Weaknesses

List at least 2 weaknesses of Nespresso, using information from the case. Explain how each of these weaknesses may impact Nespresso's future success if they don't address them.

You may want to look at why Nespresso's model for growth come to a halt around 2012, and how this impacted Nespresso and its strategy.

ow Nes - resso's coffee revolution Nestle's sleek, chic capsule system changed the way we drink coffee. But in an age when everyone's a coffee snob and waste is wickedness, can it survive? by Ed Cumming, THE GUARDIAN LONG READ, Jan 7, 2021 15:33:26 PM IST In 1975, a young engineer named Eric F avre took a trip to Rome that would change the history of coffee. F avre had recently started working at Nestle's headquarters in Vevey, Switzerland, and one of his rst projects was to develop a machine that would combine the convenience of domestic coffee with the quality of an Italian espresso bar, where customers paid more for a product made by an expert using large, expensive equipment. 6615' G66 i5 Successful products can look inevitable in hindsight, but the gap in the market wasn't obvious. At the time, two kinds of coffee were drunk at home. There was roast and ground, which was tasty but laborious, whether prepared in a cafetiere, stovetop or lter machine. 0r there was soluble instant coffee, which was quick and easy but had an unsubtle avour. To be tempting at a higher price, F avre's new machine had to offer high-quality coffee with the speed and ease of instant. i $566?) $562 Wandering through the centre of Rome, Favre noticed a long queue snaking from a coffee bar near the Pantheon. Plenty of other cafes nearby used the same machines. What was it about this place, F avre wondered, that made it so special? Inside, the barista explained that other operators pumped the piston just once before releasing the coffee. But at Sant'Eustachio I.l Caffe, the baristas pumped repeatedly. This meant they forced more water and air into the ground beans, which meant greater oxidisation, which drew out more avour from the beans and produced more of a crema the layer of foam formed on top of a good espresso. In the history of at-home premium coffee, this is perhaps the closest anyone has ever come to a eureka moment. F avre returned to Switzerland and, along with a small team, set about designing a machine that could replicate this procedure. The idea of a portioned coffee system had been around since the 50s, but no one had seriously pursued it. F avre's aim was to build a world in which espresso was available at home. Customers would own a machine, into which they would place a sealed pod lled with ground coffee. The pod would keep the coffee fresh. [Although roast coffee can stay fresh for weeks, ground coffee loses its freshness after about half an hour.) The capsule design would also ensure greater aeration, mimicking the repeat oxidisations at the Sant'Eustachio. After the pod was inserted, a needle-like spout would pierce one end. Hot water would be pumped through this needle at high pressure. As the capsule became pressurised with water, the foil would be forced against a spiked plate, bursting it inwards, and out through the spout would run an espresso. The following year, 1976, Nestle filed its first patent for a single-serve coffee system. \"Favre is one of those people who pop up in history and do great things,\" Marco Restelli, Nespresso's head of product and development, told me at Nespresso's offices in Lausanne. \"OK, it's not Einstein, but what he achieved within kitchen appliances will stay with us for a long time.\" Today, some 14bn Nespresso capsules are sold every year, both online and from 810 brightly lit boutiques in 84 countries. More than 400 Nespressos are drunk every second. Hundreds of rivals and imitators have emerged, some making capsules for Nespresso machines, others pushing competitor systems. The firm employs more than 13,000 people and the Nespresso magazine, which the company has referred to as a \"bi-annual pleasure guide\For a certain kind of business traveller, the sight ofa little Nespresso pod in a drawer by the minibar has become as familiar as a Gideon Bible. Buying a machine grants you membership of the Nespresso Club, literally, and also membership of the Nespresso club, metaphorically e a global fellowship of people who care enough about their morning brew to spend 40 or 5op on 5 grams of it, but not enough to spend more than 30 seconds preparing it. In their homes, the distinctive hum, whirr and clunk of a machine in action has taken its place alongside the churn of a dishwasher. \"If Nespresso had been a startup from Silicon Valley, everyone would be hailing them," says Rory Sutherland, the vicechair of the advertising agency Ogilvy, who owns three Nespresso machines. \"They're like a Swiss Apple.\" NESPRESSO l Thirty years after its rst successes, Nespresso has scale, experience and buying power that no other premium coffee company can match. But increasingly it nds itself threatened from below by its rivals' cheaper capsules, and from above by fussier coffee enthusiasts. The more scrutiny Nespresso has attracted, the tighter it has drawn the curtains. It no longer releases figures about its sales or revenues, with its results buried in the overall Nestl reports. James Hoffman, the author ofthe World Atlas of Coffee, describes Nespresso as \"a black box of a company'K Nespresso also faces mounting criticism over the environmental impact of its pods. (It does not release any gures for how many of its aluminium capsules end up dumped in landfill, rather than recycled.) Talk to people in the industry, and you get the sense that Nespresso's golden age has passed. \"In the major markets, Nespresso's getting close to saturation point, and there's lots of competition,\" says JeanePaul Gaillard, Nespresso's former CEO, \"The good years are over." At Nestle headquarters in Vevey, there is a small museum dedicated to the history of Nespresso. Looking at the early prototypes on display it is easy to see why it took 10 years after the first patent was led for the product to come to market, As a private company, Nestl was able to fund its pet project without justifying the cost to the stock market. Within the company, though, there were doubters. At the time, Nestle saw itself as a mass market company that sold cheap, reliable products: chocolate and baby food and cereal. This was something different, whatever it was. When Nespresso was nally launched in 1986, it seemed like the sceptics had been right all along. The first models were designed to resemble traditional espresso machines, bigger and clunkier than the sleek designs available today, and only four types of capsule were available, offering various strengths of coffee. Pitched to businesses in Switzerland and Japan, for offices without enough space for a full-size coffee machine, Nespresso failed to find many takers In 1988, in a bid to rescue the product, Nestle brought in Gaillard, a tobacco man who had created the clothing brand Marlboro Classics when he worked at Philip Morris. \"At the original launch the product was wrong, the positioning was wrong and the targeting was wrong," Gaillard told me. \"It had cost a lot of money and brought nothing.\" Under Gaillard, Nespresso would be transformed from an ofce coffee company into a luxury brand, the look and feel of which would be as much a part of the product as the beans themselves. \"1 wanted to create the Chanel ofcoffee, and decided to keep it chic and bobo," he said in a 2010 interview. The idea was to keep it to \"the level of people who have a doorman\". He told me he took inspiration from the wine industry. \"The coffee was good and easy to make, but how do you spread the luxury feel?\" This Case is pleparedfor Studsn in MGMT4513 by DL J. P. PDer Gaillard cut the price of the machines and licensed them to third parties. The rst home machines had been made with one firm, Turmix. Later, you could buy a Knipps or Alessi Nespresso machine. These brand associations gave Nespresso familiarity in local markets, and encouraged fancy shops such as Harrods to stock them. Gaillard also overhauled the capsules, reducing the aluminium content and putting up the price by 50%. Most importantly, he began marketing Nespresso to individual consumers, rather than to businesses, through the new Club Nespresso. It was no longer just a better coffee for your ofce it was a way of life. When you ordered capsules, you joined the \"Club\he is better known for the ads than his acting? \"Probably. I know there are countries where I'm more famous for being Amal Clooney's husband,\" he said Clooneyishly. Pretty much everyone agrees that bringing Clooney on board was a masterstroke except Gaillard. \"It was a major mistake," he told me. \"Clooney varnpirised the brand.\" The years that followed Clooney's rst ad were Nespresso's happiest. In 2006, its revenues passed 500m. By 2010 they had reached 3bn Swiss francs (2.5bn), and the capsule market was growing ve times faster than the overall coffee market. In Switzerland. Nespresso took business from roast and ground; in China, from tea; in Britain, from instant. Nespresso reigned supreme over an entire domain of coffee that it had effectively created from scratch. Nespresso's factories are gleaming temples to globalisation. Beans are shipped \"green\" from all over the world to the facilities in Romont, Orbe and Avenches. The beans are roasted, ground and put into capsules, between 5 and 6 grams of coffee and 1 gram of aluminium per capsule. On its long journey to the back of your throat, Nespresso coffee is checked for quality more than 40 times, using colour spectrometers and a battery of tasters in white coats. In some cases, there is DNA analysis. Ranitzsch told me that many of the tasters are trained in France, a nation where "palate" is taken seriously as a qualification. After the capsules have been packaged, they are sorted by robots and sent by train to Antwerp. From there, they are shipped to countries all over the world. One major market has largely held out against Nespresso's global conquest: the US. Partly the company was too slow, beaten by Keun'g's K-Cup. Where Nespresso aimed high, with sleek aluminium pods that emphasised quality, K-Cup's plastic pods, many of which until recently were non-recyclable, emphasise convenience. The Nespresso system also sat uneasily in a coffee culture that prefers to drink coffee in enormous cups, ideally while driving. \"Americans are simply not looking for an espresso rst thing in the morning," said Jim Watson, a senior beverages analyst at Rabobank in New York. \"One of the biggest issues Keurig and Nespresso face is not making enough ounces. This is the land of the Starbucks venti. People are used to getting a 1602 or even a 2002 coffee." In a bid to crack the US, Nespresso introduced a whole new range of machines the Vertuo system, capable of delivering much larger portions. In 2015, it finally signed up Clooney to a North American deal; until then he had only been the face of the rm in the rest of the world. Jean-Marc Duvoisin, who was CEO until the end of last year, told me that brand awareness went up by a multiple of \"ve or six" when Clooney arrived. But still, to this day, in the US Nespresso exists in the long, dark shadow of the K-Cup, Athough Nespresso's rise can be told in part as a triumph of branding, it also depended on a smart approach to patenting and design. One of Gaillard's innovations was to rebalance the business towards making revenue from the capsules rather than the machines. Just as Gillette have traditionally made most of their money by selling the replacement razor blades rather than the rst handle, so Nespresso's entry- level machines were sold at lower prices, in the knowledge that customers would have to keep buying the pods, because only Nespresso pods worked in Nespresso machines. For years, that model underpinned N espresso's global growth. But eventually, wouldbe competitors spotted an opportunity to exploit the niche that Nespresso had created. Nestl had ploughed a decade of investment into a system that got people to pay five times more for coffee at home than for traditional roast and ground: why not try to piggyback on that? In 2008, Gaillard launched the Ethical Coffee Company, which sold biodegradable capsules for Nespresso machines, In 2010, the American rm Sara Lee started to sell capsules that worked in Nespresso machines. Nespresso furiously litigated against its rivals, arguing that its patent systems were being infringed. Things came to a head in 2012, when a key batch of Nespresso patents from 1992 were set to expire. That year. Nespresso lost its patent battles in Germany and England, and settled other outstanding cases around Europe. Oven-right, the company had to accept it could no longer stop third-party capsules being sold for its machines. Talk to senior executives involved at the time, and it's clear the rulings were traumatic for the company. This case is prepared for students in MGMT4513 by Dr. 1.17. Porck The court cases also made awkward PR for a company keen to promote its ethical sourcing, To many, it seemed that the Nestl Goliath had gone after smaller, pluckier, seemingly more ethical Davids and been slain. It didn't help that in many consumers' eyes, Nestle was still tainted by the formula milk scandal of the 705. A report published in 1974, titled The Baby Killer, showed how Nestle aggressively promoted formula milk over breastfeeding in poor countries, where clean water was hard to come by. Some sales reps even wore nurses' uniforms to gain an aura of credibility. The report led to a worldwide boycott and reform of its sales practices. Even today, Nespresso employees Ispoke to said the memory of the scandal hampers its messaging around coffee. More recently, the company's reputation was further damaged when the Channel 4 documentary series Dispatches found children under 13 working 4oehour weeks on farms that supplied coffee to Nespresso and Starbucks. (Nespresso launched an internal investigation after the programme aired. \"Protecting children from exploitation and ensuring they are able to learn is of paramount importance to us, and that is why we have zero tolerance for child labour," a spokesman told me.) J ean-Marc Duvoisin became CEO in 2013, and was charged with taking Nespresso to a new era, leaving the patent disputes behind. From a closed, Appletype system Nespresso products for Nespresso machines 7 the company had to move to a more open, Android-type model. \"There are going to be rival capsules," Duvoisin told me. \"We need to leverage our strengths: knowing our customers, and knowing our farmers.\" Having worked for 40 years to be the only coffeepod system in town, the company had to pivot to arguing that its capsules made from strong, light aluminium, and lled with high-quality, responsibly farmed coffee were the best on the market. Eight years on from Nespresso's minus horribilis, its biggest problem is the aluminium itself In the past decade, consumers have grown increasingly concerned about the sheer amount of waste caused by coffee pods. Halo, 3 rm which makes compostable pods, estimates that of the 39,000 pods made every minute, 29,000 will end up in landll, In 2016, the city of Hamburg introduced a ban on buying coffee pods with council money, as part of a crackdown on \"polluting products\". (It did not stop the Nespresso boutique in the city centre from doing a brisk trade.) Nespresso uses aluminium because it is light, strong and durable, making it the best material for a sealed container that must be own around the world and then subjected to extreme heat and pressure on someone's kitchen counter. Only a tiny amount of coffee is used in each pod, so less coffee is wasted than in a cafetire, or with other methods, in which many grams can be used per cup. And the pods are, in theory, 100% recyclable. But because they contain plastic as well as aluminium, they can't just be dropped in a regular recycling bin. Instead, used capsules must be dropped off at Nespresso boutiques or some convenience stores; in some countries, Nespresso offers a service that collects them from customers' homes. Unlike plastic, used by many ofNespresso's rivals, aluminium is 100% recyclable, but there is a big difference between offering recycling facilities and getting consumers to use them. Nespresso says its global recycling rate is 30%, and that 91% of its users have access to one of its 100,000 collection points around the world. But some experts have suggested that just 5% of Nespresso pods are recycled. Even if Nespresso's gure is accurate, with a conservative estimate of 14bn capsules being sold each year, and 0.9 grams ofaluminium per capsule, that means 12,600 tonnes of Nespresso aluminium end up in landfill annually, enough for 60 Statues of Liberty. On top of the landll problem, there are other environmental costs. Sustainability in coffee is complex. Lots of the carbon cost is in transport, so by some measures, the most efcient use ofbeans is instant coffee, where only a small amount of coffee is used per cup. But as that coffee tends to come from large farms growing cheaper beans, it can be a worse deal for fanners, and encourage types of farming that have a bigger impact on the environment. One solution could be reusable pods, where fresh coffee can be This case is prepared for students in MGMTASIS by Dr. LP. Parck loaded into a Nespresso-friendly capsule, but at a signicant cost to convenience. Defenders of pods say that as well as using a smaller volume of coffee, they use less energy, as the machine only heats the small amount of water needed for each serving. But until Nespresso pods can be included in household recycling, the figures on reuse are unlikely to improve. More ecofriendly competitors will continue to eat into Nespresso's market share. As Nespresso has grown, it has come up against an awkward truth: the more popular a brand is, the harder it is to maintain a luxury image. \"Our competitor is not other coffee companies," claimed Duvoisin. \"When you go into our boutique, you are comparing us to Dior or Louis Vuitton.\" That may have been true once, but its boutiques are now on every high street. Like other high-street businesses Nespraiso has been buffeted by months of coronavirus closure. In its late-oos incarnation, when most of its pods were sold by mailorder or on the internet, Nespresso would have been less affected by coronaxirus. (\"When I was there we had the highest percentage [profit] margin in Nestle,\" Gaillard told me. \" But Nespresso did a 'reverse-Amazon'. They had an Amazon and turned into a bricks and mortar business\") Nearly half a century after it was conceived, Nespresso nds itself in an uncomfortable new world. Consumers who might have once craved its polished, urbane chic now look for dirty-ngered artisanal blends to use with their pour-overs and Aeropress machines. A Nespresso machine on the kitchen counter used to prove your membership of a convenience-loving global consumer coffee elite. Increasingly it suggests that you are not a serious coffee person, and that your attitude to the future of the planet is suspiciously relaxed. In its heyday, Nespresso t a story consumers were keen to tell themselves: that for a small premium, quality could be guaranteed, whether you were in Tokyo, Geneva or Los Angeles Its range of capsules offered the sense of choice, but in reality it was just one option: Nespresso. These days there are more than 400 competitor capsules. Cheap plastic ones, rellable eco-ones, limited-edition batches from faraway places. Specialty coffee has inltrated the general population to the extent that McDonald's ran a gently sarcastic TV campaign about the at white. Nespresso once wooed coffee lovers with its ease of use, and instant coffee drinkers with better coffee. Now there are alternatives for every taste. \"In many ways, the Nespresso pod is the microwave meal of coffee,\" said J ames Hoffman. \"Nespresso is expensive for what it is. It's fine in terms of its quality, but with a little bit of effort you could make something far better at home.\" But as Maxwell Colonna-Dashwood, who runs an independent coffee shop in Bath, told me, Nespresso was never meant to rival true specialty coffee. \"They don't want it to taste like that. They want it to have mass appeal.\" \"I love small-batch, third-wave coffee, too,\" Ranitzsch said, admiring his silos. \"The guys with tattoos and beards stirring their beans in Brooklyn. It is artisanal. But here we want consistency.\" After the tour of Nespresso's facilities, Ranitzsch and I sat in the \"coffee campus\". Sitting at a tasting table, we sniffed, slurped and spat out a variety of different brews. He suggested aromas of owers, fruit, earth and caramel and grew slightly wistful. \"Coffee comes with history and memories,\" he said. \"Growing up, you didn't like it, but you wanted to be like the adults. It has something to do with belonging.\" F avre, too, sometimes turns poetic when he talks about coffee. He told me that his invention didn't make him rich, but that didn't bother him. \"I don't mind about the money,\" he said. \"I see Nespresso like a daughter who is always telling me: look at what you can do and look at what you did. I am very proud of her. She is mine, she is in my heart, she is always in my mind.\" In the summer of 2020, buffeted by Covid-19, Nespresso trundles on. In a recent email, a spokesperson reported \"mid single-digit growth,\" and the company has announced it will be expanding the Romont facility, but the mood is different. A new CEO, Guillaume Le Cunff, another long-term employee, who had previously worked on many of the company's sustainability initiatives, took over earlier this year. In late May, a new ad appeared on Nespresso's YouTube page. Over shots of farmers and waterfalls and thoughtful-looking agronomists, a female voice talks about ecosystems, farmers and recyclable aluminium. \"Now, more than ever, doing the right thing matters,\" she says. \"Those who know most about exceptional coffee, know exceptional coffee comes from care. \" George Clooney is nowhere to be seen. This case is prepared for students in MGMT4513 by Dr. J.P. Parck