Nespresso


Nestlé Nespresso S.A., trading as Nespresso, is an operating unit of the Nestlé Group, based in Lausanne, Switzerland. Nespresso machines brew espresso and coffee from coffee capsules, or pods in machines for home or professional use, a type of pre-apportioned single-use container of ground coffee beans, sometimes with added flavorings. Once inserted into a machine, the capsules are pierced and processed, water is then forced against a heating element at high pressure meaning that only the quantity for a single cup is warmed. Nespresso is a premium price coffee, and by 2011 had annual sales in excess of 3 billion Swiss francs. The word Nespresso is a portmanteau of Nestlé and Espresso, a common mechanic used across other Nestlé brands.
All Nespresso coffee is roasted, ground and encapsulated in one of three factories in Switzerland, but the company sells its system of machines and capsules worldwide, as well as the VertuoLine system in North America and certain other countries.

History

In 1975 Eric Favre, an employee of Nestlé, noticed that one a coffee bar near the Pantheon in Rome, Italy had a disproportionately large number of customers. He found that the only difference between that bar and the many others using the same machines was that operators pumped the piston many times before releasing the coffee, while others did so only once. The repeated pumping forced more water and air into the ground coffee, causing greater oxidisation and hence drawing out more flavour from the beans, and produced better crema, foam on top of a good espresso. Favre invented the Nespresso system. The pod containing the coffee was sealed, keeping it fresh. In use it ensured greater aeration, like the repeated pumping Favre had noticed. In operation, a sharp-pointed spout would pierce the capsule and inject pressurised hot water, forcing the foil against a spiked plate which burst it inwards, letting the espresso flow out of the spout.
The system was patented by Nestlé in 1976. Early prototypes were complicated machines with large tanks and pumps and tubes; the machine was not ready for the market for a decade. It was introduced to the Swiss market, looking like large traditional commercial espresso machines, initially without significant success. Nespresso first tested its new concept in Japan in 1986, and rolled it out to consumers in Switzerland, France, Italy and Japan the same year. A decade later, in part due to the efforts of Jean-Paul Gaillard, who introduced the Le Club community—providing Nestlé with a large database of customers and their preferences—reduced prices of machines but increased capsule prices, changed the machine from an office machine into a luxury brand now available to consumers, and licensed production by other companies, the product became more successful. In 1990, Nestlé signed a contract with Turmix, which started to sell Nespresso machines in Switzerland. Thereafter, other contracts were signed with Krups, Magimix, Alessi, Philips, Siemens and De'Longhi. Starting out as an e-commerce business, Nespresso only opened their first boutique in Paris in 2000 as a concept store. Today, Nespresso has a global network of more than 700 boutiques in 68 countries.
In later years there was friction between Favre—who came up with the concept and developed the first machines—and Gaillard, who made the machine a commercial success. Favre resigned in 1990 after personality clashes, and the two men were critical of each other. Gaillard left Nestlé in 1997 after falling out with CEO Peter Brabeck-Letmathe. He claimed that the original idea for Nespresso was bought by Nestlé in 1973, and did not come from Favre, though Nespresso denies this. In 2008 Gaillard launched a company that sold biodegradable capsules for Nespresso machines, competing with Nespresso.

Nespresso system

Machines

Nespresso sells or licenses a number of different machines mostly made in Europe. The machines carry well-known kitchen-equipment manufacturers' names such as Krups, Breville, and DeLonghi, but are mostly manufactured by Eugster/Frismag, a Swiss company that is one of the world's largest coffee-machine producers. DeLonghi manufactures the Lattissima models in Italy exclusively. Eugster/Frismag is strictly an original equipment manufacturer and does not sell under its own brand. In 2000 Nespresso began distributing machines bearing the "Nespresso" brand. There are numerous models that range in complexity and price, from the entry level Inissia, U and Pixie ranges.

Capsules

Nespresso capsules were sold exclusively by Nespresso while the machines were under patent, and are significantly more expensive than an equivalent quantity of "loose" ground coffee. Because of the hermetically sealed capsule, however, the coffee aroma does not degrade with time like coffee in a pack that has been opened. Nespresso currently sells 28 different Original Line arabica and robusta capsules. Limited Edition are released seasonally.
As the system is no longer under patent, more and more third-party and refillable capsules can now be purchased in some grocery stores and shops.
Each capsule contains 5–7 grams of ground coffee and makes one serving of coffee. Depending on the length of the pour, the capsule can produce a 40 ml Espresso shot, or a 110 ml Lungo pour. Nespresso-supplied capsule bodies and perforated tops are both made of aluminum, while third-party capsules are made from a variety of materials, including plastic and aluminum. To assuage some concerns on potential aluminum health effects, most of the capsule interior of Nespresso capsules is lined with food-grade lacquer.
For the business market, a different system of Nespresso pods exists. These pad-shaped capsules are not interchangeable with the consumer capsules.

Process

Nespresso's hermetically sealed capsules are made of Aluminum. Depending on the Nespresso system being used, the flat top or the pointed end of the capsule is pierced when inserted into the machine and the compartment lever is lowered. Some machines make a single large hole, and others make three smaller holes. When the machine is activated it pumps hot water under high pressure into injector holes poked into the narrow end of the capsule upon insertion. This causes the flat bottom of the capsule to rupture, as it is made of thinner foil than the rest of the capsule. The base of the capsule holder has a number of raised squares which cause the foil to rupture at these points. The brewed coffee exits the capsule through these rupture holes and flows through a funnel nozzle into the coffee cup. As in pressure cookers, a safety pressure release valve inside the brewing chamber prevents an explosion from occurring if the normal coffee exhaust path becomes blocked.

VertuoLine system

To appeal to the demand by North Americans for larger servings of coffee than the original Nespresso machine produces, in February 2014 Nespresso launched a new Vertuoline system of machines and capsules in the United States and Canada. The system produces Espresso, Double Espresso, Gran Lungo, Mug/Coffee and Alto/Alto XL cup sizes that characterises espresso coffees and the original line of Nespresso coffees. Nespresso simultaneously uses over 25 blends in specially-designed VertuoLine capsules. The VertuoLine capsules cannot be used in the original line of Nespresso machines. Nespresso continues to sell both OriginalLine and VertuoLine machines and capsules in the United States and Canada, targeting different market segments with the two systems.
The VertuoLine system uses two technologies not found in the OriginalLine. First, the system uses "centrifusion", whereby it spins the capsule around in the machine at up to 7,000 rpm to blend the ground coffee and hot water. Second, each capsule has a barcode embedded on the rim, and the barcode laser scanning system reads 5 different parameters: rotational speed, temperature, infusion time, volume and flow of water. Some critics claim that the VertuoLine technology, particularly the use of bar codes, is an attempt by Nestlé to create a new proprietary Nespresso system which excludes compatible capsules from other companies.
The VertuoLine system was intended to expand Nespresso's product line to offer coffee closer to the American style of filtered coffee, and thus expand Nespresso's market share in North America. In the United States, Nespresso had only a 3% share of the single-serve coffee market in the year before the introduction of VertuoLine, while in Canada Nespresso had 4 to 5% of the single-serve market in 2013. In comparison, Nestlé had 70% of the single-serve market in Europe in 2013.
At the time of the introduction of the VertuoLine system in 2014, there were no plans to launch the system in markets outside Canada and the United States. However, sales of the VertuoLine system were expanded beyond North America in 2016, first with the launch of the system in France in 2016 under the name Vertuo, and with later roll outs in other countries such as the United Kingdom, Germany, Switzerland and Australia. As of 2018, Nespresso aimed to introduce the Vertuoline system in eight additional European markets by the end of the year. In September 2019, the VertuoLine system launched in the Middle East in Kuwait, UAE, and KSA under the name "Vertuo".

Business model

Patent expiry and focus on image

In 2010 the concept was still subject to 1,700 patents which protected Nespresso's ownership of the concept until their expiry, leading to comparisons of Nespresso with printer manufacturers that block the sale of generic ink cartridges to achieve a vendor lock-in effect. This contrasts with some other prepackaged coffee preparation systems.
Nespresso's patents began to expire in 2012, gradually allowing competitors to offer capsules and machines compatible with the Nespresso system. By 2010, Nestlé was working on ways to prevent competitors from doing this. The service part of Nespresso's business model—the Nespresso Club and Nespresso stores and cafes—was aimed to be a long-term defence for the brand, its elevated image and premium pricing. Beyond attentive customer service and being the only places where most customers can replenish their 'pods', the brand has been able to maintain images of exclusivity and suave connoisseur-ship. Actor George Clooney appeared in ads for Nespresso, with company representatives insisting that he had been elected by Club members to become the brand's ambassador, in a form of celebrity advertising that emphasises the status of the brand over that of the endorsing star.

Market

Packaged portions of espresso coffee, like those from Nespresso, has become one of the fastest growing segments of the coffee market, accounting for 20 to 40 percent of the value of ground coffee sales in the US$17 billion European coffee market. In August 2010, it was reported that Nespresso sales had been growing at an average of 30 percent per year over the previous 10 years, and more than 20 billion capsules had been sold since 2000 at a selling price equivalent to about US$0.43 to US$0.62 per capsule.
Nespresso reported annual sales of CHF 3 billion in 2011, growing by 20% during the fiscal year.

Cost

Nespresso sources most of its coffee through the Nespresso AAA Sustainable Quality Program. In 2017 the company reported that 82% of beans were sourced through the scheme. In the US, the price of capsules ranges from a standard US$0.70 to US$2.00 for limited editions. In Europe, capsule prices were around €0.35 in the Netherlands.

Ecological impact

Unless the capsule is recycled, each capsule produces 1g of aluminum waste. Recycling aluminum uses as little as 5% of the energy needed to produce aluminum from ore. Initially, Nestlé did not implement any recycling programs outside a few areas of Switzerland. This led to a large amount of waste generation, which was criticised by user groups. As of 2017, Nespresso has set up capsule-collection systems in 36 countries. France and Switzerland are some of Nespresso's biggest buyers so the recycling facilities are more accessible in these countries.
Only 24.6% of Nespresso capsules are recycled globally, but the company states that it has the capacity to recycle 100% of its capsules through its recycling program. The proportion of recycled aluminum in the capsules is not known, but is estimated to be greater than 80% of capsules produced as of 2015. The company has launched a program called "écolaboration" to try to remedy the problem. The program set out with goals around recycling and sustainability. The program targets were met in 2014, and a new sustainability program was launched: "The Positive Cup". This strategy includes goals on sustainable coffee sourcing under the Nespresso AAA Sustainable Quality Program™. The AAA Program, which was developed with the Rainforest Alliance and launched in 2003, is focused on helping farmers who grow and supply Nespresso's coffee. Nespresso claims to do this by teaching farmers best business and growing practices. Farmers are not obliged to sell to Nespresso, although many choose to as Nespresso offer a fair price for the coffee and help in all aspects of the farmers' business. Nespresso offers up to a 40% premium on the price of beans, and some 75,000 farmers from 12 countries are participating in the AAA Program.
In 2019 Nespresso partnered with Swedish company Vélosophy to create a commercially available bicycle out of recycled Nespresso pods. Other projects also include collaborating with Caran Dache to create a ball point pen out of recycled coffee pods.
Nespresso Pro, OriginalLine and VertuoLine capsules can be recycled at one of Nespresso's recycling facilities.

Marketing campaigns

is considered the "face of Nespresso" and has been starring in Nespresso's ad campaigns since 2006, first in European and international campaigns and since 2015 in US market ones as well. In these campaigns Clooney has paired with actors such as John Malkovich, Danny DeVito and Matt Damon, who reportedly received $3 million for his participation.

Competitors and litigation

Machines

In August 2011 the Australian company Kogan announced the development of the "Ez-press", a coffee machine compatible with Nespresso pods.",

Capsules

In 2008 Jean-Paul Gaillard, a former CEO at Nespresso, started a rival firm, Ethical Coffee Company SA, to make compatible biodegradable capsules for the Nespresso machine, withdrawing from this "loss-making" market in 2017.
In March 2016, Starbucks announced that it would sell Nespresso-compatible capsules in Europe. These were launched with four core pods including three single origin pods, and are compatible with all consumer Nespresso machines, but not those such as a commercial Nespresso machine or in a Miele integrated unit.

Litigation

In March 2011 the Swiss discount supermarket, Denner, won a court battle with Nestlé over the sale of plastic Nespresso-compatible capsules, at about half the retail price of Nespresso capsules.
By 2014 Nespresso had been involved in further legal disputes about pods with competitors in the UK, Germany, France, Belgium, and the Netherlands; one media report said "Nestlé has lost in just about every one of those conflicts." In France—Nespresso's largest market, which made a quarter of its global sales at the time—the antitrust watchdog Autorité de la concurrence stated that "it appears that Nespresso may have abused its dominant position by tying the purchase of its capsules to that of its coffee machines, with no fair justification, de facto ousting rival capsule makers". The company agreed to cease making the guarantee on its single-serving coffee machines conditional on using only Nespresso pods, and to remove warnings against the use of third-party pods.