Posts Tagged ‘Nespresso’

This is not a post about coffee or marketing or branding. This is about business.

      During travels in Europe, I saw many Nespresso outlets.

More boutique than coffee machine and bean shop.

More boutique than coffee machine and bean shop.

      While out-and-about Vancouver town back in North America searching for a George Foreman Lean Mean Grilling Machine George Foreman and his grill (you know, for a healthier, more convenient life. Turns out they suck), I noticed a Nespresso outlet nestled within a department store. Until then, I wasn’t sure if North America, at least sleepy little Vancouver, would be a market for these things. But I think Nestle is on that.

      What’s that you say, “what’s a Nespresso?” It’s basically a system to make espresso at home. You take a Nespresso capsule, drop it into a Nespresso specific machine, push one button, and within a couple of minutes or so you have a perfectly brewed cup of espresso. They didn’t invent this concept, but they made it work.

      Contrast this to the Saeco machine. They make a machine that, also with a push of a button, grinds the beans, and squirts out the coffee for you all within the machine. All you do is fill it with whole beans and water. There are salient differences between the two systems (or “ecologies” is becoming a popular term). One is price of the machines. The do-it-all Saeco machine cost several times that of the Nespresso. The second point is that while Saeco is done with you after purchase of the machine (besides the usual servicing and what not), Nespresso only works with these Nespresso capsules which are only available through, you guessed it, Nespresso. Put the two points together and you have Saeco=one time cost, Nespresso=perpetual costs.

      From what I can gather from news sources and the high-end appearance and popularity of the stores, it seems Nespresso is a huge success. I’m sure this is in no small part due to Nespresso following a business model that should be 101 in all business schools: the crack dealers got it right. Make it cheap and easy the start, then you jack up the price. A Nespresso serving costs about $0.60 cdn compared to about $0.09 for an equivalent amount of bean. While Saeco takes the money and runs, Nestle Corp. Ltd. knows the real money is in the comeback. With a few exceptions, the only way to get these capsules is at one of their stores or through the internet. So no third party producers or retailers, because you may only get your medicine from daddy. Saeco solved a problem. They found a way to make getting good coffee at home as easy as it is to go out. Nestle saw that the money isn’t in the solution, it’s in the fix.

      At its core, Saeco is a manufacturing business. Nestle’s is food distribution, they don’t even make the machines . So it seems natural that the two strategies worked out that way for the respective companies. But there was nothing stopping Saeco from finding a way to generate returns. There are so many things at work here. Sometimes we get to thinking we are what we are and nothing else. So we take the natural routes. Because of this, some people have an inherent advantage. Of course, some don’t. So the real lesson here and perhaps why this topic has me thinking a bit is: sometimes, the best inspiration comes from those outside of what you are trying to accomplish. Of course I’m not the first person to say this, but I think we (at least I) forget this too often.

So to round-up Nespresso v. Saeco:





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