Coffee Capsule of Major Suppliers in France and Switzerland - Research Proposal Example

Research Proposal on Coffee Capsule of major suppliers in France and Switzerland Executive Summary Research proposal has been documented on coffee capsules considering the market penetration of Nespresso and their competitors in France and Switzerland. The research proposal contains following topics: Market Size and Trends in terms of total sales value and volume Factors influencing market growth Supplier to each market Product Characteristics Distribution channels and marketing communications medium Consumer profiles, demographics Market Opportunities Recommendations The French and Swiss has great passion for food and Nespresso has great chance of success in those countries Coffee Capsule might be promoted as a product targeted towards people who are quite busy with their work Introduction Coffee capsule was a new invention that revolution in the coffee drinking industry by Nespresso. The meaning of Espresso is fast Italian. That was the main objective behind such innovation; so that normal people can prepare a great cup of coffee quickly. This helped Nespresso to become the market leader in the coffee making industry. However off late the company faced competition from competitors like Sara Lee corp. which has lead to legal battles also. This study intends to find out the market potential for Coffee industry in France and Europe as well as to find out the product, pricing, promotion and distribution strategy of Nespresso to find out the crux behind such success. Problem Definition To find out the recent market trends, factors influencing the market growth as well the market opportunity in France and Switzerland. Research Method The whole research has been based on Secondary Data. This has also been punctuated by strategic concepts like PESTEL analysis as well as marketing concepts like the 4 P’s of marketing. Limitations 1. As the whole research t is based on secondary data which may lead to probable errors. 2. The research should be treated as an indicative one. 3. Recommendations have been based on recent trends which may vary in future. Research Findings 1. Present Market Size, Recent Trends (2010-12) and Total Sales (Volume and Value) of Coffee Capsule of Nespresso (Nestle) and its competitors, legislation, positive and negative factors influencing market growth. Despite of the high level per capita consumption of coffee, it was still the best ever growing hot drinks area in France in 2011, with off-trade sales value increasing by 8%. Indeed, the coffee sales have shown an increasing trend in France since the year 2003. Nonetheless, dynamic growth was observed in the past two years mainly because of the success of coffee pods and rising prices of coffee bean. Nestle was the second largest player in terms of off-trade sales-value led by Kraft and followed by Douwe Egberts. The three players together recorded a total value of 78% of the retail coffee market. In a recent trend analysis, Nespresso product sales rose by 20% to a value of more than SFr 3.5 Billion last year due to a tremendous boost received from a campaign by George Clooney. Recent trends in the region suggest that coffee will continue to lead the growth of hot drinks in the recent future. Sales Value growth would continue to prevail due to increasing popularity of coffee capsules. Coffee capsules will become more affordable and would be easily distributed through various channels. Volume of sales is expected to increase at a slower rate than value of sales while off-trade growth of coffee is expected to be higher than on-trade growth. As a result of this, fresh ground coffee and instant coffee in particular are expected to loose ground gradually due to growing competition from coffee capsules. As compared to France, Switzerland was the first market of Nespresso to collect used capsules way back in 1991. In Switzerland, Nespresso are capable of collecting over 84% of the total volume of capsules sold. As a strategy, 76% of Nespresso Club members have a collection point within a 2 km radius of their home, and over 96% of members have one within 5 km. The capsule recycling is done in Switzerland and the whole process is managed by Nespresso. As far as Logistics is concerned the entire functions is looked after by over sixty agencies. There are two centers for processing which makes sure that the capsules processing is done in an optimum way to make sure coffee and aluminum is separated. Nespresso has attained an important market share and captures more than 20% of the coffee market in Europe. It is known that since break-even, the company has sold capsules from 43 to 62 cents apiece and Nespresso machines were also sold for $190 up to $2500. With time, Nestle coffee capsules started to get challenge from competitors like Sara Lee corp., Dualit capsule machine to name a few. These companies started to supply coffee capsules in the market which are price-competitive as well as compatible to Nespresso machines. Sara Lee launched coffee capsules in the name of L’OR Espresso in France in April 2010 containing four varieties. After that, the company made market penetration by increasing its market share and initiated its capsules in Belgium, Netherlands as well as in Spain – where it is marketed as L’aRôme Espresso. The company has increased five more varieties of coffee capsules after that and is planning to introduce more varieties and origins. Swiss food giant Nestle had indulged in legal battle with Sara Lee Corp. over the copy right issue. This is due to the fact that Nestle’s highly profitable business model is based on the fact that shoppers keep on returning to buy Nespresso Coffee Capsules to be fed to the machines. Sara Lee claims to have found a gap in the 1,700 patents that Nestlé says about protecting the Nespresso machines. Corresponding to the sales value of Swiss Franc 2.8 billion, Nespresso is one of Nestlés biggest brands and is the biggest market player in France. Sara Lees coffee machine overtook Nespresso as the biggest-selling at-home coffee system several years back, but Nespresso consumers tend to spend more on coffee capsules. This has prompted Sara Lee Corp to find a way to tap the premium customers of its competitor. In the first quarter of 2010, sales of Nespresso increased by 20%. After about one month of the launch of the Sara Lee coffee capsules, Nestlé management told that no negative impact on the sale of Nespresso capsules in France could be noticed. As a matter of fact, Sara Lee has sold more than 12 million coffee capsules after that and has been able to reach about 80% of the distribution channels that it had planned to target at the start of the roll out of their coffee capsule. As per the analysts, most of Nespresso sales are generated in Europe where the system of machines and colored pods have successfully tapped that market and has got growing popularity of cafe culture, inspired by Italian style. Consumers in the U.S. and Latin America are also taking up the trend and the sale of coffee capsules are expected to grow at double-digit rates in the coming years. As per James Amoroso, a Switzerland-based consultant, "The market is far from mature, even in markets such as France and Switzerland". In fact, this market has only started to develop." This remark came in while estimating that the penetration rate in Switzerland is hovering at about 20% and that the figure in France is even lower. France, Switzerland and Spain are considered to be one of the most attractive markets for coffee capsules. Competition was non-existent due to Nespresso’s patent policy. The situation, however, changed as competitors found ways to circumvent the policy and make further market penetrations. There are several dozen coffee-system producers world-wide. A coffee machine at-home has brought meaning and added significance of coffee from a capsule. Dualit has proudly launched its own coffee machine which wills prepare delicious coffee at the touch of your finger. The machine is designed for people leading a busy life and involves minimum of intricacies in operation. The positive and negative factors influencing market growth considering all aspects including legislation are as follows: Positive factors a.        Both France and Switzerland are developed and stable economy.  b.        People of the both the countries are well educated and posses high standards of living. c.        People from both countries exhibit passion for food. d.        Bothe the countries are quite rich from a technological point of view. e.        As people from the countries are quite busy with their work Coffee capsule seems to be a tailor made product for Switzerland and France. Negative factors a. Subsidy in France applicable to agro based products only. Businessmen also have to pay high amount of tax (mandatory) in France.  b. The required documentation for any employment has to be written in French language. 2. Main supplier to each market: domestic/foreign, brand shares, product/services offered Nestle has a product kit of close to 8000 brands. These are variedly distributed in domestic and foreign markets. The supply to the market of all the products of different brands can be categorized based on their targeted market which is given below: a) Cereals b) Yogurt c) Coffee d) Water e) Other drinks f) Shelf stable g) Chilled h) Ice Cream i) Instant Foods j) Pet care k) Seasonings l) Refrigerated products, etc. The main supplies of Sara Lee products to domestic and foreign markets can be categorized into the following: a) Bakery b) Beverage c) Meat The main supplies of Dualit products to domestic and foreign markets can be categorized into the following: a) Blender b) Oven c) Toaster d) Coffee-maker, etc. Nestle’s Nespresso brand has dominated the world market for home-brewed coffee that comes in the form of coffee-capsules since the product was created 25 years ago. Nestlé’s strategy was protected by 1700 patents. 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, for example U.S based firm Sara Lee and others. Sara Lee later introduced capsules that are compatible with the Nespresso machine which were sold under the name “L’Arome Espresso” and have broken sales records in Spain’s supermarkets. More than 10 million capsules have been ordered. Dualit has also launched an at-home coffee brewing machine and in the process stole a portion of the brand share from Nespresso. 3. Product/service characteristics: best selling product/Service, price comparison The Cinderella story of Nespresso started with a very simple idea that is to make a espresso coffee just like any professional and since its beginning it has lived up to its potential. As a matter of fact it has redefined the global coffee experience and culture. The meaning of Espresso in Italian is fast. As a matter of fact that’s what Nespresso does. It lets you make a cup of coffee quickly. They have also come up with a new revolution in the form of coffee capsule. The main objective was however still the same to reduce time. Nespresso capsules are sold all over the world. They are produced in the production centers in Switzerland. In this segment we will discuss about the some of the key product characteristics of Nespresso. Some of the key offerings by Nespresso include: Coffee Machines Nespresso offers the most innovative and elegant design with progressive technology. They are available in 5 different ranges and also in different colours. Accessories The company offers a wide range of accessories. They have been designed to increase the customer experience. Some of these accessories include cups, chocolates, biscuits, storage racks etc. Capsules They also produce capsules. They also conserve all the flavour of the coffee and are available in 16 different colours. They can be used in Nespresso machines only. Other Services Nespresso looks to respond to the specific needs of the customers. It offers complete dedicated services. It offers annual service to your coffee machine. The technicians respond to any technical needs within 48 hours. They also provide automatic delivery of capsule on request. Add to it free coffee machine trials and onsite training is also available. Pricing The Nespresso capsule is positioned as a luxury product. Therefore the price is also on the higher side. Studies have shown that price of the Nespresso products are almost three times higher than the retailer’s brand. 4. Costumer profiles, demographics (age, ex, income/occupation, location) Nestle’ pioneering market strategy has put Nespresso coffee capsules in an important leadership position in the coffee industry solely because of being able to target the customer segment and increase in prices of beans. The major part of the customer profile for the coffee capsules market constitutes the people who lead a busy life. Irrespective of their occupation as service or business, customers do not have much time and hence follows the process by choosing the flavor of coffee capsules. They belong to the age group of 20 – 80 years mainly from urban section of the society with moderate as well as high income. Distribution channels and marketing media Distribution channels There are four different channels of distribution. Nespresso machines are placed in electrical goods shops. The customers can buy coffee machines only. Other products like accessories or capsules are not available in these shops. Customers however can buy coffee machines, accessories, capsules from Nespresso shops. There are total 42 such shops around the globe. The coffee machines, the capsules and the accessories are also available on Internet and over the phone also. However, these services are reserved to the members of the Nespresso club. Customers have to register online or buy a Nespresso machine to be a member of the club. Marketing Media and Communication The marketing and communications strategy of Nespresso is impressive to say the least. Their last advertisement campaign which included famous actor George Clooney was huge success. The positioning statement: “Nespresso, What Else?” is quite famous now. The communication of Nespresso is based on the fact that they provide a new kind of life style to the customers. They are also known for coming up with innovative sales promotional offers. A part all these Nespresso also looks to engage customers and develop relationship with them through social media. Nespresso Facebook page has over 1.5 million fans already. They also have a Nespresso club which includes all their customers around the world. It is a part of their direct marketing strategy so to speak (Ball, 2010). 6. Market Potential In order to analyze the market potential PESTEL analysis need to done to analyze the key factors Political Factors France France is a developed country. Political environment of France is quite stable as far as war or any political trouble is concerned. This really is a positive factor for the investors. However setting up business in France requires lot of capital. As a matter of fact the France Govt. has listed down some Tax or other contributions as mandatory to be paid by businessmen in the country Switzerland The judiciary system is independent. The right to citizen to change law is present. Political relations are democratic. The parties avoid any kind of alliances. The authorities are believed to be transparent. The country exhibits high degree freedom for the press Economic Factors France Economic factors contribute a lot when it comes to setting up business in a country. France weathered the storm of recession better than any EU countries. As a matter of fact the GDP growth rate increased for 0.3% to 8% during the 2008-09 sessions. However it did witness a dip in the year 2012. However judging by its track record it is still considered as a favorable place to set up business Switzerland The economy is quite stable. Swiss Franc is world’s one of the strongest currencies. It exports products like machines, chemicals, electronics, etc. The country imports product such as musical instruments, Beverage, Food etc. Private sector dominates the economy. It is also the home of the Swiss Bank. Over all it is one of the most competitive economies in the world. Social Factors France The age structure of France are 65 years and above: 16.5%, 25-64 years: 65%, 0-4 years: 18.5%. The literacy rate of France is over 90%. It is highly developed country as over 70% of the people are staying in cities. The French have exhibits considerable amount of passion for food. The country is quite famous for cheese, wines, and cuisines. Switzerland Swiss are highly educated and trained. They are also highly imaginative, religious and ethical. It is mandatory for the Swiss to buy health insurances. Over 20 % workers are from overseas. Technological Factors France The country has a great technological environment. It is the world’4th largest industrial power. The main driving force behind such progress is the education system of the country. It includes over 200 engineering colleges and over 80 universities. A considerable amount of the country’s GDP is spent in industrial growth. Switzerland The country is not so rich in natural resources. But the exact opposite can be said as far as science and technology is concerned. It is quite active in recycling over 60%. Out of 1000 every 12th person is in the domain of research and development. Environmental France Over 30% of its land is covered by Forest. Once the country ranked 17th as far carbon emission is concerned. The country was imposed carbon tax also. However as the country is a G8 member it is trying to reduce its carbon emission. Switzerland 31% of the territory has woodland. It is very famous for the scenic beauty. The country once received award for best environmental records. Use of nuclear energy is for nonviolent purposes only. 90% of the jobs are related to timber work only. Legal France As far as employment goes written contracts are absolutely mandatory. The language should also be in French. The authorities can’t terminate someone without any specific claws. Subsidy is applicable to agro based products. Switzerland The country was once ranked 22nd as far as ease of Business is concerned. It shows high degree of openness to FDI. VAT on books, drugs, food is 2.4%. Corruption is quite low. Best on the above analysis the following conclusions can be drawn. Positives 1. Both France and Switzerland are developed and stable economy. 2. People of the both the countries are well educated and posses high standards of living 3. People from both countries exhibits passion for food 4. Bothe the countries are quite rich from a technological point of view. 5. As people from the countries are quite busy with their work Coffee capsule seems to be a tailor made product for The Swiss and French. Negatives 1. Subsidy in France applicable to agro based products only. Businessmen also have to pay high amount of tax (mandatory) in France. 2. The required documentation for any employment has to be written in French language. Conclusion Form the above findings it could be concluded over all more positives can be seen as compared to negatives. The overall factors suggest that the France and Switzerland seems to have good potential for a product like coffee capsule. Works cited Ball, B. Nestlé Sues Sara Lee in Coffee War. 2010. Web. 20th February, 2013. Retrieved From: http://online.wsj.com/article/SB10001424052748704009804575308224213314824.html. Read More