Sunday, January 06, 2008

Three Kings: what else?

Today is Three Kings in Spain when said monarchs descend from the east to provide children and adults alike with their seasonal gifts in place of (or addition to) the ones provided by Santa Claus 12 days earlier.

For many grown ups, the kings will have provided a Nespresso device, the home espresso machine made by Nestle. You can hardly pass a street hoarding without seeing George (‘Nespresso: what else?’) Clooney advertising the system, while the shop round the corner from us was packed to the rafters yesterday with last-minute buyers. This in a land where coffee is almost sacred.

It’s a great business. The machines themselves range from E150-1,000, the purchase of which hook you into forever buying the custom coffee pods. You’ll want all 15+ premium coffee varieties of course, along with the cups, sugars, biscuits etc that come with it. Once in, you’re hooked, or you end up writing off cost of the machine. Very clever.

The resonance for me was the coffee market study we did at business school some 12 years ago. It focused on how Nestle and Kraft fought tooth and nail for ever 1% market share in the stores while being completely blindsided by the rise of Starbucks, which had persuaded people to buy their coffee at £4 a go in a cafĂ© rather than take it up and pay an effective 10p.

So this is Nestle’s revenge. And some revenge. John Gapper has a fun article on the Nespresso phenomenon in the FT which reveals that Nestle sold 1.4m Nespresso machines and 2.3bn pods in 2006. It’s a cult, he admits as a user ‘“an experience” rather than coffee, NestlĂ© told analysts last year and, boy, is it all-enveloping.’

And much cheaper than Starbucks …

2 comments:

Nick said...

Happy New Year Richard and hope you enjoyed New York!

I have no idea about these coffee machines that were on parade during Reyes since a) I don't have any kids yet so I didn't go along and b) I don't drink coffee but coffee from a machine in a Mediterranean country sounds like blasphemy!

barcelona_jane said...

Or Charbucks, as it's fondly known by some in California. There, it's middling to lousy, overpriced coffee (I haven't tried it here - God forbid). Why do people in Spain drink it?