Where once a filter coffee machine or cafetière could be found in most kitchens, today the must-have item for any coffee lover is an espresso machine, very probably one using some sort of capsule rather than ground coffee.
Nestlé patented its Nespresso process in 1996 and quickly became market leader within Europe, with several manufacturers producing machines that will take its coffee capsules. By 2010, Nespresso sales had been growing by 10% a year for a decade and today it maintains “mid-single digit” growth. Nestlé does not publish absolute figures for is various divisions but its latest report put “other business” sales “mainly Nespresso” at CHF12.3billion (€11billion) in 2018.
Expansion has been more challenging in the USA and over the years various rivals have produced “compatible” capsules, which in some cases has led to litigation. Starbucks, the US market leader, is one that sells Nespresso-compatible capsules and last year Nestlé spent $7billion for the right to market Starbucks products – from beans to capsules in Europe – although, as yet, Nespresso has not added Starbucks-branded capsules to its own product range.
Over the years, environmentalists have regularly criticised the entire capsule coffee concept as polluting and wasteful and Nespresso has responded with the introduction of “recycling centres” – now more than 100,000 worldwide – and home collection of used capsules for recycling in 16 countries, although little more than a quarter of capsules are actually sent for recycling.
In support of its brand, Nespresso opened its first “boutique” in Paris in 2000. Today, there are almost 800 worldwide. The boutiques include a relaxing tasting area as well as selling machines, accessories and capsules, and providing a collection point for online orders. Also raising the Nespresso profile has been a long-running advertising campaign featuring the actor George Clooney, the face of Nespresso since 2005, which has helped take its number of Facebook followers to more than 7m.
Nespresso makes capsules rather than machines, so its business model is reminiscent of computer printers: low-cost machines followed by guaranteed ongoing sales for machine-specific printer cartridges.
Nespresso therefore aims to sign up long-term customers with a club membership model. It offers shoppers a machine for £1 with a monthly “subscription” of £18-£45 which then becomes “credit” for buying a regular supply of coffee capsules or other Nespresso items, all with free delivery. Members can also attend Nespresso events such as “masterclasses”, where various types of coffee are explored.
Membership “levels” range from “Connoisseur” to “Ambassador” – a reward for those who buy 1,500 or more capsules a year, who also receive free samples of new lines, various discounts and assorted free gifts. Interest is maintained by regular new launches, such as its Master Origin range and limited edition coffees with the latest inspired by Parisian cafés.
Nespresso has thus created a system that ensures brand loyalty and advocacy with, according to Nestlé, 50% of new club members joining after “experiencing Nespresso through friends or family”.
This case study first appeared in the RetailX Brand Index 2019, published in association with Amazon Pay. Discover how the Top250 direct-selling brands in Europe are ranked and explore the index further by clicking here.
Image courtesy of Nespresso