FACULTY OF BUSINESS AND ECONOMICS

ASSIGNMENT COVER SHEET

Student’s name (Family name)

Mihelakis

(Given names)

Andrew Anthony

ID number 22619364 Phone 0415 147 717

Unit name Marketing Issues in packaging Design Unit code MKF 2401

Title of assignment Assignment 1 – Case Study

Lecturer/tutor Ms Narelle Pittard

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Tutorial/laboratory day & time Wednesday 10am

Due date 19/08/2015 Date submitted 19/08/2015

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Nescafe Instant Coffee – Case Study Andrew Mihelakis (22619364): Wednesday 10am Tutorial

(Nescafe)

Strengths Weaknesses

S1 – Organisational innovation

• First Instant Coffee to hit the market

(Nestle, 2013)

• Quality Coffee Vending Machines (Oh &

Rhee, 2010)

S2 – Strong parent company Nestle

• USD $15.7 billion net profit for Nestle in

2014 (Nestle, 2014)

• Strong distribution channels (Sotto,

1991)

W1 – Not appealing to younger consumers

• 77 year old brand needs revitalising

(Revill, 2014)

W2 – Potentially confusing range of coffee

• 10 different instant coffee products and

their packaging (Nestle, 2008)

Opportunities Threats

O1 – Financial crisis

• Low impact on coffee consumption

(International Coffee Organisation,

2009)

O2 – Fairtrade agreements

• Consumer ‘Fairtrade’ segment (Murphy

& Jenner-Leuthart, 2011)

T1 – Declining coffee consumption in youths

• ‘Café Culture’/Energy drinks (Lewis,

2002)

SWOT Analysis With origins dating back to the year 1930, when their existed a surplus of coffee in Brazil, the need

arose to preserve coffee and simplify its consumption. Stemming from these needs, Nescafe was

born and the world was introduced to instant coffee (Nestle, 2013). Since then, coffee has become

one of the world’s most popular beverages, being consumed by nearly half of the Australian

population (Australian Bureau of Statistics, 2014). Nescafe’s development of instant coffee

demonstrates its organisational strength of innovation [S1], and the creation of the new

instantaneous coffee market, saw Nescafe achieve a first mover advantage, which has paid off in

terms of a 47% market share (Revill, 2014). This strong market position is reflected on Nescafe’s

supermarket shelf positioning [see Appendix A], where the Nescafe branded products not only take

center eye-level positioning, but across four shelfs. The Nescafe brand is easily distinguished

amongst competitors through the use of a bold logo and primary packaging design. The package

outlines pride in Nescafe’s product, through use of transparent glass container. However the

different products in the Nescafe range can be confusing [W2], which will be addressed further into

this case study.

Further tying in with the organisation’s strength of innovation, is its ability to think outside the box

for coffee consumption. The introduction of Nescafe vending machines is a prime example of this.

Parent company Nestle formed an alliance with the Coca-Cola Company, in order to leverage on

Coca-Cola’s vending machine developmental strength (Oh & Rhee, 2010). The result was a vending

machine which dispensed freshly made Nescafe coffee for the busy consumer segment. This placed

Nescafe coffee in locations where consumers would go to seek beverages, but there wouldn’t have

otherwise been either any hot coffee beverages or any of Nescafe’s direct competitors. Vending

machines could also provide advertisement in the form of signage which stood out for Nescafe.

The final strength for Nescafe lies in its parent company Nestle [S2], which sees annual sales of

almost $100 billion USD and annual profits of $15.7 billion (Nestle, 2014). With a portfolio of many

different brands under its belt, learning effects of packaging design, marketing and distribution can

be maximised and applied to any the brands in its portfolio. What this means for Nescafe is that it

has the financial and managerial backing to accomplish any of its set objectives. The strength of

Nestle as a parent company also directly benefits Nescafe’s distribution network. As one of the

largest global distributors, Nestle allows the Nescafe product range to appear in retailers all around

the globe, from massive 700,000 square foot distribution centres to supply the US market, to the

supply of coffee to rural India (Sotto, 1991).

As the Nescafe brand turns 77 years old, it outlines a weakness that Nescafe needs to address. Over

its lifespan, many new trends and new ways for consumers to consume their coffee has been

created [W1]. This is only amplified with the fact that the 180 countries where Nescafe is sold are

vastly different geographical markets, which each view instant coffee very differently. An example of

this is instant coffee still being a luxury in developing countries. Nescafe has slipped behind the eight

ball due to the rise of new and younger competitors, coffee shop chains and new methods of

consumption such as coffee pods. This has caused Nescafe to drop its share to 44.3% of the instant

coffee market, from its peak in 2004 (Revill, 2014).

In the Nescafe product range, there exists 10 different instant coffee products (Nestle, 2008). There

also exists the weakness where potentially consumers will not be able to distinguish between the

different products during the decision-making/purchase process. By looking at a typical store shelf

showcasing Nescafe products [Appendix A], it is easy to distinguish the Nescafe brand as well as the

different products in the range (separated mostly by colour). However it is not possible to obtain

more information by simply glancing over the product range. This complicates the decision making

process for consumers, potentially driving consumers away from Nescafe and to other brands.

In 2009 we observed the global economy follow the US and plummet into a state of economic crisis.

This affected the way consumers spent their money, ultimately having to be more careful during the

decision making process and watching what they spent their hard earned money on. While the

Australian market performed well during the original crisis (Perlich, 2009), there also was the other

179 geographic markets where Nescafe didn’t necessarily perform as well. However despite this,

while global coffee prices initially fell, they were quick to recover as food and beverage sales fared

well compared to non-food and beverage products during the crisis (International Coffee

Organisation, 2009). The report by the International Coffee Organisations (2009) also looked at

different geographical markets, noting that the decrease of coffee prices in some countries

stimulated its consumption to levels greater than before the crisis. This presents a unique

opportunity for Nescafe, as it has not only the potential to be “GFC proof”, but gain new customers

[O1].

The second opportunity to present itself from the external environment to Nescafe, is the Fairtrade

certified movement of coffee. Fairtrade refers to the coffee beans being sourced ethically, such as in

environmentally sustainable farms, where workers are paid a minimum wage (Murphy & Jenner-

Leuthart, 2011). Fairtrade certified coffee is a niche category, gaining in popularity. Research

performed by Murphy & Jenner-Leuthart (2011) concluded that cafes where Fairtrade coffee was

sold and promoted had higher levels of customer satisfaction. These finding could be applied to

instant coffee, as Nescafe has no notable Fairtrade promoted and labelled product [O2].

Whilst opportunities exists in the external environment, there too also exist threats for instant

coffee companies. The largest threat stemming from the decline in the average consumer

consumption of cups of instant coffee, from 1.5 cups a day to 1.3 cups (Lewis, 2002). This is also tied

in with the ‘café culture’ trend of consuming coffee at coffee bars such as Starbucks, who have more

than 19,767 stores globally (Starbucks, 2013). The youth of today simply are drinking other

caffeinated beverages such as energy drinks and consuming coffee in Cafes rather than at home [T1]

(Lewis, 2002). This is also tied closely with Nescafe’s [W1], older brand that needs revitalising to

appeal to youths.

Recommendations The first recommendation I can provide to Nescafe, is to address the opportunity that Fairtrade

certification has on consumers [O2]. This can be achieved by leveraging Nescafe’s parent company

Nestle, to back a new product line and associated marketing and promotional activities for a

Fairtrade certified blend of instant coffee, directed towards the consumer segments who are

younger [W1] yet passionate about global ethical issues. The packaging of this new product will

ultimately reflect first and foremost its dedication to Fairtrade and being ethically sourced, and

stand out from the existing product range from Nescafe [W2]. This new product should stand out

using a different container with light green tint to the glass and bright green lid, whilst maintain the

traditional look of a Nescafe package to maintain common branding between products in the

Nescafe range.

Whilst this new product will need to be priced higher than current Nescafe offerings to supplement

the cost of being Fairtrade, Nescafe is currently not the most expensive instant coffee brand on the

shelf [Appendix A], meaning that it can justify a more expensive product. Distribution channels of

Nestle [S2] are able to ensure that this product hits the markets where it is most likely to sell, such as

developed nations, whilst avoiding releasing the product into developing markets as the premium is

less likely to turnover.

The second, and last recommendation that I can provide for Nescafe, stems from the need to appeal

to the youths of today [W1]. Whilst the brand is old, the need to appeal to the younger customer

segment is undeniably important for the company. The threat of the ‘café culture’ and rise of energy

drinks [T1] can be combatted in several different ways. Firstly leveraging the strength of parent

company Nestle [S2] to help promote Nescafe directly to younger generations. But Nescafe should

also consider either expanding outside the instant coffee category to a Nescafe branded cold coffee

based energy drink, or by forming an alliance with a café chain and providing a Nescafe branded

coffee product which can be ordered and consumed in store. By aiming at the consumption methods

of youths, an emotional connection to the Nescafe brand can be formed, later allowing for the

potential to more easily move them onto a Nescafe instant coffee product.

Appendix

Appendix A – Photo of product on supermarket shelf with competitors

Photo by Andrew Mihelakis – No reference required.

References Australian Bureau of Statistics. (2014, July 2). Non-alcoholic Beverages. Retrieved August 14, 2015,

from Australian Health Survey: Nutrition First Results - Foods and Nutrients, 2011-12:

http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4364.0.55.007~2011-

12~Main%20Features~Non-alcoholic%20beverages~701

International Coffee Organisation. (2009). The world economic crisis and the coffee sector. London:

International Coffee Organisation.

Lewis, E. (2002). Grinding profits from beans. Brand Stratergy(166), 18-21.

Murphy, A., & Jenner-Leuthart, B. (2011). Fairly sold? Adding value with fair trade coffee in cafes.

Journal of Consumer, 28(7), 508-515.

Nescafe. (n.d.). Photograph of Nescafe Classic product. Retrieved August 14, 2015, from

http://www.nescafe.com/product_details_en_com.axcms?Id=72

Nestle. (2008). Nescafe. Retrieved August 14, 2015, from Coffee Products:

https://www.nescafe.com/products_flash_en_com.axcms

Nestle. (2013). Coffee History. Retrieved August 13, 2015, from Nescafe:

http://www.nescafe.com/coffee_history_en_com.axcms

Nestle. (2014). Nestle Publications. Retrieved from Nestlé Annual Report 2014:

http://www.nestle.com/asset-library/documents/library/documents/annual_reports/2014-

annual-report-en.pdf

Oh, J., & Rhee, S.-K. (2010). Influences of supplier capabilities and collaboration in new car

development on competitive advantage of carmakers. Management Decision, 48(5), 756-

774.

Perlich, H. (2009). The impact of the GFC on Australia as a 'dual economy'. Journal of Australian

Political Economy, 64, 65.

Revill, J. (2014, June 16). The Wall Street Journal. Retrieved from Nestlé Seeks to Revitalize Nescafé

Brand: http://www.wsj.com/articles/nestle-seeks-to-revitalize-nescafe-brand-1402932845

Sotto, C. M. (1991). Nestle building big complex here. Atlanta Business Chronicle, 14(26).

Starbucks. (2013). Annual Report 2013. Retrieved August 14, 2015, from Starbucks News:

https://news.starbucks.com/uploads/documents/Starbucks_Fiscal_2013_Annual_Report_-

_FINAL.PDF