With around 5,500 cups consumed every second, Nestlé'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 among the world's top 40 brands, with an estimated value of almost $11bn. 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. Nestlé'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 extraordinarily successful Nespresso dispensing system. This in turn has led to the introduction of lower-priced Nescafe-branded systems such as Dolce Gusto. Yet in this segment too, Nestle has failed to break the stranglehold in North America of local manufacturers, notably Keurig. A major step forward is the deal announced in 2018 in which Nestle acquired global rights to all Starbucks' packaged retail products, substantially enhancing its profile in the US as well as elsewhere.
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Adbrands Weekly Update 10th May 2018: Nestlé pulled off a significant and entirely unexpected coup, signing a global alliance with Starbucks that gives it exclusive global rights - in perpetuity no less! - to all the coffee chain's packaged retail products for $7.15bn, around 3.5 times annual sales. The deal excludes ready to drink beverages like Frappucino (managed by PepsiCo), and of course anytrhing sold through Starbucks existing retail estate. However, Nestlé takes control of all other retail packaged beans, ground coffee and tea, and also assumes rights to Starbucks-branded single-serve capsules for use in the Dolce Gusto and Nespresso systems. (They will still be available in K-Cup form for rival Keurig). The advantage to Starbucks is access to a massive global supermarket distribution operation that is far beyond anything the chain could achieve on its own. Currently, Starbucks sells its packaged coffee in grocery channels in just 28 countries, rather than the 190 or more in which Nestlé is active. For Nestlé this represents a huge boost in the US, one of the only global coffee markets where it is little more than an also-ran, lifting its market share from around 3% of US packaged coffee to 18%. At the same time, both companies strengthen their position against the real enemy: JAB Holdings, owner of a range of competitive businesses including coffee roaster Jacobs Douwe Egberts, coffee retail chains including Peet's and Krispy Kreme, and the single-serve operator Keurig Green Mountain. "This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category," said Nestlé CEO Mark Schneider. "With Starbucks, Nescafé and Nespresso we bring together three iconic brands in the world of coffee. We are delighted to have Starbucks as our partner. Both companies have true passion for outstanding coffee and are proud to be recognized as global leaders for their responsible and sustainable coffee sourcing. This is a great day for coffee lovers around the world." Starbucks currently manages its packaged retail business inhouse, having bought it back (at great legal expense) from Kraft in 2010. Around 500 staff will transfer to Nestlé.
Adbrands Weekly Update 12th October 2017: Ads of the Week: "Those Few People". Something really quite unusual here from Publicis London for Nescafe. The idea and the build-up is fascinating - how about those signs for audience groups that don't get a spotlight close-up like "Owe You Money" and "Haters"! But unfortunately, like an extravagant cinematic souffle, the whole thing rather collapses in the final 30 seconds. What was looking like something rather out of the ordinary turns into just another coffee ad where we all just sit around and have a nice chat. And what a cheapskate! The special people in his life and all he serves is Nescafe? Couldn't he at least have stretched to Nespresso?
Adbrands Weekly Update 15th Sep 2017: Having missed out on a string of major acquisitions initiated by new rival Jacobs Douwe Egberts and its controlling shareholders, Nestle finally took steps to protect its key global coffee franchise with a deal for fast-growing US firm Blue Bottle Coffee. The target company retails a wide variety of premium speciality coffee blends direct to consumers via ecommerce subscription or through a small but expanding chain of retail outets. Blue Bottle is hoping to have 55 stores in the US and Japan by the end of this year. Despite its small size, Nestle is understood to have acquired a 68% shareholding in the business for around $500m. Current management led by CEO Bryan Meehan and founder & chief product officer James Freeman will continue to run the company and control the remaining shares. It will operate as a standalone entity, partnering Nestle's existing Nescafe and Nespresso brands.
Adbrands Weekly Update 13th Jul 2017: Nestle is hoping to reinvigorate slowing sales of its Nespresso coffee system by wholesaling refill capsules for the first time to selected third-party retailers in its core market of Western Europe. Traditionally, the company has only sold direct to customers online, by phone or through its own branded stores. However, it has lost significant market share in recent years to lower-priced generic copies of its capsules from smaller competitors, as well as to rival systems from big guns Jacobs Douwe Egberts and Starbucks. Euromonitor estimated Nestle's share of the coffee capsule market has fallen from more than 50% in 2007 to around a third. After successful preliminary tests in two German retailers, Nestle will now open around 27 in-store "N-point" concessions in outlets of consumer electronics chains MediaMarkt and Saturn and in department store Galeria Kaufhof. Depending on the response from consumers, further stores will follow in Germany and possibly other markets as well.
Adbrands Weekly Update 27th Apr 2017: Ads of the Week: "The Truth Is Hard To Find". Ah, sublime! For almost a decade, George Clooney held out against pressure from Nestle to appear in Nespresso's US advertising, despite his longstanding relationship with that brand in Europe. He only gave in when Nestle pledged to support his humanitarian campaign for South Sudan. It was worth the wait. The US ads (this is only the second) stand head and shoulders above their often cringe-making European counterparts, despite the fact that both come from the McCann network. This latest, from McCann NY, also features some exceptional technical wizardry to take George on a brief ride through Hollywood history. As usual, George's pals are along for the ride: George's best bud Grant Heslov directs; Ocean's co-star Andy Garcia serves as straight man.
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Free to all users | see full profile for current activities: Nescafe was first conceived in 1930 when the Brazilian Coffee Institute, a government department set up to manage that country's trade in beans, was given the task of finding a way of preserving Brazil's huge coffee surplus. In the late 1920s, Brazilian farmers were producing more coffee than they could ship before the beans went stale, and they were being obliged to destroy vast quantities. Charged with the task of preventing this wastage, the Institute approached Nestlé, a company famed for its pioneering process for preserving milk by dehydrating it and distributing it in powder form. The concept of instant coffee was not new. The first soluble coffee had been invented in 1901 by Japanese-American chemist Satori Kato, and the first mass-produced version, Red E Coffee, was developed in 1906 by George Constant Washington, an English chemist living in Guatemala, based around evaporated coffee. But this and the dozens of other soluble or liquid concentrate brands which followed had a harsh, unpleasant taste similar to reboiled coffee and experienced only limited success compared to the freshly made drink, which was widely available in the US.
Nestlé was charged with finding a process that retained as much as possible of the taste of fresh coffee. (The original brief from the Coffee Institute was to preserve coffee in cube form). In fact it took the Swiss company seven years of research to perfect an early form of freeze-drying for reducing the drink to a soluble powder that was 100% coffee and lost almost none of its freshness. They introduced the product in Switzerland 1938 under the name Nescafe, an abbreviation of Nestlé Cafe. It launched in France and the UK a year later, although European distribution was terminated soon afterwards as a result of World War II. The main centre of production was shifted to the United States where Nescafe's fortunes were boosted enormously by the entry of the US into the war. In 1942 Nestlé secured an immensely valuable contract to supply Nescafe to the army. For one full year the entire output of the Nescafe plant in the United States was reserved for military use only. The arrival of American soldiers in Europe led to the re-introduction of the product in the UK and France as well as Italy and later Germany and Japan.
Best-selling American coffee brand Maxwell House had also developed a process for manufacturing soluble coffee for military use. This product was introduced to consumers in 1946, but it took another four years until the company perfected its process. Because of the availability of fresh beans, instant coffee was slow to catch on in the US, then far and away the world's biggest coffee-drinking territory. However during the 1950s, as coffee became a popular symbol of American culture, Europe and later Asia developed its own coffee habit. Imported fresh coffee was expensive, so instant developed a significant market position. Sales tripled during the 1950s, then quadrupled during the 1960s and early 1970s. By the end of that decade, almost half of Nestlé's profits were generated by coffee.
Meanwhile, Nestlé's freeze-drying process had been improved by developments in technology. In the 1960s, Nescafe introduced instant coffee granules, which retained even more of the original coffee flavour, under the name Nescafe Gold Blend. The same product was launched in the US for the first time in 1967 under the name Taster's Choice. Later Gold Blend scored an immense marketing success in the UK during the 1980s with the introduction of a series of soap-opera storyline television commercials, starring actors Tony Head and Sharon Maugham as neighbours who begin a romantic affair after she asks to borrow some instant coffee for a dinner party. Reportedly UK sales rose by more than 20% as a result of the campaign, which was subsequently used to market the Taster's Choice brand in the US. Having failed repeatedly to establish Nescafe as a separate brand to Taster's Choice in the US, Nestlé finally rebranded its main American coffee as Nescafe Taster's Choice in 2003.
In the early 2000s, the company began to retarget its marketing globally on the crucial 16-to-24 year-old market. In 2001, Nescafe launched a $30m global campaign designed to get teenagers and early 20s drinking instant coffee. It came hot on the heels of the equally global "Open Up" campaign of 2000, and a massive push to extend the Nescafe brand into soft drinks and coffee bars. As a result of the spread of the coffee bar concept, thanks to Starbucks and other operators, coffee drinking among teenagers is on the increase, and this has spilled over into the instant coffee market. Nestlé is determined to make Nescafe part of everyday lifestyle, less a consumer product than a lifestyle brand.
In 2005, a US court awarded a struggling former actor and male model almost $16m in damages from Nestlé after he discovered that an old image from a photographic session in which he took part during the 1980s was being used without permission on the label and marketing for Taster's Choice in the US, and Nescafe in other markets. See full profile for current activities
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