Portion-coffee is defined as single cup coffee systems, offering individual portions of freshly ground coffee. Portion-coffee systems come in several coffee machines systems like, filter, automatic, pads or capsules . In this segment, Nespresso offers hermetically sealed and colored capsules containing a wide range of tastes. The portion-coffee market could be of great interest for investors, as this market grew by 44% between 2006 and 2007 (see Appendix XX) and has been growing constantly since then. In 2009, Nespresso held 20% of the espresso & filter portioned coffee machines market, and its sales grew 30% annually over the past 8 years . The portion coffee market is one of the fastest-growing segments of the coffee market. Pods represented, 20 to 40% of the value of ground coffee sales in the $17 billion European coffee market in 2010. Moreover, the portion-coffee market is expected to triple to $15 billion by 2012 .
The following sections will analyze the competitive environment of portion-coffee through the five-force analysis. Conclusions are made on the global investment interest of the portion coffee market.
[...] Patents play a key role in the portion coffee industry as they determine the ability of a capsule retailer to assess 100% of the capsules sales for its specific machine system (captive customer). As patents prevented competition on Nespresso's system for now 20 years, the threat to Nespresso patents is today rising due to new comers developing systems compatible with the Nespresso machines and due to the impending expiration of several patents (next expirations expected in 2012)[xx] [xxi]. The brand equity of Nespresso is high. [...]
[...] Nevertheless, it could lead to a significant loss in market share and an increased rivalry on the long term as these competitors have registered orders for billions of capsules[xxxvi]. To address this issue, Nestlé is actually suing these companies for patent infringement in order to lock rivals out of the segment[xxxvii]. This describes well the intensity of rivalry. The portioned-coffee market has shown a high concentration ratio and a high growth rate during the past ten years. New competitors and incumbents have increased their production and their diversification through new products and the development of a high-density sales network. [...]
[...] Bargaining power of coffee suppliers Coffee suppliers are often cooperative importers, who sell their products on the coffee market at the current global price. This kind of suppliers have an extremely low bargaining power, considering the numerous coffee producers. However, in the case of high-end portion-coffee (Nespresso for instance), portion coffee makers have to secure themselves a small portion of the global coffee production. The need of exclusive and high quality coffee induces higher prices and more bargaining power of the coffee producer. [...]
[...] Rivalry The worldwide market of portion-coffee was dominated, in 2009, by 4 firms: Nespresso billions[xxiii] of sales), Sara Lee ($547 million), in the US, Keurig and Green Montain Coffee Roasters ($254 million for coffee and machines) and Kraft Food's Tassimo (near $300 million)[xxiv]. The segment was thus concentrated. In 2006, the global capsules/pods sales were estimated at 10 billion billion of which was produced by Nespresso[xxv]. The portion-coffee market is rapidly growing. For instance, sales of coffee pods grew by 22% in France in 2009[xxvi]. [...]
[...] New comers are a relatively important threat for actual leaders on the market, as they could be the next future producers of coffee capsules compatible with existing portion coffee systems and may commercialize them through retail chains. New portion-coffee systems should not be a major threat in the near future, due to high entry barriers, high investments, lack of partnership with manufacturers and delay in market penetration (customers' captive of their first system they buy). In conclusion, after years of domination by Nespresso, the portion coffee market will shortly come to maturity with a limited amount of competitors. [...]
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