Melanie Montet Margaux Del Valle Marine EscandeMBM INSEEC 2013-2014

PLANIntroduction

I. External analysis

I.1 PESTEL-DG analysis I.2 Porter analysis

II. Internal analysis

II.1 Tangibles resources II.2 Intangibles resources II.3 Human resources II.4 Capabilities II.5 Core competences II.6 Value Chain analysis

III. STP – Recommendation

III.1 Segmentation III.2 Targeting III.3 Positioning III.4 Recommendations

Conclusion

Sources

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Introduction

When it comes to coffee, each person tends to have its own preference, that’s one of the reasons of the coffee market’s vastness. Today, people have the choice to drink: instant coffee, ground coffee, coffee beans, or even coffee pods. The way they consume coffee has shifted from an in-home coffee to a take-away one from a chain. In the chart above, you can see the main actors in the coffee market. We chose to focus on the UK coffee pods market but some of the information will be on an international level.

I.Internal analysis I.1 PESTEL-DG analysis

Political: The UK government can be considered steady, as it did not incur drastical changes during the last years. The UK is a very liberal country. The Britain’s corporation tax rate was reduced from 24% to 20%. The government showed its will to reinforce the coffee market development. The Royal Society of Art and BBC iCan launched the «coffee shop challenge» with Starbucks, Costa and Caffé Nero to remodernise UK traditional coffee houses.

Economical: However the government’s stability, the political aspect is marked by important economical issues like the economic crisis since 2008 and the cost cutting plan decided by David Cameron. The UK deficit is supposed to reach 6,1% of GDP in 2013. The country has also lost its Top AAA credit rating for the first time since 1978. The UK coffee pods market value is estimated to be £56M in 2013. In the past six years, the market has doubled and knew a 7,5% growth between 2011 and 2012.

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Sociocultural: Coffee, so trendy Barista is the new job, and everybody tries to become a coffee expert by experimenting latte art. Britons like the coffee so much so they created two festivals: The UK coffee week and the London coffee festival. Coffee is now a pure passion. The consumption has shifted from an energising drink to a degustation moment.

Fresh and transparent Due to the numerous health issues like obesity and other food scandals, people changed their behaviour. A lot of consumer associations were created to warn and inform people: the British Coffee Association.They tend to eat healthier and therefore to consume fresher products. They also tend, when price allow them, to prefer artisanal and more ethical products. They are looking for brand that are transparent on their way of manufacturing goods.

Less in-home space => More coffee shops The number of human being on earth is increasing at a tremendous pace, which is creating a living space’s reduction phenomenon. Therefore, houses are becoming smaller and rent higher, people need to work more to pay. As a matter of fact they spend less time at home. They’re always on the move and tend to frequent more coffee shops. Nowadays, coffee shops are an extension of houses and offices.

Loyalty Even if the consumers tend to be more and more fickle, they still seem to care about loyalty program when it comes to coffee. As a lot people have difficulty to make ends meet, they’re looking for CRM program that will reward them easily (discounts, free services…).

Technologic: Digital has largely been developed during the last years. It is an opportunity for brands to lower communication investment and be more eco-friendly.Today, people tend to be hyperconnected thanks to their mobile, tablet or computer. On average, UK citizen spend 37 hours online on their computer and 64% of UK citizens have a smartphone (ComScore Digital Trends 2013).

Internet shopping is also a huge trend and the M-Commerce is also growing at a fast pace. Today, there are multiple methods to buy online: Fingerprint on the iPhone, paying with a tweet, Paypal or even contactless payment.

Environmental: Sustainable energy is developing. Firms now need to implement eco-friendly innovations like hybrid cars, solar panels or wind power. They also need to implement new recycling methods especially in the coffee pods market. Finally, they can also design reusable and greener cups and pods, create a composting policy or even modify their machines to include water-saving technology.

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Legal: There are two main features in the legal part. Firstly, the GM policy is being modified. Scotland and Wales have a GM-free policy, but not the rest of the UK. Nevertheless this feature may change as David Cameron made public statements to support GM-crops. The other aspect is the food safety through Food Standards Agency control and mandatory labelling.

Demographic: According to the Office of National Statistics, the UK population is estimated to 63,7M people in mid 2012. The population is really cosmopolite, 11,3% of it were foreign-born in 2010.

Ageing population

The UK population is ageing. As a matter of fact brands need to understand this trend to find new strategies. The Nespresso brand tried to launch a new machine specialized on tea for the older generation, but it was a failure as the just applied the Nespresso model. Special-T wasn’t designed for older generation but to attract new young consumers.

Y Generation Not only the behaviour of the ageing generation is changing, but also the one from the Y generation. They are ultra-fickle, in search of headspace availability and instant gratification. They are the “Starbucks children” generation, as you spot them everyday with a coffee cup in their hand, on their way to work.

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Income

Thanks to this chart showing the regional gross disposable household income per person in the UK, in 2011, we remark the income inequality between regions. Without any surprise the wealthiest area was London and the South of the UK, the Northern part had a similar development, whereas the center is poorer with a lower GHDI per person.

Global: To end this PESTEL-DG analysis, the coffee market has to cope with a lot of organisations around the world. Coffee providers have to deal with the OECD recent tax reforms, with the International Coffee Organisation and finally the World Trade Organisation.

I.2 Porter analysis

Rival firms The coffee market is a very strategic and attractive market. Everyday, 70 million coffee cups are drunk. 74% of UK citizens drink coffee everyday, a potential of 46,6 million consumers for Nespresso. 48% of these coffee drinkers consume pods. In 2011, consumer retails spend on coffee was £941M. The market is supposed to grow to £7Bn turnover in 2015. Britons spent £56.1m on pods between February 2012 and 2013, up 45.1% year on year. Today, Nespresso owns 34% of market shares and is the most known brand, yet Nescafe Dolce Gusto and Tassimo make the most sales.

It’s a highly competitive market with approximately 50 rivals that belong to specific coffee markets:

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Especially on the coffee pods market, there’s not much differentiation. All competitors provide the same services. Senseo is creating machine and selling filter pods. They have different basic ranges of product from coffee to tea and even hot chocolate. Tassimo is also doing the same. Nespresso differentiates by focusing only on Grand-cru and machines. It is the only brand to manufacture machines with 19 bars power, the minimum limit to have a real espresso.

The fixed costs for competitors aren’t that high compared to Nespresso ones. Indeed, Nespresso chose to have its own distribution channel with stores and employees dedicated to coffee expertise. Concerning the economy of scale, it is largely developed for all brands, as their production capabilities are enormous. Excess capacity is an habit in coffee marketing, but tend to decrease with the Fair Trade organisation work. And there’re a lot of exit barriers such as: • Existing contract with customers• Cost of exit • Loss of bargaining power with different parts• Loss of the shareholder confidence

Suppliers There’re numerous suppliers and a high concentration but Nespresso chose to build strong and long-lasting relationships with farmers from the rainforest alliance. Supplier switching costs are really high.

New entrants For now, the market isn’t saturated and competitors could easily join the pods market, but the new entrants barriers are high. Initial investments are high and there’re numerous norms and technical standards to cope with. Brands had massively invested in advertising campaigns to build strong brand awareness. There’s also one strong cultural barrier: tea culture. Finally, it makes no doubt that the existing competitors would join to block a new entrant, consequently the expected retaliation is strong.

Buyers Tassimo and Senseo chose the traditional retail distribution channel. They are present in numerous retail branches, sold online through own website and other retailing e-platefroms like Amazon. For those brands, it’s somehow easier to reach the consumer, but the drawback is also a stronger dependency to the retailers. Nespresso created a unique path to sell its product. They built stores on famous areas, sell online only through their website. The last distribution channel is the appliance retail stores. The price approach is also different from one competitor to another. Senseo provides the cheapest machines 61£-150£, the cheapest pods £0,16, and have a wide range (Hot chocolate, tea…). It’s the cost leader in the coffee pods market. Tassimo is slightly more expensive but stay rational. The price of a machine is between £100 and £130. Tassimo pods cost £0,25. They also have a wide range of products and they operate their differentiation by doing partnerships with widely known brands such as Costa or Kenco. Basically, they chose to ally their forces instead of fighting each other on the coffee market. Nespresso is the most expensive system. The price of a machine varies between £89 and £1500 (professional/Business machines). The pods are much more expensive, on average between £0,29 and £0,30.

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It’s three times more expensive than regular coffee and a kilogram of Nespresso costs £60. Hence, it’s impossible for customers to use other brands in a Nespresso machine. All of these elements created a vendor lock-in effect, which unable customer to switch brand.

Substitutes

On average, all substitutes are expensive. Nowadays, even if we’re in crisis, people still think that coffee is an affordable indulgence because before coffee pods’creation, coffee was a cheap product. But for now, the trend is so strong that the perceived added-valued exceeds the price, and consumers also have a strong sense of belonging to the Nespresso community.

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II. Internal analysis II.1 Tangible resources

FINANCIAL: We know that Nespresso belongs to Nestlé Group, a very profitable company, recognized by its leading position in the food market. In 2012, sales increased up to 10.2% (92.2 billion CHF), the operating margin raised as well to 15.2%, when the net margin is around 11.4%. We observed a similar phenomenon on the cash flow, which rose from 10 to 15.8 billion CHF between 2011 and 2012. This company displays a net income of 10.7 billion CHF and its estimated, in value, around 228 billion CHF. Nestlé Coffee Specialities (NCS), an independent part of Nestlé, aims to develop, produce and market the Nespresso System. Nestlé has increased sales to +20% thanks to Nespresso’s.

PHYSICAL: Nespresso SA Head-office is based in Switzerland, as its three factories. They are now investing 300 millions CHF to build the third one. The first factory represents 22.700 square meters and has 13 production lines, actives all the time.300 Nespresso’s stores are present in 60 countries worldwide.

HUMAN: Over 8’300 employees around the world working for Nespresso, coming from more than 90 nationalities. 70% of those employees are in direct contact with Club Members. Most of the employees are delegate to customer’s relationship and innovation.

II.2 Intangible resources

TECHNOLOGY: Nestlé changed the coffee value chain. They suggested great innovation, based on Nestlé’s strong R&D capabilities and they made a new coffee standard: the pre-dosed single portion espresso and easy serving espresso system. Nestlé has accumulated experience on the coffee business, as they have been present and leading the mass coffee market since 1938.

Nestlé had enough financial slack to finance the new venture. The Nespresso System required the invention of a new coffee machine, with several particular specificities. They deposed more than 1’700 patents until 2012. Engineers also found a way to make the machine working only with the Nespresso’s pods.

Nespresso system is the only brand on the market allowing people to have a real espresso, with a unique technology: 19 bars of pressure. However, Nespresso System doesn’t permit to make chocolate, tea or coffees with milk.

REPUTATION: Nespresso has an AAA sustainable quality program, including Rainforest Alliance Certification and a trust relationship with roasters. Nespresso is considered as a luxury brand, which is the first time for a food brand. The reputation of this brand comes also with its Club, which permit a sense of belonging for the customers and allowed them to collaborate with Nespresso, the members of the club chose Georges Clooney as the ambassador. This company is also very transparent. Regarding the recycling, Nespresso tried to set some collection points for the pods and they also try to reduce their overall carbon footprint.

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CULTURE: Nespresso has set a new coffee culture. They also have different programs for professionals, chefs or sommeliers. With the Club, they give premium products, and offer to customer around-the-clock order-taking. Orders for Nespresso’s capsules can be placed by toll-free, telephone, fax, mail and over the internet. They offer prompt delivery of fresh coffee within two businesses days. They also give personalized advices providing technical assistance. Clubs members can also benefit from recipe suggestions, Nespresso accessories and special orders.

II.3 Human resources

SKILLS/KNOW HOW: Nespresso has a perfect knowledge of the coffee industry, and a unique technology built over 27 years of in-house R&D. This new “coffee standard” aimed to generated growth through a highly differentiated offering. This company is responsible for every stage of the sourcing, production and sale of its coffee. They also have a unique route-to-market, encompassing its e-commerce platform, its exclusive boutiques and its dedicated Customer Relationships Centres (call centres). Finally, their employees are described as coffee experts, oriented to provide personal advices to each customer and they always received training before integrating the company.

COMMUNICATION AND COLLABORATION Nespresso only picks few partners for coffee suppliers and distribution and their capsules can only be found online or in stores. This company is also very famous for its advertising with Georges Clooney, and now with Morgan Freeman and Penelope Cruz. Nespresso is an official supplier for some events (2014 ryder cup).

MOTIVATION: By developing its own commercial, distribution and personal policies separated from Nestlé, NCS Company is more agile. According to a Nestlé senior executive “the business was physically moved out of Nestlé so that it could establish credibility and so that it didn’t have to fight against all the company’s rules. Nespresso is so different from what the company does in its day-to-day business”. Knowing that innovation in a large corporation like Nestlé was a complex process, Nestlé top management felt that creating NCS was not enough to successfully market the Nespresso System. They also made changes in Management: Nestlé Management felt the need to bring someone from the outside, Jean-Paul Gaillard, with new ideas to save Nespresso from an early death in 1988.

II.4 Capabilities

Here is six great capabilities for Nespresso: 1. Innovation: this company is always one step ahead in term of competitive intelligence. They constantly offer new products or machines. 2. Leading: Nespresso can enjoy leadership, money, facilities, R&D development knowledge, support, etc. At the same time, NCS is independent; as a result it’s more agile.

3. Brand management: Nespresso is also recognized for the machines design and capsules with specific forms and colours. Stores are designed as luxury ones and are very famous and recognizable.

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4.Lifestyle: With advertising and The Club, Nespresso created a real lifestyle. Every ads are an occasion to talk about the brand related to famous actors and their very specific slogan and music. Being a member of the Club creates a sense of belonging. Moreover, Nespresso creates a strong bond to professionals too, suggesting trainings.

5.Sales and Distribution: Nespresso created a unique route-to-market, with a calling centre available all the time, a very efficient e-commerce platform and their particular stores.

6.Knowledge: Nestlé, by Nescafé and now Nespresso has been on the coffee market since several decades and are particularly aware of coffee market features.

II.5 Core competences

1. Great coffee quality and deep coffee expertise 2. Drive for innovation, distinctive design and in-house R&D expertise3. Passionate brand community with direct consumers relationships4. Brand as a lifestyle5. Unique business model/route-to-market and exclusive client services 6. Unique holistic approach to sustainable quality development

II.6 Value Chain Analysis

Primary activitiesInbound logistics: We don’t have access to this kind of information. Nespresso doesn’t provide data on stock management, inventory or even on transportation means.

Operations: Three factories all located in Switzerland, a strategic central position to cover all the market. No further information is given on packagings’ manufacturing. Raw material and coffee are delivered in each of the factories to manufacture pods. Nespresso factories don’t directly make the machines. A single firm also based in Switzerland builds them. Nespresso just co-brands existing brand machines. No further information on maintenance processes.

Services: Nespresso runs one of the most efficient CRM program called The Club. This program allows people to call a dedicated number to benefit from a technical diagnosis when the machine is broken. The manufacturer also guarantees the machines. No further information on the spare parts management and on repair services.

Outbound logistics: Nespresso has a owned railway system to transport goods between factories, but that’s the only information available. No further information on warehousing, order fulfilment or larger transportation.

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Marketing & Sales: Digital • SEO/SEM: Via clear and efficient sitemap with different levels of menu allowing Google crawlers to browse and provide relevent information. Little invests in Google Adwords as their SEO is strongly efficient. • Viral campaigns• Dedicated online platforms • Social Media: Facebook: 2,3M Fans, Twitter: 44’786 Followers, Instagram: 22’793 Followers, • Mobile: Mobile website and a free application on Android/ iOS

TV • Campaigns with multiple star endorsments + others

Influence/ PR • One internationally famous ambassador = George Clooney• Events• Partnerships & sponsoring; Cannes and Bocuse d’Or• Co-branding, • CRM program with co-options

Print • Newspaper ads & posters• Nespresso magazine• Direct marketing: Self tailored mailings & e-mailings• Goodies

Support activities Procurement: Nespresso has close relationships with its suppliers, but we have no access to information on procedures for highest-quality raw material or parts.

Technology management: A Strong R&D department working everyday to perform cutting edge products features. Nespresso not only do have one team for the whole firm, but one team per factory. They also have developped skills to test the product inside the firm. Nespresso used to own 1’700 patents, but they’re now available to every rival. They designed an added value CRM system which allow them to find and maintain customers.

Support: For the moment Nespresso hasn’t designed an engineering support or any types of self-documentation that could help a consumer to repair or improve its machine.

Human resources management: 8’300 employees and the possibility of having a training to become a coffee expert. Nespresso is also very organized firm thanks to a strict organogram.

Infrastructure: No precise information provided on the infrastructure.

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III. STP - Recommendation III.1 Segmentation

III.2 Targeting

We identified four target groups. The main target group is the Coffee drinkers and especially people between 24-80 yo drinking on average seven coffees per week, looking for really good quality coffee and easy serving method. They want to taste and discover new affordable, premium and easy coffees at home.

Our core target group gathers all the coffee Aficionados more precisely people between 25-60 yo, drinking more than seven coffees a week. They consider themselves almost as coffee experts, they both consider coffee as an energizer and an indulgence. They’re SPC++, very active workers in search of headspace availability, easiness and instant gratification. They want to enjoy the most premium and easy-making coffee on a day-to-day basis, with services that make their lives easier (Delivery…).

Nespresso is also a big actor on the B-to-B market and this is our secondary target group, especially offices of firms in search of a more qualitative coffee, hotels and restaurants, travel firms: First class in Airlines and Trains. They want to serve premium coffee to their customers, benefiting of the worldwide quality reputation of Nespresso

Last but not least, the influencer target group, which represents press journalists Offline/Online, bloggers and vloggers can talk about a trendy and innovative product/brand.

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III.3 Positioning

4P Analysis

Product: Nespresso is offering a wide range of Machines, coffee Pods and services.Place: Unique route-to-market with an owned distribution network.Price: As Nespresso is a premium brand; the price policy has to follow that trend. Machines are from £89/1530, pods are from £0,26-0,35. Nespresso also provide constant promotion on the machine = Vendor lock-in effect.Promotion: To promote the brand Nespresso has a huge communication plan as advertising campaigns previously mentioned in the value chain.

Positioning: A premium brand providing a highly qualitative

all-in-one offer that allows people to consume

the best coffee at home.

Mapping

Thanks to that analyse Nespresso has different strategic options. The more adapted seems to focus on differentiation: • Creating highest quality « Grand Cru » coffees• Creating long-lasting consumer relationships• Creating sustainable business success

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III.4 Recommendations

Machines:• Create a smaller machine range including water-saving technology.• Create machines pre-adjustable which could make coffee on itself at a precise

time, in the morning so as customers will be woken up by the smell of a fresh auto-served coffee.

• Implement a system to recycle spare parts and another one to get the broken machines back to the firm to be recycled.

• Innovate through the creation of a machine that can have different additional devices.

Services:• Implement an easier collecting service for used pods => The delivery man would

take the used pods at every order. • To underline this green approach we will sell branded green cups so as consumers

can have a take-away Nespresso.• Deepen the experience in store to make an “at home” space for customers and

hybrid space to respond to our coffee shops competitors.• Establish coffee workshops for our customers who want to become Coffee expert.• Implement a new tab on the website to help people repairing their machines

thanks to an interactive FAQ or a video chat system.

CRM programs:• Establish a sponsoring your friends with a Win-Win offer. • Provide a new service in which interested people could try Nespresso machines

for one week for £5.

Possible integration:Nespresso does not own the factories, which make the machines. So, we will invest as much as possible in the firms, which make our machines, by buying some of the production lines. Improve the repair services with a tracking system that will allow people to check the time when their machine will be available.

Development:Nespresso stores are only in the big cities. We want to test Pop up stores in smaller towns to check the profitability.We will also invest in an eco-friendly delivery system with hybrid vehicles, or even other kind of delivery means like bicycle.

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Conclusion

Nespresso choose a differentiation strategy. Nespresso is not about coffee, it’s about Grand Crus and Variations. The coffee is sold in case, and customers can’t see any prices, those elements are references to Jewellery. There are no shelves in the stores but entire wall to highlight the packaging quality. No classic retailing system, but 300 stores are located in strategic points either premium or highly visited. No salesman but coffee experts. No classic advertising, but premium ads with multiple star endorsement and George Clooney as an Ambassador. The latest element is the vendor lock-in effect. We could say that this approach looks like a premiumisation of the brand but it’s not strong enough. Nespresso differentiates from the competitors through an Ultra-premiumisation, as everything they do is tailored to suit the needs of the customers. To improve the growth rate Nespresso has several strategic options, from investing more directly in the production of machines, to improving its services range to deepen the experience.

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Sources: M&M&M’s Brainstorming

Website: http://www.nespresso.com/uk/en/homehttp://www.senseo.co.uk http://www.tassimo.co.ukhttp://www.starbucks.co.uk/http://www.costa.co.uk/http://www.hospitalityandcateringnews.com/http://www.ico.org/http://www.realcoffee.co.ukhttp://www.britishcoffeeassociation.orghttp://www.urban75.org/blog/a-look-inside-the-new-costa-coffee-brixton-road-brixton-sw9/http://www.nestle.fr/media/pressreleases/r%C3%A9sultats-annuels-2012-bonne-performance-%C3%A0-tous-les-niveaux-mod%C3%A8le-nestl%C3%A9-%C3%A0-nouveau-r%C3%A9alis%C3%A9

Articles: http://www.theguardian.com/lifeandstyle/wordofmouth/2013/apr/10/rise-cof-fee-pod-machines-nespressohttp://www.marketingweek.co.uk/quality-quest-keeps-coffee-sector-full-of-beans/3033917.articlehttp://individual.troweprice.com/public/Retail/Planning-&-Research/Connections/Coffee/How-Coffee-Is-Driving-Economic-Growthhttp://www.independent.co.uk/life-style/food-and-drink/features/coffee-pods-why-we-all-want-what-george-clooney-is-having-8182487.htmlhttp://blog.euromonitor.com/2013/05/thinking-again-the-future-of-coffee-pod-ma-chines.htmlhttp://news.bbc.co.uk/1/hi/magazine/4550669.stmhttp://faculty.insead.edu/adner/Final%20Projects%20May%20June%2005/Nespres-so.pdfhttp://www.lesechos.fr/opinions/crible/0203043078603-nouveau-regime-612992.phphttp://www.strategies.fr/info/nespresso+francehttp://www.rue89.com/2009/03/31/nespresso-cest-cher-dur-a-trouver-et-ca-marche

Reports/ Surveys: http://www.euromonitor.com/coffee-in-the-united-kingdom/reporthttp://store.mintel.com/coffee-uk-april-2011?cookie_test=truehttp://www.comscore.com/Insights/Blog/2013_Digital_Future_in_Focus_Serieshttp://www.statistics.gov.uk/hub/index.htmlLabour force survey, Office for national statisticshttp://oxygen.mintel.com/display/590103/

Video: Arte: http://www.youtube.com/watch?v=-JJ10ibpYNc