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Nespresso Business Strategy
Nespresso is a globally managed business of Nestle founded in 1986 that specializes in portioned espresso coffee. It has 8,300 employees across 60 countries and 300 boutiques worldwide. Nespresso develops coffee machines and capsules to provide the perfect cup of espresso. It has a strong focus on quality coffee sourcing, product innovation, and customer experience. Nespresso has a competitive advantage through economies of scale in capsule production, brand reputation for quality, and an extensive distribution network. While facing competition from substitutes like filtered and instant coffee, Nespresso has grown its market share to 45% through superior marketing and technology.
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Nespresso Business Strategy
- 2. GENERAL OVERVIEW • Foundedin 1986 • Autonomous globally managed business of the Nestlé ® Group • Reference in the portioned coffee sector and one of the fastest growing global food and beverage brands • NESPRESSO® is present in 60 countries • 8300 employees and 300 boutiques worldwide
- 3. • Enable anyoneto create the perfect cup of espresso coffee • Delivering highest quality coffees • Ultimate coffee experiences to our consumers
- 4. NESPRESSO® PRODUCTS • Coffeemachines • 30 models designed and manufactured in collaboration with 6 machine partners. (KRUPS & DeLonghi) • In house R&D • Capsules • Wide range of flavours • Accessories – Mugs, coffee cup, pots
- 5. VALUE CHAIN ANALYSIS:PRIMARY ACTIVITIES Inbound Logistics: • Suppliers from many different countries deliver coffee to production centers • Data warehouse • Reverse logistics for recycling Operations: • The production is based in Orbe and Avenches: ü coffee roasting up to capsule packaging stage • 300,000 to 1,400,000 capsules per day Outbound Logistics: • Trucks leave from the production centers to Boutiques and customers home • Logistics Partner: DPD, BRT…
- 6. PRIMARY ACTIVITIES Marketing &Sales: • Very strong marketing campaign • Provide all the info through their website • More than 300 boutiques in the best locations allover the world • Online retail Services: • Nespresso club • Nespresso app • Technical assistance
- 7. SUPPORT ACTIVITIES Firm Infrastructure: • Headquarter in Lausanne • Production centers in Switzerland • 300 boutiques in unique location HR Management: • High qualification required • 70% of employees in direct contact with customer Technology Development: • R&D department in Lausanne • Balance between the right water temperature, quantity and speed, along with 19 bars of pressure Procurement: • Long lasting relationships with suppliers
- 8. ECOLABORATION • Coffee: source80% of our coffee from the Nespresso AAA Sustainable Quality™ Coffee Program, including Rainforest Alliance certification by 2013. • Capsules: put collection systems in place to triple our capacity to recycle used capsules to 75% by 2013. • Carbon: between 2009 and 2013, reduce the carbon footprint of each cup of coffee by 20%.
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- 10. RESOURCES CHARACTERISTICS Nespresso’s resourcesembed these 3 characteristics: • Appropriability: High appropriability due to the large amount of patents and the strenght of the brand; • Imitability: Capsules can be imitated but not the brand value and the experience nespresso provided; • Durability: Capsule durability due to stability of coffee demand and strong customer relationships.
- 11. NESPRESSO CAPABILITIES Corporate functions: • Strategic innovation: Capsules • International management R&D: • Innovative new product development • Ability to exploit and research new gran cru tastes • Led to the invention of unique technology that delivers a balance between right water temperature, quantity and speed for the best result
- 12. NESPRESSO CAPABILITIES Operations: • Efficiencyin capsules manufactures Product design: • Ability to balance good design and practicality Marketing: • Luxury brand management • Building reputation for high quality coffee Ecolaboration: • skills to conduct a profitable business in an environmentally friendly manner
- 13. COMPETITIVE ADVANTAGES Drivers ofCost advantage: • Economies of scale: up to 1.4 mln capsules produced per day • Economies of learning: more than 15 years from the first capsules production • Standard Product design: many flavors, one capsule design
- 14. COMPETITIVE ADVANTAGES Drivers ofDifferentiation Advantage: • Highest quality coffee within the market • Nespresso’s patents • Outstanding customer service • Exclusive Boutique Location • Unique brand image • Creative marketing approach
- 15. COFFEE INDUSTRY • Aftercrude oil, COFFEE is the most sought commodity in the world • Brazil is the largest coffee exporting nation • Over 2.25 billion cups of coffee are consumed in the world every day • There are 3 main types of in home coffee: • Filtered Coffee • Espresso Coffee • Instant Coffee • NESPRESSO® is about in-home espresso coffee
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- 17. COFFEE INDUSTRY LIFECYCLE
- 18. Evolution of IndustryStructure over the Life Cycle ! GROWTH:!IN+ HOME!ESPRESSO! MATURE:!FILTERED! DECLINE:!INSTANT! DEMAND! Increasing, sector is growing up by 24% a year Stable, mass market, price sensitive customer, +4% year Decreasing, Obsolescence TECHNOLOGY! Standardization of capsules to be compatible on every coffee machine Diffused know how Lack of innovation PRODUCTS! Design & quality improve; emerging of capsule design Trend to commoditization Low differentiation COMPETITION! First movers: Nespresso and Lavazza stable on top of the market Market leader is Lavazza, high competition tough High competition between, Nescafé (leader), Folgers, Maxwell House KEY!SUCCESS! FACTOR! Fast High quality Practicality It’s a commodity producing on a large scale taking advantage on EOS Speed of preparation Low shipping weight Long shelf life !
- 19. KEY SUCCESS FACTOR • High quality coffee • Strong marketing campaign • Technology development • Economies of scale • Economies of learning • Distribution channels
- 20. FIVE FORCES MODEL:IN HOME ESPRESSO COFFEE - Wide network of suppliers - Low bargaining power - Mostly price takers - Outside home coffee - Instant & filter coffee - High price for high quality - Excellent reputation - Club services - Luxury Marketing - Difficult entrance (due to EOL & EOS) - High capital requirements • Nespresso market leader (45%) • High Concentration (Illy,Lavazza) POTENTIAL ENTRANTS SUBSTITUTES BUYERS SUPPLIERS COMPETITORS
- 21. NESPRESSO GROWTH FACTS • Revenue: $ 3.1 bln, +20% (2012) • Net income: $ 800 mln • Substitutes average growth in 2012: - 6% • Market Share: 45%
- 22. STRATEGIC SUGGESTION Offering home-likecomfort in non residential locations: • Goal: Increase our Demand Reach introducing a new Nespresso machine in which you can either pay or use your own capsules • Where: exclusive frequented places (VIP lounges, country clubs, private universities) • Catch: Nespresso Electronic Card
- 23. STRATEGIC SUGGESTION Why: • Outsidehome coffee market takes the 50% of the total coffee market • Increase our market share • Increase sales expectations • Reach outside home coffe channels But… Keeping niche target and luxury brand prestige