Preparing for her major strategic review, Nancy Thys thought that the team ought to reassess the strength and relevance of the Nespresso Brand Positioning. She was convinced that Nespresso ought to be true to its original Positioning, yet evolve it to reflect significant changes in consumers’ behavior and the new competitive landscape. This was always a delicate balancing act. To this end, she asked you to review the Nespresso Brand Positioning, answering the following questions: 1. What was the Nespresso Brand Positioning developed by Jacques Hinault? 2. What is our current Positioning? In other words, have we changed and if so how? 3. Should we stick to this Brand Positioning for the future? Any changes required?
NESPRESSO: The Next Five Years
Nancy Thys, Chief Marketing Officer of Nespresso, was sipping a Stormio coffee made from the new Virtuo coffee machine on this early day of September 2017. She was slated to meet with key members of the brand’s strategic team - directors of innovation, customer relationships, sales, and retail - to review the five-year brand development plan following the summer holidays in 2017.
As she prepared for the meeting, she reflected on the evolving coffee market that she had seen develop since arriving at Nestlé in 1992. Nespresso, the pioneer of the single-portion coffee category in the years leading to the turn of the millennium, was now surrounded by fierce competitors and declining growth in the segment. Though the brand was strong, Nancy questioned how Nespresso could maintain its leadership position. She figured that a quick review of where Nespresso started and of the brand’s success to date would be a helpful exercise in looking toward and planning for the future.
Nestlé & the Nespresso System
Nestlé, the parent company of Nestlé Nespresso SA, was founded in 1866 in Vevey Switzerland. By 2016, the year of Nestlé’s 150th anniversary, the multinational firm had progressively become the world's largest food and beverage company, with international sales covering 191 nations, factories in 86 countries and 328,000 employees worldwide.2 Nestlé posted revenue of € 78 billion in 2016 and net profit of € 7.4 billion (9.5% of sales), with annual growth of 3.2% that year. The corporate objective was to maintain +3% growth in an intensely competitive sector while also increasing focus on sustainability and enterprise investment in society.
In the 1980s, prior to the launch of the Nespresso system, Nestlé executives recognized the need to reevaluate their position in the coffee market. Nestlé generated 80% of its coffee sales from the instant coffee, but the segment only represented 30% of total coffee consumption. Roast and ground coffee, though stagnant in growth, represented 70% of world coffee sales. An intensifying interest in the gourmet coffee sector, driven primarily by North American consumers, suggested a potential growth opportunity for Nestlé.
The Nespresso Coffee System, at the core of the Nespresso business, initially consisted of two elements designed to work specifically and exclusively together:
Hermetically-sealed fresh high-quality coffee grounds contained within individual aluminum capsules with a 6-month shelf life post-production
A counter-top machine that pumps highly pressurized, 86°-91° water through the capsule to create an individually proportioned cup of coffee
Intended to be cleaner and more user-friendly than traditional espresso coffee, the system seemed simple enough in retrospect. However, in reality, it required years of research and innovation. Initially developed in 1974 at Geneva’s Battelle Research Institute, the right to commercialize this complex technology was acquired by Nestlé more than a decade later.
Continued R&D efforts resulted in a series of patents both on the machine and the capsules that, for several decades, largely protected Nespresso from competitor duplication.
Although Nestlé was the patent proprietor, the production of the machines was licensed out to manufacturers such as Krups, Philips and Bosch who also handled distribution and after-sales service. Over time, the Nespresso system bifurcated into two main categories: personal machines and professional machines, designed to prevent employees from taking company capsules home with them.
Nestlé’s revenues from the Nespresso system came from sales of capsules, with an estimated margin of anywhere from 35 to 50%. The product line kept expanding. By 2016, Nespresso offered 23 types of capsules for personal machines called Grand Crus, and 11 for professional machines, including Espresso blends, Lungo blends, Decaffeinated blends, Ristretto blends and Pure Origin capsules.
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