Nespresso

History

In 1976, Eric Favre, an employee of Nestlé, invented, patented and introduced the Nespresso system to the business market in Switzerland, initially without significant success. A decade later, in part due to the efforts of Jean-Paul Gaillard who introduced the «Le Club» community, the product became more successful. In 1990, Nestlé signed a contract with Turmix, which started to sell Nespresso machines in Switzerland. In 1994, actor George Clooney discovered the Nespresso machine at a winter chalet in Chamonix. Clooney loved the concept of a pod-based espresso machine, taking note of the brand and its marketability. George's friend and famed angel investor, Paypal founder Peter Thiel aided George in securing contacts. Thereafter, other contracts were signed with Krups, Magimix, Alessi, Philips, Siemens and De'Longhi.

The first patent application for Nespresso's process of brewing espresso from capsules containing ground coffee was filed in 1996.

Machines

Nespresso sells or licenses a number of different machines. The machines carry the brand names of well-known kitchen-equipment manufacturers such as Krups, Magimix, Miele, Siemens, and DeLonghi, but are mostly manufactured by Eugster/Frismag, a Swiss company that is one of the world's largest coffee-machine producers. While based in Amriswil, Switzerland, Eugster/Frismag mostly manufactures in China under the Krups, Turmix, DeLonghi and Magimix brands. Krups and Magimix stores often display models "Made in Switzerland" (noted on the bottom of the machine) but others machines come from China. DeLonghi manufactures the Lattissima models. Eugster/Frismag is strictly an original equipment manufacturer (OEM) and does not sell under its own brand. In 2000 Nespresso began distributing machines bearing the "Nespresso" brand. There are numerous models that range in complexity and price, from the entry level Inissia, U and Pixie ranges

Capsules

Nespresso capsules are sold exclusively by Nespresso and are significantly more expensive than an equivalent quantity of "loose" ground coffee. The cost per serving is up to three times higher than that of alternative brewing methods. Because of the hermetically sealed capsule, however, the coffee aroma does not degrade with time like coffee in a pack that has been opened. Nespresso sells more than 20 different coffee "Grand Cru" arabica and robusta capsules. Two Limited Edition Grand Crus are released each year as well as a new set of "Variations" - flavored espresso capsules.

Each capsule contains 5–6 grams of ground coffee and makes one serving of coffee. Depending on the length of the pour, the capsule can produce a 40 ml espresso shot, or a 110 ml lungo (long) pour. The capsule body and perforated top are both made of aluminum. To assuage concerns on potential aluminum health effects, most of the capsule interior is lined with food-grade lacquer.

For the business market, a different system of Nespresso pods exists. These pad-shaped capsules are not interchangeable with the consumer capsules.

Process

Nespresso's hermetically sealed capsules are made of aluminum foil. Depending on the Nespresso machine being used, the flat top of the capsule is pierced when inserted into the machine and the compartment lever is lowered. Some machines make a single large hole, and others make a number of smaller holes. When the machine is activated it pumps hot water under high pressure into injector holes poked into the narrow end of the capsule upon insertion. This causes the flat bottom of the capsule to bow in, as this is made of thinner foil than the rest of the capsule. The base of the capsule holder (on which the capsule sits) has a number of raised squares which cause the foil to rupture at these points. The brewed coffee exits the capsule through these rupture holes and flows through a funnel nozzle into the coffee cup. As in pressure cookers, a safety pressure release valve inside the brewing chamber prevents an explosion from occurring if the normal coffee exhaust path becomes blocked.

VertuoLine system

To appeal to the demand by North Americans for larger servings of coffee than the Nespresso machine produces, in February 2014, Nespresso launched a new Vertuoline system of machines and capsules in the United States and Canada. The system produces both 230-millilitre (8.1 imp fl oz; 7.8 US fl oz) cups of coffee and smaller 40-millilitre (1.4 imp fl oz; 1.4 US fl oz) espressos, both with the crema that characterizes espresso coffees and the original line of Nespresso coffees. Nespresso simultaneously introduced eight coffee blends and four espresso blends in specially-designed VertuoLine capsules. The VertuoLine capsules cannot be used in the original line of Nespresso machines (now branded "OriginalLine" in North America). Nespresso sells both OriginalLine and VertuoLine machines and capsules in the United States and Canada, targeting different market segments with the two systems. Contrary to belief, the pods are available in Canada for purchase from not only the Hudson Bay Store but from "big box stores" such as Walmart and Shopper Drug Mart.

The VertuoLine system uses two technologies not found in the OriginalLine. First, the system uses "centrifusion" (a term created by Nespresso, being a portmanteau of centrifugal force and infusion), whereby it spins the capsule around in the machine at up to 7,000 rpm to blend the ground coffee and hot water. Second, each capsule has a barcode embedded on the rim, and the barcode laser scanning system reads 5 different parameters: cup size (coffee or espresso), temperature, rotational speed, flow rate and time the water is in contact with the ground coffee. Some critics claim that the VertuoLine technology, particularly the use of bar codes, is an attempt by Nestlé to create a new proprietary Nespresso system which excludes compatible capsules from other companies. Competing products, such as Tassimo also use barcodes.

The VertuoLine system was intended to expand Nespresso's product line to offer coffee closer to the American style of filtered coffee, and thus expand Nespresso's market share in North America. At the time of the introduction of the VertuoLine system in 2014, there were no plans to launch the system in markets outside Canada and the United States.In the United States, Nespresso had only a 3% share of the single-serve coffee market in 2013 (compared with 72% for Green Mountain’s Keurig system), while in Canada Nespresso had 4 to 5% of the single-serve market in 2013 (compared to approximately 53% for Keurig and 40% for Tassimo). In comparison, Nestlé had 70% of the single-serve market in Europe in 2013.

Business model

The concept (machine, capsule, service) is subject to 1,700 patents which protect Nespresso's ownership of the concept until the patents expire. This contrasts with some other prepackaged coffee preparation systems. This has led to comparisons of Nespresso with printer manufacturers that tried to hinder the sale of generic ink cartridges, to achieve a vendor lock-in effect.

Nespresso's patents began to expire in 2012, gradually allowing competitors to offer capsules and machines compatible with the Nespresso system. Nestlé is working on ways to prevent competitors from doing this.

Market

Packaged portions of espresso coffee, like those from Nespresso, has become one of the fastest growing segments of the coffee market, accounting for 20 to 40 percent of the value of ground coffee sales in the European coffee market which totals USD 17 billion. In August 2010, it was reported that Nespresso sales had been growing at an average of 30 percent per year over the previous 10 years and more than 20 billion capsules had been sold since 2000 at a then-current selling price equivalent to about USD 0.43 to USD 0.62 per capsule.

Nespresso reported annual sales of CHF 3 billion in 2011, growing by 20% during the fiscal year.

Cost

Most coffee is ordered in bulk directly from Nestlé. In the US, the price of capsules in 2014 ranged from US$0.65 to US$0.70 each. In Europe prices were around €0.35/capsule in the Netherlands. There is a minimum order quantity of 50 capsules, and standard shipping for 50 capsules is US$6.95, raising the total cost per capsule to US$0.79 to US$0.84. Shipping is free for orders of 200 capsules or more.

Ecological impact

Unless the capsule is recycled, each cup of Nespresso coffee produces aluminum waste, the main material of the capsule. There is 1g of aluminum in one capsule (including the cover) compared to about 13g for a soft drink can. Recycling aluminum uses down to 5% of the energy needed to produce aluminum from ore. To begin with, Nestlé did not implement any recycling programs outside of a few parts of Switzerland. This led to a large per-cup waste generation, which was criticised by some user groups. More countries now have recycling facilities. France and Switzerland are some of Nespresso's biggest buyers so the recycling facilities are more accessible in these countries.

A minority of capsules are recycled: Nestlé itself states a current rate of 50% in Switzerland and Germany, but only 2% in France. The proportion of recycled aluminum in the capsules is not exactly known, but is estimated to be greater than 80% of capsules produced (per annum)as of 2015. The company has launched a program called "écolaboration" to try to remedy the problem. The program set out with certain "road map goals" around recycling and sustainability - the program targets were met in 2014, and a new sustainability program was launched: "The Positive Cup".

In addition to the recycling programme discussed above, Nespresso states 'ecolaboration' includes a AAA sustainability programme, focused on helping farmers who grow and supply Nespresso coffee. Nespresso claims it does this by teaching farmers best business and growing practices. The company claims participating farmers are not obliged to sell to Nespresso, although the company says many choose to as Nespresso claims to offer a fair price for the coffee and help in all aspects of the farmers' business. Nespresso offer up to a 40% premium on the price of beans, and no contracts are held between the approx. 63,000 farms that supply Nespresso.

Nespresso Pro, OriginalLine and VertuoLine capsules can be recycled at one of Nespresso's recycling facilities.

Machines

In August 2011 the Australian company Kogan announced the development of the "Ez-press", a coffee machine compatible with Nespresso pods.

Pods

Australian company PodCafe released a 'one size fits all' refillable capsule in 2012 that fits most Nespresso compatible machines, and also allows users to brew tea and hot chocolate.

The Dutch company Douwe Egberts has launched a coffee capsule compatible with Nespresso machines in Europe and the US. Unlike the Nespresso capsule, the L'OR EspressO capsule is made out of plastic and is pre-perforated, and, to preserve freshness despite this, comes individually packaged in an airtight bag.

In mid-July 2010, Sara Lee, which in France makes coffee under the "Maison de Café" brand, launched L'OR EspressO which uses a plastic capsule that fits both Sara Lee's own espresso machines and the Nespresso system. By August 2010, according to Sara Lee, more than 30 million capsules of L'Or had been sold. Nestlé has sued Sara Lee, accusing the latter of contravening its patents. In December 2010, Sara Lee announced that they would start selling their capsules in the US under the Douwe Egberts name, and since mid-2011, Sara Lee has expanded sales of its capsules into other countries, such as Spain where they are sold under the "Marcilla" brand.

In 2011, Jean-Paul Gaillard, a former CEO at Nespresso, started a rival firm, Ethical Coffee Company SA (ECC), to make compatible biodegradable capsules for the Nespresso machine.

The Italian company Caffè Vergnano has also launched a capsule compatible with Nespresso machines, called Èspresso,. Nestlé Nespresso has been accused of wrongfully discouraging the use of this competing capsule product in its machines. The Vergnano capsules, unlike Nespresso ones, can be found in supermarkets and small shops.

Other competitors include a Swiss start-up, Nexpod, which offers Nespresso-compatible empty capsules which can be filled with the coffee (or tea) by the buyer, CapsuleCup from Hong Kong that provide compatible capsules in bulk and a South African company based in Cape Town which sells Nespresso-compatible capsules under the brand name Café-Caps. Cafe Caps specializes in private label production. Caffè Negrini is sold in over 800 shops in Austria. In the UK, Dualit and Cafepod have both launched generic products. In the United States HiLine Coffee Company launched a website on the 4th of July selling Nespresso compatible capsules with the theme Independence from Nespresso.

The Berlin-based start-up Gourmesso also offers Nespresso compatible capsules, launching a website in Germany in early 2013 and expanding to other European countries later that year. Gourmesso USA was launched early in 2014. Since their launch, Gourmesso has received Fairtrade International certification for almost all of their 20+ coffee blends. They also offer a number of EU and USDA certified Organic products. In early 2016 Gourmesso also launched a line of Tea Capsules for use in OriginalLine Nespresso machines.

In October 2014, Artizan Coffee Company, a Miami-based Specialty Coffee Roaster, received full USDA Organic Certification status for its line of Nespresso Compatible Coffee Capsules, making Artizan Coffee Company the first and only producer of coffee capsules compatible with Nespresso machines to carry the USDA Organic Seal. In 2014, Australian company Tripod Coffee launched their own range of capsules, bring to market the first ‘hermetically sealed’ compatible capsule in Australia. In early 2015 the US based Rosso Caffé was launched, also producing Nespresso-compatible capsules selling independent blends to be used in Nespresso machines.

In March 2014 Indulge Beverages Pvt. Ltd. also launched Nespresso compatible capsules for the Indian Market under the brand name Bonhomia. They introduced a new frontier by also launching Tea capsules compatible with Nespresso machines. Bonhomia is focused on Coffees' and Teas' with an Indian provenance. Also in 2014 Australian brand PODiSTA launched the world’s first Nespresso compatible multi-beverage range including coffee, 5 flavours of chocolate and 3 sugar free kids products (chocolate, strawberry and honeycomb)

Litigation

In March 2011, the Swiss discount supermarket, Denner, won a court battle with Nestlé over the sale of Nespresso-compatible capsules. The plastic capsules are approximately half the retail price of the Nespresso capsules.