Last year, Swiss coffee powerhouse Nespresso reported its eighth year of 30 per cent year-on-year growth, with sales totalling €1.35bn. This year, despite the tougher market, it is on course for 25 per cent growth. In a little over two decades, Nespresso has squeezed itself onto the most privileged of kitchen surfaces, airline galleys and office staffrooms around the world, and now employs a total of 4,500 people.
But there are battles ahead. The US’s love of bucket-size milky coffee has made the market there a hard coffee bean to crack and the company has fought hard to counteract environmental criticism for its landfill-friendly pods. There are copycats on the horizon and its biggest rival launched a recent ad campaign directly attacking portioned-coffee brands.
The initial idea was simple: to let people make barista-quality espressos at home. To do this, Nespresso invented the capsules and the accompanying patented machines.Whose idea was it? Nespresso's hushed-up and slightly less glamorous owner Nestlé, no less.
In doing so, Nespresso invented a whole new process to make a brew – and one that cunningly cuts out all rivals (you can only use its capsules in its machines). Nespresso now has 16 types of coffee in its Grand Cru range and numerous expensive machines for pumping your chosen blend. What’s most impressive is that Nespresso has achieved this billionaire positioning, and is surrounded by such an aura of luxury, while being owned by the distinctly unluxurious Nestlé – a fact it wisely plays down.
The brand, founded in 1986, is headquartered in Paudex near Lausanne, with its two large factories situated nearby. At Avenches, where 1,200 coffee capsules are produced every minute, a total of 22 checks are made on the factory floor to ensure quality is maintained. The passion from the staff for coffee and the brand is clear. “We want to teach the world about coffee,” says Martin Bugmann, head of the factory at Avenches. “A hundred years ago, wine was just red liquid with alcohol in it to most people.”
Customer loyaltyJoin the club With six million members, the Nespresso Club is open to all who buy a Nespresso machine. Customers can order capsules online or by phone and receive them within 48 hours and can send feedback or ask advice, with all queries answered in one working day. “It’s one of our biggest assets, having that direct contact,” says Martin Bugmann. The Club is also a great marketing exercise – half of new Nespresso customers discover the brand through existing Club members.
Hitting the spot
“When we opened in Budapest, we deliberately opened across from the opera house,” says corporate communications director Hans-Joachim Richter. To justify the cost of a Nespresso espresso, not a great deal cheaper than a café-made cup, Nespresso has ensured it targets the market at the right position. It has embarked on strong business-to-business expansion, with machines installed in British Airways, Qatar Airways and Lufthansa First Class galleys, as well La Maison Troisgros in France and The Fat Duck restaurant in the UK.
Trust the Swiss
Though it has its own unique coffee culture, it’s interesting that a Swiss brand has, according to admittedly tight-lipped Nespresso, established itself in patriotic coffee centres France and Italy. Nespresso’s provenance is key to this success, with consumers taking comfort in the reliability and precision of a Swiss brand. “We’ve exploited that expectation of Swiss consistency, that people can expect each cup to be as good as the last,” says communication manager Victoria McInally, from the Nespresso café terrace in Lausanne.
With around 3,000 stockists, and a further 38 lined up for the end of 2009, Nespresso’s retail expansion has been steady since its first outlet in Munich opened in 2003. Currently it operates 11 Boutique Bars, which sell everything from machines and capsules to chocolates specially designed to complement each coffee flavour. At the bustling Lausanne flagship, international retail manager Matteo Bressanin explains the desired effect of the dark wood decor of its stores: “We’ve tried to create a privileged atmosphere.”
Nestlé Nespresso was opened in 1986 by the Nestlé Group. Though Nestlé seems to share little with Nespresso’s high price-points (it also owns instant coffee brand Nescafé), Nestlé supported Nespresso throughout its first decade when profit margins were non-existent. Nespresso now operates at arm’s length from the corporation, with its own offices, factories and management structure. While using Nestlé’s muscle and financial aid, Nespresso has created an entirely new DNA for itself.
Nespresso is number one in the “portioned premium coffee” market. Its distinctive aluminium capsules, paired with the range of machines manufactured by brands including Krups and DeLonghi, have helped create for Nespresso a unique spot in the market. Only Nespresso capsules work in Nespresso machines, so once you’ve purchased one you’re essentially signed up for life. It is possibly this exclusivity that explains why Nespresso failed to produce profit for its first decade.
The brand has regularly come under fire by environmental groups for its waste problem with used capsules, though it says it is committed to overcoming this issue. In Switzerland, 60 per cent of empty capsules are recycled, either in deposit drawers in the boutiques or bins at public recycling stations. The brand is less clear on a solution to the problem beyond Switzerland. “Sadly that depends on each country’s culture of recycling,” says retail manager Bressanin.
1982 The first Nespresso capsule is designed by Nestlé. 1986 The Nespresso brand is born and the first machines are created, though capsules are still produced manually. 1987 First range of four Grand Cru varieties is released. 1989 Nespresso Club launched. 1995 Nespresso breaks even. 1996 Nespresso operates its automated production line for the first time at its factory in Orbes, near Lausanne. 2003 First Boutique Bar opens in Munich. 2006 George Clooney becomes the face of the brand (as voted for by Nespresso Club members); the brand exceeds Sfr1bn (€659m) in revenue. 2009 A new factory in Avenches is opened.