Despite its status as the world’s largest hot drinks manufacturer, Nestlé faces a tough battle for global dominance with Kraft in coffee due to the rising popularity of fresh coffee, according to Euromonitor International.
Analyst Brian Morgan noted that Nestlé’s global value share within instant coffee was 51 per cent in 2010. “Its dominance here is and will remain secure for some time to come,” he said.
And despite a trend towards ‘premiumisation’ within mature western European and US markets, which favoured fresh coffee sales, Morgan said emerging markets helped Nestlé consolidate its growth trend, with a 15 per cent market share in 2010.
Threat to leading position?
Overall, Nestlé instant coffee sales outpaced fresh from 2005-2010, Morgan said, due to emerging market demand that the firm had built upon by assuming a leading position within Asia Pacific and Eastern European markets.
But principal global rival Kraft posted its strongest performance within Russia over the same period, even beating Nestlé in terms of fresh coffee sales.
And as Russians “begin to trade up to fresh coffee, sales of which are expected to grow by $278m [€202m] over 2010-2015, Nestlé will face some pressure as this transition speeds up post-2015,” Morgan warned.
Despite this “clear division” between instant and fresh, fierce competition in markets such as France has seen Nestlé grow its Nespresso (fresh coffee system, capsules pictured) sales, while Kraft has pursued Carte Noire gains, Morgan said.
He added: “In the French market, with instant coffee sales set to decline by $41m [€29.8m] from 2010-2015, competition for fresh coffee sales will also intensify.”
Starbucks' instant rival
Within US, UK and Chinese instant coffee markets, Nestle also faced growing competition from Starbucks, Morgan said.
This was due to Starbucks’ introduction of its Ready Brew brand, Morgan explained, which was using its extensive network to build sales, as well as growing a presence in US and UK supermarkets.
Meanwhile, the success of freshly brewed coffee systems such as Nespresso had pushed up global prices for high quality Arabica beans, Morgan said, which coupled with supply issues in key supplier countries such as Colombia could push production price up for Nestlé.
“This could have a knock-on effect on demand for coffee brewing systems. The question is how far prices can rise for Arabica coffee before consumers start substituting it with cheaper varieties," Morgan said.
Sustaining Nespresso growth rates also meant cracking the US market, Morgan said, but “intense competition” meant that Nestlé would be wise to acquire a regional producer such as Peet’s or partner other producers to increase consumer brand awareness.