Coca Cola selling coffee too -another competitor for Nestle

by Chee Leng
(Singapore)

Coca Cola Femsa is going to place 35 000 coffee machines, and this would hit on current Nestle market!

Coca Cola, Femsa SAB, a 50-50 joint venture between Fomento Economico Mexicano SAB (aka Femsa) and Coca Cola is the largest soft drink bottler in Latin America.

Few days ago, they announced that they intend to install as many as 35 000 coffee machines in Corner stores in Mexico under the brand name Blak.

Coffee machine is of course the strong suit of Nestle, and doing so is competing directly with Nestle and going after its market share.

In fact, the Chief Financial Office Astaburuaga even mentioned taht while Nestle is strong in this segment, he still sees opportunities to grow the business.

Personally, after being in the coffee market for so long, the only way to grow is by replacing the incumbent and replacing Nestle is not easy.

Here is my take on why Blak would have a hard time replacing Nestle coffee machine:

1. The machine is already installed, so doing bringing in new untested machine might affect business of stall owners

2. Nestle with its huge marketing budget only need to drop prices below a certain point to ensure that customers stay with them and Blak have no business

3. with its huge stable of products, Nestle can do a cross promotion that stall owners would benefit.

But, of course Coca cola would be able to do all these as well, the difference is in the mechanic and the effectiveness of the promotion being carried out.

I have seen Nestle placing 2000 machines in a month in a small country Singapore, so their marketing and distribution is formidable.

No doubt, Coca Cola Femsa has the network, the distribution and modus operandi might be slightly different.

This year, Nestle seems to be under attack from all front, with Sara Lee, ECC on its Nespresso business, Starbucks Via on its instant coffee and now Coca Cola Femsa on its coffee machines.

But, this goes to show that Nestle is doing the right thing and coffee is still profitable that companies still wants to have a part in it.

For this battle, my take is Nestle would triumph, this market is Nestle core competence and I do not think Coca Cola can do much about it -my two cents.