Luigi Lavazza Spa gunning for a slice of a $3.5 billion market.
by chee Leng (on coffee makers)
Julia Roberts Smile -Lavazza ad
And that is the single serve coffee market in Europe, dominate by one player -Nespresso. A bigger market than that in the $2 Billion US Market, the European market is being heavily contested.
(Source: NUmbers are based on Morgan Stanley report)
Nespresso is the fastest growing brands under the umbrella of the world's largest food manufacturer Nestle, enjoying about 20% organic growth year on year.
But, it faces a slew of competition.
1. Firstly, it has to contest with many competitors, new and old, more on that later.
2. Then, it is facing competition from makers of capsules and pods that are compatible with Nespresso system from companies such as Ethical Coffee Company
and Sara Lee
3. In addition, it is facing problems expanding beyond Europe given the strength of its competitors in US and the lag in the take up rate of single serve in Asia (two of its largest market).
4. It has a new threat forming in almost every month.
Luigi Lavazza spA is certainly not the first company to compete with Nespresso and it would be the last, but it is a potent threat.
Lavazza coffee is well received and loved by coffee drinkers that like gourmet coffee. And Lavazza has the financial power to market its products.
Last year, when it launched its A Modo Mio -it engaged Julia Roberts
to be its spokesperson. Paying millions, and from my view, it is not even their major product launch, and they are slashing millions.
It has the coffee, it need a company that does good coffee machine -in comes Electrolux, already well know for making electrical appliances and has the required competency in rolling out a single serve brewer that fit consumers profile (something which electrolux knows alot about).
In Summer, these new single serve coffee machine would be launched in Sweden and Finland, it would posed a direct threat to the Nespresso coffee machine sales.
And in Summer, there would also be another launch -the launch of Keurig (the market leader in Single serve coffee
in US), in Starbucks outlets
a. Nespresso has launched the Dolce Gusto in US with much fanfare last year
, but it seems that it did nothing to dent the growth of Keurig.
I personally do not think that Nespresso would be able to grow much in US. Although, it can leverage on its relationship with the major retailers -so can its competitors.
Keurig has a well established presence in US. It has a booming online store ( was named the best e-store in 2009), it is going to be distributed in Starbucks stores, tens of thousands of stores. And it is already selling in major retailing outlets.
Nespresso has a slim chance, and would take much effort to break into the market.
b. It should instead focus on protecting its home turf against external threats. Luigi Lavazza SpA is only one of the many threats.
The partnership with Electrolux allows this new single serve to be sold in the distribution points that electrolux is in -which would greatly outnumbered Nespresso.
If Starbucks enter with Keurig in their outlets, Nespresso market would thinned further, with the lose of customers to Starbucks and Keurig.
Even with their own customers, they are losing sales to ECC and Sara Lee, a legal suit which saw Nespresso losing recently in Swiss court
Nespresso can work with more retailers to sell their machine (but this go against their branding), sell it in major retailers, sell it at a cheaper price or come out with a low cost unit, and roll out a low cost capsules.
Most of the recommended strategies involves pricing, a point that Nespresso is very weak on (they are very expensive), and an area that all its competitors are focusing on.
But, I doubt Nespresso would do that -it might erode its brand equity. If this goes on, Nespresso would not go out of business, but it would be relegated to a premium section, much like the Volvo versus Toyota in the automobile market.
And we all know that who makes more money, right?