An Analysis Of Nespressos Strategy

Since 1970, Nestlé has been endeavoring to search for a brand-new method in order to meet the rapidly growing demands of the gourmet specialty coffee. After an effort of many years’ development and preparation, the Nespresso System was founded in 1986 along with a lot of patents. After that, Nespresso gradually grew to represent a unique coffee concept designed to enable anyone to create the perfect cup of espresso. The irreplaceable Nespresso “trilogy “unites the world’s highest quality Grand Crcoffees with smart and stylish machines and exclusive, personalized services.

Table 1: Impressive continuous growth

2000

2009

2010

Turnover in CHF

210million

2.77billion

3.20billion

Cups per minute

868

10,000

12,300

Coffee Systems MS%(Units)

6%

19.5%

20%

Global Club Community

600,000

8million

10million

Global Boutique Network

1

191

223

Nespresso Employees*

331

4,500

5,500

*70% in direct contact with Nespresso customers

In 2010, Nespresso reached sales of more than CHF 3 billion with a growth above 20% compared to the year of 2009. 12,300 cups of coffee were consumed every minute. Additionally, Nespresso keeps doing well in generating its leading market share in coffee machines to about 20%. Moreover, the number of the Nespresso Club Members has been increased by over 20% to 10 million. In order to deliver and retain its exclusive personalized services, 1000 more employees were recruited by the company; more than 70% of the 5,500 staffs are facing the customers in direct contact. In 2010, Nespresso started a series of expansion, with 32 more new boutiques opened in Brussels, Miami, Shanghai and Sydney, from Europe to Asia; so far Nespresso has 223 boutiques in total all over the world. Consequently, 63% of the markets are occupied by the Europe, and the rest is divided into Americas and Asia.

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Winning Strategy

Nespresso is becoming a global player and always wants to be outstanding of the competitors. In order to enhance their competitive advantages as well as building on their core competences, Nespresso has been working on the strategy for the past two decades. As a result, thanks to the creation and perseverance of the formula, the company is now as a pioneer and one of the fastest growing operating units of the Nestlé Group. There are six crucial factors attributes to the success story of Nespresso, these include:

Unsurpassed coffee quality and coffee specialists.

The company has its own unique sourcing of finest coffee around the world. For many years, the Nespresso coffee experts have been exploring the world in search of the best coffees from the best producer countries, including Costa Rica, Colombia, Brazil, Togo, Kenya and so forth. According to their findings, only the top one to two percent of the world’s green coffee crop meets the Nespresso’s high quality standards. At the same time, the company makes every effort to build long-lasting and mutually beneficial relationships with the local farmers who produce these precious beans.

Table 2: Nespresso Quality+ Aroma Profile

Unstoppable drive for innovation & distinctive design

Nestlé is always in pursuit of the perfect products with the creative ideas. From the perfectly portioned Grand Crcoffee, the advanced coffee machine to the creation of the Nespresso Club, the company is obsessed about innovative and distinctive minds, compulsive about the fine details and passionate about the combination of high technology and avant-garde design. To date, the brand owns more than 1,700 patents.

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Passionate global brand community with direct consumer relations

Nespresso is expanding their network over the globe. Currently, according to the company’s annual report, the statistic shows that more than fifty percent of all new Nespresso Club Members first experience the brand through existing members. Update to the year of 2010, the total number of Nespresso Club Members worldwide has increased sharply from 600,000 in 2001 to more than 10 million, with an incredible amount of 2 million new members added in 2009 alone.

Inspiration, iconic global brand

The involvement of George Clooney makes Nespresso become the most charming and attractive coffee brand overnight. The slogan can be seen everywhere: Nespresso, what else? It seems that, for true coffee lovers, perfect coffee is not just an indulgence, it is a lifestyle. That is the main idea Nespresso trying to convey to their loyal clients. As a result, Nespresso has become the first global roast and ground coffee brand, moreover, since 2008 it is among the top 20 risers in brand value ranking.

Exclusive route-to-market

Table 3: Nespressos Sales in% by channel

Internet

50%

Customers Relation Centre

20%

Boutique

30%

Nespresso has the biggest shop window: www.nespresso.com. It is recorded that everyday seven millions visits in 2009 with an average time spent of 6 minutes. Consumers can purchase coffee, machines and accessories through the internet without any difficulties in terms of payment or customer service. In addition, the existing 223 boutiques are now possible for all the fans to go and enjoy the perfect espresso.

Holistic approach to Sustainable QualityTM development

The remarkable “Creating Shared Value” is the the Nestle Group key principle and obviously Nespresso is a loyal supporter. To further development, Nespresso carries out the strategy of Ecolaboration. The Nespresso EcolaborationTM aims to improve the sustainability performance of the Nespresso value chain. Under this circumstance, Nespresso brings their partners, stakeholders and also the coffee producers (local farmers) together to achieve a goal of the perfect fusion of: highest quality beans, economic viability, and respect the environment.

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There are three commitments the Nespresso is trying to achieve by the year of 2013:

Source 80% of the coffee from Nespresso AAA Sustainable QualityTM Program certified by Rainforest Alliance (achieved 60% in 2010 already)

Triple the ability to recycle the used capsules to 75% (achieved 60% in 2010 already)

Reduce the CO2 footprint per cup by 20% (between 2009 and 2013)

Conclusion

Looking to the future, there are still many growing issues waiting for Nespresso to face with. For the moment, the strategy leader team needs to concern about five key issues:

  1. How to attract new customers (“away-from-home” V.S home consumption);
  2. Whether to introduce lower-cost system, compare to the current competitors;
  3. How to wider the market and then serve;
  4. Whether to invest in non-coffee market, diversify the products;
  5. How to gain an advantage over a competitor.
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