a real barrier for other potential entrants. Nescau
is a fortified chocolate-based flavoured powder drink with Actigen-E, a combination of vitamins and
minerals, in its formula. A marketing campaign focusing on adolescents is its key strategy to boost sales in
this category.
In Mexico, chocolate-based flavoured powder drinks registered the strongest growth in 2013, driven mainly by advertising which helps develop the perception among consumers that these are high quality products,
and in turn limits the impact of price increases on consumers purchasing decisions. Nestl Mxico
registered the strongest growth in other hot drinks in retail value share terms in 2013 due to the improved
performance of Nesquik in chocolate-based flavoured powder drinks. This was due to the recent launch of
the product containing stevia, an all-natural sweetener, which is considered healthier and potentially helpful
in curbing childhood obesity.
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1.0
2.0
3.0
4.0
0
200
400
600
800
1,000
Chocolate-based FlavouredPowder Drinks
Malt-based Hot Drinks Non-Chocolate-based FlavouredPowder Drinks
Other Plant-based Hot Drinks
CA
GR
% 2
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01
8
Ab
so
lute
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wth
(U
S$ m
illio
n)
World: Other Hot Drinks Prospects by Category 2013-2018
Absolute Growth US$ million CAGR % 2013/18
Chocolate powder to drive future growth of other hot drinks
TEA AND OTHER HOT DRINKS OPPORTUNITIES
Euromonitor International PASSPORT 35 HOT DRINKS: NESTL SA
Emerging markets are set to drive global tea growth. Asian emerging markets will continue to raise their profile, becoming attractive investment destinations, on the back of organic growth in demand for value-
added products, and consumers trading up.
China is forecast to account for over 40% of global absolute value growth over 2013-2018. The emerging middle class, changing lifestyles and urbanisation should be recognised and fully explored by
manufacturers. Missing the growth opportunities may risk weakened global status in the medium term.
The US will continue to see good expansion in tea sales, thanks to the healthy image of tea and premiumisation in the tea industry. Starbucks acquisition of Teavana and its increased interest and
activities in tea will help to create a premium tea moment.
Unilevers acquisition of T2 (premium tea specialist outlets) and further established a store in London means it has started exploring high end tea store.
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2.5
3.0
China India Pakistan Indonesia Russia Brazil Germany US
% C
AG
R 2
01
3-2
01
8
US
$ m
illio
n r
sp
Major Tea Growth Markets 2013-2018
Absolute Growth US$ million rsp % CAGR 2013/18
Asia major driver and rising premiumisation in developed markets
TEA AND OTHER HOT DRINKS OPPORTUNITIES
Euromonitor International PASSPORT 36 HOT DRINKS: NESTL SA
The top four tea companies maintained their global rankings in 2013. The positions of these major companies are not expected to show
significant change without major acquisitions.
Unilever, TGBL and ABF are the only truly global companies in the top 10. Although TGBL has ambitions to expand, its widening interests and
corporate objective to engage in a diverse range of beverages may
mean its hot tea business is given limited resources. Consequently,
TGBL and ABF are unlikely to pose an immediate challenge to
Unilever, unless they make significant acquisitions in major tea
markets.
Orimi and Ahmad Tea have profited from the consumer boom in Eastern Europe, with consumers trading up to tea bags and a variety of
loose teas, thanks to stabilised economies. The economic downturn did
not have a significant impact on tea consumption, as tea is a staple
beverage in the two companies core Eastern European region.
Tea has never been a core category in Nestl vast fmcg basket. RTD tea Nestea is Nestls most globally recognized tea beverage brand.
Interestingly, Nestl entered the premium tea category by high profile
launch of Special.T single serve tea specialist machine in 2010 and
now the machine is distributed in Belgium, Luxemburg, Germany,
Netherlands, France, Japan and Switzerland. It is reported that the
sales of Special.T exceeded Nestls expectation and the company is
increasing its investment in the field.
Global Top 10 Tea Companies
by Retail Value Share 2013
Company %
share
Unilever Group 11.9
Tata Global Beverages
Ltd 3.3
Associated British Foods
Plc 3.0
Orimi Trade OOO 2.3
Ahmad Tea London Ltd 2.3
Teekanne GmbH & Co
KG 1.7
Zhejiang Xiangpiaopiao
Co Ltd 1.6
Guangdong Strong
(Group) Co Ltd 1.5
Ito En Ltd 1.5
Mai Kompanya OAO 1.4
Global top 10 tea companies in 2013
TEA AND OTHER HOT DRINKS OPPORTUNITIES
Euromonitor International PASSPORT 37 HOT DRINKS: NESTL SA
In Europe, Special.T has its own website in each country in which it is present and the products can be purchased
through online Special.T shops.
In March 2013, Special.T was launched in Japan, its first market outside Europe. This is a bold approach, as Japan
is a highly mature tea-drinking market and Nestl is
unknown there for offering tea. However, Nespresso
continues to see strong double-digit growth in retail value
sales in Japan, which offer some encouraging signs for tea
pods. Special.T carries green tea and other varieties, such
as black, blue, white and organic herbal teas. It claims to
offer a selection of fine teas sourced from the top 1% of the
worlds tea plantations to attract sophisticated Japanese
consumers.
Japan has sophisticated and affluent tea drinkers, hence Nestls selling Special.T as a high quality product.
Crucially, Special.T will be available in grocery stores to
help it reach critical mass. Demographically, Japan's
population of 128 million will fall by more than a third by
2060, and about 40% of the population will be over the age
of 65. People living alone will tend to prefer smaller
beverage packs. Japans ingrained tea-drinking culture and
the traditional preparation of a cup of tea is challenged.
Special.T: A bold move with encouraging signs of progress
TEA AND OTHER HOT DRINKS OPPORTUNITIES
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
COFFEE OPPORTUNITIES
TEA AND OTHER HOT DRINKS
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
Euromonitor International PASSPORT 39 HOT DRINKS: NESTL SA
Compared to Nestls water business, Nestls hot drinks business has a smaller brand portfolio. Nescaf, Nespresso, Nescaf Dolce Gusto, Milo and Nesquik are the key brands. Apart from the tea beverage
machines and its associated tea products, Nestl has no established tea brands. Nescaf Dolce Gusto
showed the strongest performance thanks to its multi-beverage feature and mid-priced appeal. The fact that
the Dolce Gusto is available in grocery stores makes it convenient for consumers to top up supplies for their
machines, thus, increasing consumption frequency. Nesquik is a key other hot drinks brand and it has been
relaunched in Europe with 10% less sugar and fortified with OptiStart, containing vitamins and minerals to
complement milk and optimal mix of nutrients to support growth and development. The launch started in
France and covered most of Europe by the end of 2013. The Middle East and North and Latin America are
following at the time of writing.
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40.0
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6,000
8,000
10,000
12,000
14,000
16,000
Nescaf Nespresso Nescaf Dolce Gusto
% C
AG
R 2
00
8-2
01
3
US
$ m
illio
n r
sp
Nestl Major Hot Drinks Brands Value Sales 2013 and % CAGR 2008-2013
US$ million rsp CAGR % 2008/13
Nestl has narrow hot drinks portfolio and relaunches Nesquik
BRAND STRATEGY
Euromonitor International PASSPORT 40 HOT DRINKS: NESTL SA
Nescaf is Nestls number one selling brand in hot drinks based almost exclusively on its position in instant coffee. There is no single rival brand that challenges Nescaf although the combined strength of
Mondelezs instant coffee brands is considerable. Growing demand for instant coffee, primarily in emerging
markets, has helped it to grow despite growing premiumisation in mature Western European and North
American markets which favours fresh coffee sales.
In 2014, Nescaf is launching a unified, global look and feel across all products in the 180 countries where the coffee is sold. The purpose of the REDvolution campaign is to attract the attention of young consumers
and make the brand still relevant as coffee consumption trends evolve. Nescaf is also launching RTD
coffee Shakissmo in seven European markets to further capitalise on Nescafs brand equity.
Japan, China and Russia are Nescafs major markets. While Japans market is mature and Nescaf saw continuous slow growth, China was the growth driver, increasing by 15% in 2012-2013. There are still many
years of strong growth in instant coffee in China as coffee culture spreads further. The company has also
been acting as a coffee ambassador in traditional tea-drinking markets in Asia Pacific. Nestl is among
the most adept at tailoring its products to meet local requirements.
0.0
5.0
10.0
15.0
0
5,000
10,000
15,000
Nescaf Jacobs Maxwell House Maxim Carte Noire Tchibo Moccona
% y
-o-y
gro
wth
2
01
2-2
01
3
US
$ m
illio
n r
sp
Global Major Instant Coffee Brands Value Sales 2013 and % Y-o-Y Growth 2012-2013
US$ million rsp 2013 % y-o-y growth 2012-2013
Nescaf remains Nestls key brand in hot drinks
BRAND STRATEGY
Euromonitor International PASSPORT 41 HOT DRINKS: NESTL SA
Nespresso is based around a coffee club concept with retail taking place online from Nestl or through any one of its boutiques, some of which are stand-alone retail stores, but with most others operated as
shop-in-shop formats in premium-positioned department stores rather than through supermarkets.
Nespresso has seen growing competition from not only new arrivals every year and private label, but also
Nespresso-compatible brands. The potential formation of JDE will also put some pressure on the pace of
growth for Nespresso globally. To maintain growth, Nespresso, with 320 boutiques, will continue to open
stores, but insists that it will not go down the grocery route. Instead, it is developing the Nespresso
Business Solution and Automated Boutique concept to boost sales. Nespresso Cube, a digital, fully-
automated Nespresso Boutique, was launched in Western Europe in 2014. Nespresso is launching the
VertuoLine system in the US and this will prove a challenge as the pod market is dominated by Keurig.
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5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
0
500
1,000
1,500
2,000
2,500
3,000
Keurig Nespresso Tassimo Nescaf Dolce Gusto Senseo L'Or Espresso
% y
-o-y
gro
wth
20
12
-20
13
US
$ m
illio
n r
sp
Global Major Coffee Pods Brands Value Sales 2013 and % Y-o-Y Growth 2012-2013
US$ million rsp 2013 % y-o-y growth 2012-2013
Luxury Nespresso faces challenge from compatible products
BRAND STRATEGY
Euromonitor International PASSPORT 42 HOT DRINKS: NESTL SA
The Nespresso Cube is the latest innovation, offering a unique retail
concept and an automated boutique,
providing consumers with easy and
convenient access to the brands 22
permanent Grands Crus as well as
Limited Editions. The system aims to
allow Nespresso to expand into new
premium locations. Specifically, the
cube contains 25,000 capsules in
2,500 sleeves and the system can
process an order of 10 sleeves in 20
seconds and all visible through a
window. Club members can buy
using their club card and other
consumers can use a credit card.
Cube is now present in Switzerland, Spain and Portugal.
Only brands with economies of scale and innovation capabilities can
afford to do this.
Nespresso Cube - new automated retail vending concept
BRAND STRATEGY
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
COFFEE OPPORTUNITIES
TEA AND OTHER HOT DRINKS
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
Euromonitor International PASSPORT 44 HOT DRINKS: NESTL SA
In terms of financial reporting, Nestl included Nespresso, Milo and other hot drinks brands in the Powder and Liquid Beverages segment in its 2013 annual report. There is no clear split for these brands within the
segment. At corporate level, the company has around 460 factories in over 80 countries and its products
are sold in around 140 countries. The company employs some 250,000 people and has a very active
research and development programme and has around 30 R&D facilities in North America, Europe and
Asia.
In 2014, Nestl opened the System Technology Centre in Orbe, Switzerland to bring together the expertise behind the Nespresso, Nescaf Dolce Gusto and Nestl BabyNes systems. STC unites 120 experts from
25 countries to work on design, technology, packaging, engineering, electronics and robotics.
Production investments in coffee
Nestl attempts to reduce costs and make its products closer to local markets. Therefore products are normally produced regionally or locally. In hot drinks, most of the investments in terms of production are in
coffee, highlighting the strategic importance of the category to the company. The company has invested
heavily in expanding facilities for Nescaf Dolce Gusto in recent years to keep pace with demand for coffee
pods, including a new factory in Germany.
Nestl focuses on coffee investment in hot drinks
OPERATIONS
Euromonitor International PASSPORT 45 HOT DRINKS: NESTL SA
In 2014, Nestl announced a ready-to-drink beverage factory in Malaysia for brands such as Nescaf, Milo and Nestl Low Fat Milk, and opened a Nescaf factory in Vietnam.
In May 2012, Nestl announced a CHF300 million investment in a third factory for Nespresso capsule production, in Fribourg, Switzerland. This follows a CHF300 million investment in Nespressos second
production and distribution centre in Avenches, Switzerland in 2009.
In 2012, Nestl also announced a 220 million investment in a new Nescaf Dolce Gusto factory in Germany. The factory aims to produce about two billion coffee capsules a year for the German market, as
well as for export to Eastern Europe and Scandinavia.
Nestl also continues to invest in its Nescaf instant coffee, including a project in Russia designed to meet domestic demand, as well as for export to other CIS countries.
In 2013, Nescaf opened a new coffee centre of excellence in the Philippines to improve the quality and quantity of the coffee crop in a country where demand for beans far outstrips supply. The facility, in
Batangas City in the central Philippines, was set up as a one-stop shop for coffee-growers in the region to
give farmers access to the best of Nestls coffee farming technology and training.
Highlights of production activities in recent years
OPERATIONS
STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
COFFEE OPPORTUNITIES
TEA AND OTHER HOT DRINKS
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
RECOMMENDATIONS
Euromonitor International PASSPORT 47 HOT DRINKS: NESTL SA
Nestl should continue to strengthen its position in major
instant coffee-drinking countries
by marketing campaigns or new
product development. In view of
the formation of JDE in 2015,
Nestl should design an
appropriate strategy to cope
with the new competitive
situation. For example, in JDEs
stronghold regions, Nestl
should now consider or design a
strategy to handle the future
combined force of DEMB and
Mondelez.
In China and Russia, for example, Nestl needs to think
ahead about what to do if DEMB
leverages Mondelezs presence
to launch its own instant coffee
brands.
Instant coffee
Nestl has good penetration in coffee pods in most markets except the US. Facing the
influx of Nespresso-compatible products
and private label, Nespresso is right to
widen its distribution and expand into
institutional sales. The launch of Nespresso
Cube is a positive trial to make its products
more visually and directly accessible.
The launch of the large cup VertuoLine system in the US is a good move despite
the tough situation there. The US pod
market is already concentrated and
consumers loyalty to their brands means a
long battle to win them over.
Nestls bold move in single-serve tea-specific machines is still a work in progress.
The initial launch in select Western
European markets appears encouraging
but the emergence of premium tea leafs
variants may distract consumers attention
from Special.T.
Pods: Coffee and tea
Nestl should consider increasing its presence
in fresh coffee in Latin
America. The Brazilian
market will dominate
regional growth and
should therefore be the
primary focus. The
market remains highly
fragmented, but with
JDEs formation there is
likely to be significant
leveraging between
DEMB and Mondelez
and subsequent
consolidation. Nestl will
need to move now to
avoid losing out on the
strong growth
anticipated here.
Latin American fresh
coffee
Develop counter strategy to deal with JDE formation
RECOMMENDATIONS
FOR FURTHER INSIGHT PLEASE CONTACT Hope Lee
Senior Analyst Beverages
hope.lee@euromonitor.com
Twitter@HLee_emi
Euromonitor International PASSPORT 49 HOT DRINKS: NESTL SA
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Timely, relevant insight published every month on the state of the
market, emerging trends and pressing industry issues.
Interactive Statistical Database
Complete market analysis at a level of detail beyond any other source.
Market sizes, market shares, distribution channels and forecasts.
Strategy Briefings
Executive debate on the global trends changing the consumer markets
of the future.
Global Company Profiles
The competitive positioning and strategic direction of leading
companies including uniquely sector-specific sales and share data.
Country Market Insight Reports
The key drivers influencing the industry in each country;
comprehensive coverage of supply-side and demand trends and how
they shape future outlook.
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Euromonitor International's
complete range of business
intelligence on industries,
countries and consumers please
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