Nestle Coffee capsule faces more and more challenges

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Recently, Nestl é finally abandoned its insistence on selling Nespresso coffee capsules only in its own stores and agreed to work with a German supermarket chain to sell coffee capsules.

There are three supermarkets: Saturn, MediaMarkt and GaleriaKaufhof. In these three supermarkets, customers will see a terminal named "N-Point". After the machine selects the capsule to buy, the machine will print out the order, and the customer will take the order to the counter to pick up the goods. However, the price of capsules will not be reduced just because they are not sold in specialty stores. Nestl é still has the pricing power, and the prices of capsules sold in supermarkets are still the same as those in specialty stores.

A Nestl é spokesman said it was indeed the first time they had sold coffee capsules through a third-party retailer, "hoping to make it easier for customers to access Nespresso."

It is not difficult to understand that Nespresso chose to do so. Nestl é did not disclose Nespresso's revenue in its earnings report, and Nespresso is one of Nestl é's fastest-growing brands, accounting for 5.6 per cent of total sales, with sales of about SFr5 billion (35.085 billion yuan) in 2015, according to JefferiesLLC, an investment bank.

However, since 2010, more than 1700 patents owned by Nespresso have expired, and more and more competitors have been able to sell capsules suitable for Nespresso coffee capsule machines, and many brands of coffee capsules are cheaper than Nestl é's.

In recent years, Nespresso has been losing market share to competitors. According to the Wall Street Journal, Nespresso's market share in the global coffee capsule market fell from 13% in 2011 to 11.1% in 2015. In France, Nespresso's largest market, Nespresso's market share fell from about half in 2007 to 1/3 in 2016, according to market research firm Euromonitor.

Nestle Vice President PatriceBula, who is in charge of Nespresso, once said, "We want to be at the top level, we don't want to fight in the trenches."

In order to improve its competitiveness, Nestl é is constantly launching new coffee capsule machines and coffee capsules. In addition, just like selling capsules in third parties, Nestl é is constantly expanding its sales methods, and this year it has launched subscription services, such as a monthly 18-25-45 pound package in the UK. Users will get a coffee capsule machine and points that can be used to buy a variety of products each month.

However, Nestl é is not sure whether it will expand third-party sales. Their spokesman said that if the results are good, they may work with other German retail partners, but it is not sure whether they will do the same in other countries. "We will assess the effectiveness and then decide the next step."