Restoring Brand Relevance: Nestlé Nespresso

Larry LightAugust 12, 20208 min

There is a very interesting story in The Guardian about Nespresso, Nestlé’s espresso machine with its colorful, elegant foil coffee capsules. The article tracks Nespresso’s history from its innovative origins to its current situation that is described as “trundling on” without the sophisticated swagger of its early days. The author wonders whether the Nespresso’s brand-business can survive, even though the brand is deemed eco-cool and built on snob appeal.

Yes, Nespresso can be revitalized. The brand must reconnect with customer tastes, habits, lifestyles, and values. Over the years, Nespresso continued to support a promise that had lost its relevancy, and as we know, losing relevancy is a formula for failure.

According to the article, Nespresso made some critical missteps. In a fast-changing world, alacrity in response to new customer wants, problems, and needs is essential for successful survival.

That Nespresso is struggling is regrettable since the brand-business is based on a powerful vision that should be carrying it forward to enduring profitable growth. Nespresso’s original vision, articulated in 1975, was “… to build a world in which espresso was available at home.” To put this vision in a chronological context, Starbuck’s did not become Howard Schultz’ Starbucks until the 1980s. Today, with people observing stay-at-home life, Nespresso’s vision can take on new relevancy if only the brand could revitalize its 30-year-old success story. Having a viable and vibrant “Plan to Win” is essential.

A “Plan to Win” follows an 8-P structure: Purpose, Promise, People, Product, Place, Price, Promotion, Performance. It is a roadmap for quality revenue growth. It is an aligning document ensuring that an enterprise focuses on making progress towards its North Star. It is also helpful in defining the key issues facing Nespresso.

Purpose and Promise

Having a compelling, possible dream is fundamental for a brand-business. A brand-business vision articulates a future world in which your brand will win. It provides a common, achievable North Star on which all employees are focused.

Nespresso’s defined a compelling North Star … a world in which espresso is available at home. In this world, Nespresso promised an elite, globalized “club” lifestyle experience where members are part of a sophisticated, exclusive, global community of espresso lovers.

People

Nespresso had two visionaries. The first (original) visionary was Eric Favre who came up with the idea for the product and vision. Mr. Favre built the machine. He designed the way the hot water interacted with the coffee in the capsule. The second visionary was Jean-Paul Gaillard who changed the premise of Nespresso from a product to a luxury way of life. His concept was to be the Chanel of Coffee. The Guardian reports that there were two years of “personality clashes” between the founding technician and artistic marketer. There was competitiveness as to who should receive the kudos for Nespresso success.

Product

Nespresso helped to create a category of home appliances from scratch with online membership and sales that tapped into a particular nascent exotic coffee vibe. Rather than be an appliance, Nespresso made in-home espresso-making a luxury lifestyle choice. At its heyday, Nespresso revenues exceeded £500 million.

Nespresso kept its capsule patents proprietary. This ensured that Nespresso coffee pods were the only ones that could be used in the sleek machines. Keurig, its main US competitor, with its ubiquitous K-cups, is “open sourced” and many of America’s favorite coffee brands and tastes are available to use in Keurig machines.

Nespresso went to court to protect its patents but in 1992 lost the cases in Europe. Eventually, third-party manufacturers started making Nespresso-model capsules with non-Nespresso coffee grinds. This may have diminished Nespresso’s luxury, sophisticated image.

Espresso is a beverage that is savored in small cups. In the US, unlike European countries, coffee drinkers – especially morning coffee drinkers – use large mugs or travel cups and have become accustomed to Starbuck’s 16 ounce, 20 ounce and, now, 30 ounce beverage containers. The US is a Grande, Venti, Trenta nation. Car cup holders accommodate large size cups, not small espresso size cups.

Although Nespresso did eventually create a machine to generate larger sizes, the Vertuo, the brand-business should have been quicker to respond. Also, many US coffee drinkers were unaccustomed to drinking espresso in the morning, preferring less bitter options. Starbucks’ original blend is darker, but customers have all sorts of add-in options to ameliorate any bitterness. And, Starbucks K-cups come in many different blends.

Nespresso focused on the globalization of tastes. That worked initially. But, as people around the world began to reject global tastes for local/regional tastes and personalized coffee concoctions, Nespresso’s homogeneity became a liability. Today, “luxury” or small batch, craft coffees are highly localized. Starbuck’s made coffee personalization accessible. Nespresso kept its uniformity of tastes. As The Guardian piece cites, Nespresso is labeled “the microwave meal of coffee.” A far cry from the Chanel of Coffee.

Place

At its inception, Nespresso capsules were ordered online. Monsieur Gaillard created the online club. To further the luxury life promise, Monsieur Gaillard saw luxury retail as a necessity. Nespresso’s choice to open fancy retail outlets may have made sense at the time, but also may have contributed to its slumping performance. Focusing on luxury Nespresso boutiques may have taken eyes and resources off of the profitable online retail business. And, the stores have suffered during coronavirus.

Initially, Nespresso was an international, European brand with no presence in the United States. Nespresso’s small, dark espresso was in sync with European tastes. In the U.S., Keurig was, and still is, the reigning mass-market capsule-based coffee maker. Keurig’s K-cups fill many grocery shelves in the coffee aisle and a wide variety of coffee brands use the K-cup capsule, such as but not limited to Dunkin’, McDonald’s, Green Mountain, Starbucks, Cinnabon, Newman’s Own, Peet’s, Folgers and Café Bustelo.

Price

To compete with Keurig, Nespresso manufactured a less expensive coffee machine but used behavioral science and the model of making money from the coffee pods. Nespresso charged more for the coffee pods than Keurig. Nespresso had a luxury image to maintain; Keurig is a more mass-market brand.

When Nespresso began the “way of life” promise, Monsieur Gaillard raised the price of the capsules by 50%. Today, the prices are similar. Currently, Nespresso Vertuo coffee pods cost about U.S. $1.20 each. At Target, original size Nespresso pods cost on average 50 cents to 90 cents each. Keurig coffee pods have a similar cost structure, 58 cents to $1.33 for Organic Newman’s Own.

Promotion

Nespresso has a negative image when it comes to sustainability. Globally, Millennials and their younger cohort, Gen-Z, are committed environmentalists. Multiple studies indicate that these younger customers will not buy non-sustainable brands that are ecological nightmares. These younger generations seek brand-businesses with values comparable to their personal value sets.

Although Nespresso coffee pods are nearly all-aluminum, which is 100% recyclable, Nespresso coffee pods utilize a tiny bit of plastic in their aluminum pods. This means the pods cannot be thrown into a standard recycling bin. Users who wish to recycle must make the effort to either visit a Nespresso store or some other store that accepts empty Nespresso pods.

The Guardian cited information from Nestlé saying that 30% of Nespresso pods are recycled while other data indicate that only 5% of Nespresso pods are recycled. Assuming the 30% number is true, The Guardian informs us this still means approximately “12,600 tonnes of Nespresso capsules” wind up in local landfills. Leveraging Nespresso’s ecological response, there are now eco-friendly capsules that can fit in Nespresso machines (Nespresso has not yet changed the materials of its capsules. Cost is one of the reasons. Meanwhile, Nespresso will continue to suffer the inroads of sustainable competitors, including manufacturers of refillable capsules.)

On the Nespresso website now, if you wish to recycle your capsules, you can receive a bag and send the used capsules back to Nespresso via UPS. This requires going to a UPS office. Or, as always, Nespresso capsules can be returned to any Nespresso boutique.

In the early 2000s, when Nespresso decided to market the brand as a luxury lifestyle brand, Monsieur Gaillard told the press that Nespresso would become the “Chanel of coffee,” a brand for people who live in buildings that have doormen and valets. Nespresso was not a machine; it was a refined, cultured, classy, stylish way of life. George Clooney became the suave, sophisticated, simply elegant face of the brand, first internationally and then in the US.

The “luxury way of life” approach worked for a while, but people change. Today, that particular elegant, sophisticated, tony lifestyle is not as popular as it once was. As The Guardian reported, having a Nespresso machine used to reflect an “urbane chic” lifestyle. Now, with high-end artisanal coffees, having a Nespresso machine “… increasingly suggests that you are not a serious coffee person” and you have an unfortunate attitude towards sustainability.

Staying with the sophisticated, luxury positioning that has fallen out of style is hindering Nespresso. Making Nespresso widely available is a difficult position to manage. Luxury brands struggle with the paradox of abundant rarity: exclusivity that is available anywhere. Some strategists believe luxury cannot be luxury if it is abundantly available.

Nespresso underestimated the competition in the US. As with the beer industry, coffee has become a highly competitive and fragmented beverage category. Nespresso is under pressure from less expensive competitive coffee capsules, from higher-end purveyors of small batch, crafted coffees, and from extremely expensive in-home professional coffee machines.

Performance

The Guardian informs us that according to Nestlé, Nespresso’s performance is currently “mid-single-digit growth.”

Yet, do not underestimate Nespresso’s size and brand power. Nespresso is a huge global brand-business. According to the data cited in The Guardian, Nespresso sells around 14 billion coffee pods each year – online and in its own Nespresso boutiques. Nespresso coffee pods reside in many hotel rooms around the world: making the brand highly familiar and providing a benefit allowing travelers the ability to drink a fine morning coffee without leaving the room or ordering room service.

Nespresso has a powerful vision – “… to build a world in which espresso was available at home”. In our current situation of lock-down orders and stay-at-home lifestyles, this vision has increased meaningfulness. Brand-businesses must constantly up-date to stay relevant in changing times. Certainly, Nespresso is a brand that can recapture the vibe of excellent coffee at home. Now is the time to more fully leverage its vision.

Contributed to Branding Strategy Insider by: Larry Light, CEO of Arcature

At The Blake Project we are helping clients from around the world, in all stages of development, redefine and articulate what makes them competitive at critical moments of change. Please email us for more.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

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