Bloomberg News

Nestle Supersizes Nespresso for U.S. Coffee Drinkers

February 19, 2014

VertuoLine

Nespresso VertuoLine coffee machines. Source: Nestle

Nestle SA (NESN) is supersizing its Nespresso machine to appeal to Americans who prefer a big mug of Joe to a dainty shot to try and win more customers in a market where it’s dwarfed by Green Mountain Coffee Roasters Inc. (GMCR:US)

The new $299 machine, dubbed VertuoLine, will produce eight types of 8-ounce servings along with four espresso blends, the Vevey, Switzerland-based company said in a statement today. Nearly 10 years in development, VertuoLine will be sold in the U.S. and Canada at Nespresso boutiques, online and at retailers including Macy’s Inc. (M:US), Bloomingdale’s and Williams-Sonoma Inc. (WSM:US)

Nespresso is one of Nestle’s fastest-growing and most profitable brands, yet its 3 percent share of the U.S. single-serve market compares with Green Mountain’s 72 percent, according to Euromonitor data cited in a Nov. 27 Sanford C. Bernstein report. There, consumers prefer large cups of java from Green Mountain, Starbucks Corp. (SBUX:US) or Dunkin’ Donuts Inc. (DNKN:US) over the smaller espressos favored in Europe.

The new machine, which uses a different capsule, “probably brings them closer to the American style of filtered coffee, but they are so far behind Green Mountain in the U.S. that it hardly changes the game,” Andrew Wood, an analyst at Bernstein, said by phone. “While there is a potential for the U.S. to become more espresso-based, we think this will take time to develop.”

Rival Products

Green Mountain’s Keurig Rivo R500 espresso maker is $315 on Bloomingdale’s website, while Starbucks’s Verismo 600 machine sells for $199.

North America accounts for about 30 percent of the $8 billion single-serve coffee market, second only to Europe, according to Euromonitor. Over the past decade, single-serve has grown to almost 10 percent of global coffee sales from about 2 percent, fueled in large part by Nespresso, which controls about one-third of the single-serve sector. Last year Nespresso added about 500 million Swiss francs ($563 million) in sales, the company said Feb. 13.

Nespresso represents about 25 percent of Nestle’s coffee sales and 4 percent of its 92.4 billion francs in total revenue, Bernstein estimates. The brand has more than two dozen boutiques dotted across the U.S., according to its website, and last year opened its largest in Beverly Hills, California, complete with two 13-foot-tall cacti.

VertuoLine “will revolutionize the most successful segment of the coffee market in North America and change the way coffee is brewed and enjoyed at home,” Nespresso Chief Executive Officer Jean-Marc Duvoisin said in the statement.

Nestle fell 0.2 percent to 65.60 Swiss francs at 4:03 p.m. in Zurich, and is little changed this year.

Capsule Copycats

Nestle has sought to expand Nespresso outside Europe, where it faces an ever-increasing number of copycat capsules from rivals like Mondelez International Inc. (MDLZ:US), the world’s second-biggest coffee maker, and D.E Master Blenders 1753 NV, which sells Douwe Egberts coffee.

“The attractiveness of the space has brought on a slew of competitors,” Wood said. “This has led to share losses and slowing growth for Nespresso.” Nestle no longer discloses Nespresso’s growth rate or sales by region.

Nestle introduced its Nespresso system in the U.S. more than 10 years ago. The VertuoLine capsules won’t work with other machines, according to Diane Duperret, a Nespresso spokeswoman.

To contact the reporter on this story: Matthew Boyle in London at mboyle20@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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Companies Mentioned

  • GMCR
    (Keurig Green Mountain Inc)
    • $137.48 USD
    • 2.09
    • 1.52%
  • M
    (Macy's Inc)
    • $60.56 USD
    • -0.07
    • -0.12%
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