Nespresso capsules sold in third-party outlets to counter flagging sales
By Corinne Gretler and Richard Weiss - Jul 12th, 16:58
Nestlé has begun selling Nespresso capsules outside its own retail outlets as it seeks to restart flagging growth of the coffee-making system amid a battle with cheaper knock-offs.
Germany’s Saturn, MediaMarkt and Galeria Kaufhof chains are installing "N-Point" terminals in their stores, where shoppers can buy the pods that spit out coffee portions when slotted into Nespresso machines. While Nestlé is retaining control over pricing, it’s the first time the company has made the capsules available through third-party retailers, it said in an e-mailed response to questions.
"Such a project is to be seen positively, as a way for Nespresso to find new consumers," said Jean-Philippe Bertschy, an analyst at Bank Vontobel, who estimated the brand’s sales of coffee and machines at 5-billion Swiss francs ($5.2bn) in 2016. "It’s fully in line with one of Nestlé’s strategic pillars: sell the product whenever, wherever and however."
New Nestlé CEO, Mark Schneider, has laid out a strategy of investing in businesses such as coffee, water and pet food, which are growing more rapidly than chocolate and snacks. Nespresso, which has sold its capsules exclusively via its own boutiques, online store and telephone orders, has become one of the Swiss company’s most profitable products since its launch three decades ago. But patents protecting the system have been expiring, and rivals producing cheaper pods that fit the same machines have eaten into the market Nestlé created.
While Nespresso recently expanded the role of its longtime pitchman George Clooney to the US, it’s losing momentum in western Europe, its core territory. In France, the biggest market, Nespresso’s share of coffee in capsules slipped to about one third of sales in 2016 from roughly half in 2007, according to Euromonitor.
In 2014, Nespresso reached an agreement with France’s competition regulator to lift obstacles to makers of knock-off capsules, which proliferated as the more than 1,700 patents the company held in 2010 started to expire. While Nespresso has gained share in Germany, it may face more competition from JAB Holdings-owned Jacobs Douwe Egberts, which introduced Nespresso-compatible aluminium capsules there last month. Starbucks and Ethical Coffee also sell pods that work with Nespresso machines.
At N-Points, customers can select capsules and obtain a ticket for pick-up at service counters in the stores. Orders are processed by Nespresso and prices are the same as in its own outlets.
For MediaMarkt and Saturn — consumer-electronics retailers that are preparing to split off from parent Metro into a new company called Ceconomy — the programme provides a way to attract customers into stores at a time when pressure from e-commerce giant Amazon.com is mounting. Some of the stores that already sell Nespresso machines have also opened bars where customers can try the coffee.
"It is part of the experience we can provide as a stationary retailer," Ceconomy CEO Pieter Haas said in an interview. "The pilot project is off to a good start."
Following tests at two stores owned by Metro and Galeria Kaufhof, Nespresso is rolling out the system more broadly, a spokeswoman for the coffee brand said by e-mail. Haas said N-Points are being installed at 27 Saturn and MediaMarkt stores in Germany.
The spokeswoman said an unspecified number of the terminals will also be installed at Galeria Kaufhof outlets. The company did not immediately respond to a request for comment.
Nestlé suggested that other retail partners in Germany could follow if the programme succeeds, though it’s not clear whether the company is planning to expand it beyond that country. "Nespresso aims to increase accessibility for customers," the spokeswoman said. "We will evaluate how this goes and then decide next steps." © BusinessLIVE MMXVII
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