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Product & Company Overview: Nestle Essay

Nescafe is a brand of instant coffee made by Nestle. The name is a combination of the words “Nestle” and “cafe”, in which “Nes-” means magic and “-cafe” means coffee. Nestle’s flagship powdered coffee product was introduced in Switzerland on April 1, 1938 after being developed for 7-8 years by Max Rudolf Morgenthaler, a Swiss food chemist considered to be inventor of Nescafe. Nescafe’s roots can be traced back to the 1930s. In the United States, the Nescafe name was used on its products until the 1960s. Later, Nestle introduced a new brand in the US called “Taster’s Choice”, which supplanted Nescafe for many years.

Taster’s Choice was also introduced into Canada at the same time, and continues to be sold as a separate product, branded as superior to Nescafe, and is higher priced. With more than 4,600 cups consumed every second, Nestle’s Nescafe is by far the world’s leading coffee brand, and also the fourth most valuable beverage brand globally after Coca-Cola, Pepsi and Budweiser. Interbrand ranks it as the world’s top 40 brands, with an estimated value of over $10.65bn. Nescafe’s global profile has been modernized by a move into iced beverages, but its more traditional hot soluble business still has one major obstacle to overcome: the dominance of roast and ground coffees in the US and its growing popularity in other developed markets.

Nestle’s attempts to compete directly with ground coffee producers proved unsatisfactory, but instead the group has established a new benchmark for premium coffees with its successful Nespresso dispensing system to build on the normal Nescafe vending machines. Nestle follows a region specific marketing strategy, housing different brands of instant coffee under the umbrella brand Nescafe.

ii.Analyze the category

1.Aggregate market factors
a.Market Size

Coffee is worth over $100 billion worldwide. This puts coffee ahead of commodities like natural gas, gold, brent oil, sugar and corn. The term soluble coffee encompasses spray-dried powder, freeze-dried powder and liquefied forms of coffee such as liquid concentrates. All of these methods of processing involve dehydrating brewed roasted and ground coffee. The freeze-dried method produces a superior but more expensive product. The world consumption of soluble coffee is rising relatively strongly after a number of years of stagnation, expanding from 21.4 million bags (green bean equivalent) in 1999 to 29.9 million bags in 2009. Globally Nestle and Kraft Foods account for around 75% of the world market, with Nestle alone supplying over half the world demand for instant coffee.

According to the ICO (International Coffee Organization), emerging markets consumed 27.9m 60kg bags of coffee in 2012, compared with 25.4m the previous year.

The hot drinks market in Asia has traditionally been dominated by tea consumption rather than coffee. However, in recent years, the Asian coffee market has increasingly become the focus of the world coffee industry. Since 1990, Asia has experienced the most dynamic growth in coffee consumption in the world, growing by an average rate of 4% per annum, increasing to 4.9% since the year 2000. As such, the region is of increasing interest to the coffee sector, both for producers and consumers, and represents a significant potential market for the coffee industry. Coffee consumption in the region has been growing strongly over time, more than doubling from 8.4 million 60kg bags in 1990 to 19.5 million bags in 2012. This represents an average growth rate of 3.9% per annum.

Furthermore, the share of East and Southeast Asia in world coffee consumption has also been increasing, accounting for 13.8% of the world total in 2012, up from 9.4% in 1990 and 10.9% in 2000. Consumption growth in many Asian countries has been driven primarily by demand for Robusta coffee, which is used in soluble coffee and ready-to-drink products such as 3-in-1 mixes (coffee with whitener and sweetener) or 4-in-1 preparations (coffee with whitener, sugar and flavourings or dietary additions). Nestle continues to lead coffee with a value share of 38% in 2013, mainly due to its long-established presence in instant coffee.

Nestle’s brands including Nescafe Classic and Nescafe Sunrise enjoy huge popularity amongst consumers. The company also enjoys countrywide distribution and a widespread presence in all retail formats, including hypermarkets. Nestle also sells small single sachets of instant coffee priced at Rs 2-5, which is considered affordable. Sachets are quite popular amongst consumers in rural areas and tier three cities, as well as with consumers who only consume coffee occasionally.

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