April 5, 2012

Will Starbucks Take the Wind Out of Nespresso's Sails?


The Economic Times has an interesting take on Starbucks' Verismo single serve coffee maker launching this fall - it's going to kill Nespresso's momentum here in the US and maybe even abroad. Since Verismo is coming out this Fall - it's hard to say based on a drink to drink comparison, but the one thing Starbucks has over Nespresso is distribution.

Also Starbucks is not just betting on Verismo. Recently they announced they'll not only be making K-Cups throughout this year for the Keurig platform, but they are also going to be making VUE Packs for the Keurig VUE single serve coffee system. And if you remember they make VIA instant coffee packets - you get the feeling Starbucks sees gold in the hills of the single serve coffee world.

But let's get back to Verismo which is supposedly aimed at the Starbucks quality and cafe style drinks market. Nespresso has for a long time held the reins in the higher end single serve coffee market - and especially espresso style coffee. Verismo is poised to be one of the only contenders in awhile with enough brand recognition to perhaps take over at least one of those reins. And the higher you go into the single serve coffee market for dollar per cup - the better the profits.

This is where Starbucks wants to bridge the gap - make sure everyone has access to Starbucks in single serve coffee form from high to the lower end all the way down to instant. And when you factor in the majority of Nespresso's growth has come from North America over the past year or so due to a stagnant European market - we smell trouble for Nespresso here in the US.

What do you think? Do you think Starbucks' is going to take the wind out of Nespresso's sails? Are there other contenders to worry about who may also cause problems for Nespresso?

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Posted by Jay Brewer at April 5, 2012 7:23 AM
Recent Comments

Starbucks has terrible coffee. Nespresso coffee is Delicious!

Posted by: TW at October 6, 2012 4:42 PM

I believe that any "coffee snob" that reads the phrase "the machine aims starbucks quality on the drinks" will automatically stay away from that machine, starbucks has consistensy, which means the same falvor on all coffee stores, and conviniece, but it lacks of quality, their espresso extraction is terrible (and baristas can't be blamed, the machine is completely automatic, i blame their beans/rost), and that ruins most of the espresso based drinks (like 90% of the menu). As for the "i just want the cafeine" market, there is a lot of options that will be certanly cheaper, such as the dolce gusto, the keurig, and some underground others. Nespresso drinks are good (expensive imo) and i'd love to see competition in order for price droping, and even more astunishing would be the machine being good, but here is where i keep my hopes low, because of the "starbucks quality drinks", they just usually pour a lot of sugar/flavors, i wouldn't be so surprised if this thing ends on the low to mid end market, and never goes to high end where nespresso and illy's hiperespreso lies.

Posted by: omar at April 16, 2012 1:47 AM

I’m sure the Varismo will be successful because of the Starbucks name if for nothing else. People seem to be mesmerized by that sea witch thing in their logo. There are a few factors that go into the success of any product:
Price – The same machine that Starbucks is going to offer is available in Aldi stores across Europe for 80 bucks. The capsules sell for $5.99 per box of 16. Pretty solid deal. However, I’m sure Starbucks isn’t going to be anywhere near that price point. However, price may not play a factor for this one simply because of the Starbucks name. Their methodology seems to be to rob the customers blind and they will like it because we are Starbucks. Since Keurig is already doing that in the single serve space I’m sure Starbucks will follow suit.
Availability – This will probably be the biggest factor. Even if they are only available in the stores the machine will be a success. That would also be a way to keep the profit at the store level. However, expanding availability beyond the stores will ultimately make the machine a huge success.
Quality – Believe it or not, Starbucks doesn’t offer the best coffee out there. However, that doesn’t seem to matter to anyone. So the quality of coffee going into the capsule won’t come into play for the success of the machine. However, the quality of the machine itself may have a factor in the success and longevity of this venture.
Value – There are two ways to look at value, actual value and perceived value. Actual value doesn’t apply to Starbucks and doesn’t seem to have much of a place in the single serve market in general. Watching Keurig continue to roll even though they keep jacking up their prices every couple months is proof of that. So that brings up perceived value. Perceived value is probably most important when it comes to making a purchase decision. In that category Starbucks seems to be second to none.
Will Verismo succeed? I believe so. Maybe even more so than Nespresso from a volume standpoint. Will it steel customers from Nespresso? Probably not. At the Nespresso price point they are in elite territory and are targeting a small market. Even though Starbucks tends to overprice their products I think they will target a different (larger) chunk of the market. In order to do that they will have to keep their pricing well below that of Nespresso. Because of the price separation the folks who can afford a Nespresso will just scoff at the Verismo. Depending on the price point Starbucks settles on the Verismo may have a bigger impact on Keurig than it will on Nespresso.

Posted by: ao at April 6, 2012 8:58 AM

I believe that Nespresso owners are very brand loyal and they certainly do a great job introducing new blends throughout the year. I don't think you'll see a lot of people switch over to the Starbucks machine however I believe a lot of new people coming into the espresso single serve market will choose Starbucks especially if their products are price lower than Nespresso's

Posted by: Rich Meyer at April 5, 2012 2:56 PM

It all depends what pricing they set the capsules at and whether they decide to sell them online-only or not.

Nespresso is a bit of an inconvenience if you don't live near one of their Boutiques (the nearest one to me is over 8 hours away in Montreal) and they make you order a minimum of 50 capsules every time, so you have to take a gamble in order to try out new flavors when all you'd really like is just a sleeve of 10, not 50.

I foresee Starbucks either choosing to go the Dunkins route and only selling the capsules in their shops as a "high-end premium product", but there's a chance they may opt to sell them in grocery stores if the pricing is right. If their K-Cups are selling for as high as $11/box, I can't imagine how high these espresso capsules would cost... likely in the $15-$20 range?

If pricing is cheaper, there's a good chance Nespresso could take a hit, otherwise, I don't think they have anything to worry about.

Posted by: SH at April 5, 2012 10:31 AM
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