Tag: Nestlé

Coffee Wars Part II: Can Other Companies Unseat Nespresso?

Nestle’s Nespresso brand has managed to dominate the world market for home-brewed coffee that comes in capsules since the product was created 25 years ago. But others are seeking to end the Swiss company’s control of the market.

Nespresso’s pioneering strategy involved establishing a marriage between the design of the coffee machines and the capsules that the devices used. From the moment the consumer purchased a Nespresso machine, his or her relationship with the brand was sealed because the machine was not compatible with capsules from other players that later moved into this product category, such as U.S.-based Sara Lee and Italy’s Lavazza.

But now Sara Lee and others are introducing capsules that are compatible with the Nespresso machine. Capsules sold under the name “L’Arome Espresso” by Sara Lee subsidiary Marcilla have broken sales records in Spain’s supermarkets. Already, 10 million capsules have been ordered. Ignacio Gafo, a marketing professor at IE Business School told Universia Knowledge@Wharton that, with this development, Marcilla can not only generate financial losses for Nestlé, but it can also change the consumption habits of customers.

Nestlé has responded to the competition with a legal battle regarding supposed violations of its patents and intellectual propriety. The Swiss company’s system is protected by 1,700 patents. Nestlé’s lawsuits against Sara Lee in France and the Netherlands have yet to be resolved. In Spain, Nestlé has yet to make a move against Sara Lee on the legal front, but experts anticipate that the company will take a similar defensive strategy.

According to Gafo, Nestlé could face a scenario quite similar to the challenge facing makers of printers that use device-specific ink cartridges: Consumers could confuse their experience with the cartridges with the performance of the machines that use them. “If a user buys the cartridge of an alternative company and it functions poorly, or they don’t get the same quality, consumers don’t stop to think [about who is responsible]; they immediately assume that the problem is the machine.”

In the case of coffee, Gafo says the blame for problems with an off-brand capsule might fall on Nestle and the Nespresso machine. “If there is a bad experience because the capsule doesn’t meet their needs, it is Nestlé that has the problem…. So Nestlé has everything to lose.”

Read more on the coffee capsule battle at Universia Knowledge@Wharton.

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What’s That in My Chocolate? It Could Be Air

Next time you bite into a candy bar by your favorite chocolate manufacturer, you might be surprised to find bubbles. According to a report in Bloomberg Businessweek, candy makers including Nestlé, Cadbury and Barry Callebaut (which makes chocolate and candy fillings for other brands) are adding air to some of their newest offerings in an attempt to offset rising cocoa prices.  Others are adding vegetable oil or decreasing the weight of their products.

The cost of cocoa, along with other commodities, has risen dramatically over the past few years.  According to Bloomberg, cocoa prices are the highest they have been in 30 years, and sugar prices are nearing top prices reached in 1989. The reasons for these increases vary: In the case of cocoa, recent election disputes and a threat of civil war in Cote d’Ivoire — the world’s largest cocoa exporter — have spooked commodity markets; in the case of sugar, a poor growing season in Brazil is to blame.

When facing long-term commodity price changes, the choices are limited for manufacturers, according to Clare Dus, vice president of innovation and technical development at New Providence, N.J.-based Sensory Spectrum, a consulting firm that works with food manufacturers and other clients on product evaluation. Companies can decrease portion sizes, increase prices or change formulations — or a combination of those options, she notes. “As you might guess, this is tricky territory as companies will not want to alienate their consumers.  A change in formulation involves testing at many levels to ensure that either consumers cannot perceive a difference, or that the liking of that product is similar or better,” she says. In fact, changing recipes or formulas is a process normally undertaken years before the altered products are launched, Dus adds.

According to Wharton marketing professor Barbara Kahn, consumer alienation may not hinge so much on changes in taste — although she does note that altered taste could certainly “undermine brand equity by not delivering a consistent product experience.” Instead, she says, the real potential downside is losing consumer trust. Taco Bell, for example, just faced a backlash following a lawsuit over the fact that its ground taco meat is not exactly “meat” — it’s a combination of beef and so-called “extenders” like water, oats, cornstarch, silicon dioxide and other additives. What would happen if consumers were someday to discover that there’s not very much chocolate in their chocolate? In general, “people feel it’s immoral” to misrepresent what a product contains, Kahn notes.

Even when there is no misrepresentation (and in fact, Nestlé’s Aero bar and others like it play up the fact that they are aerated), making changes in a well-loved existing product can be challenging for any company — especially in the age of social networking, as chocolate manufacturer Lindt recently found out after altering the recipe for its 70% cocoa “Excellence” bar. (The company’s website claims the change in the bar’s formula — which still contains 70% cocoa — is “based on consumer research results that show the new recipe is preferred due to [a] smoother, less bitter taste.”) Numerous food forums have been filled with complaints by unhappy chocolate fanatics seeking to purchase the remaining old-recipe bars, and Amazon’s consumer review section is full of commentary on the change. Naturally, there is also a “Bring back Lindt’s 70 percent original recipe” Facebook page for those who would prefer a bona fide social networking experience while airing their chocolate frustrations.

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