Nestlé chief points to tougher competition in coffee market

Growing competition spurs group to accelerate global rollout of Nespresso

Nestlé chief executive Paul Bulcke: said the Nespresso VertuoLine system, which dispenses larger cups of coffee to cater to US tastes, had been doing “very well” in the first two months since its launch. Photograph: Fabrice Coffrini/AFP/Getty Images

Nestlé chief executive Paul Bulcke: said the Nespresso VertuoLine system, which dispenses larger cups of coffee to cater to US tastes, had been doing “very well” in the first two months since its launch. Photograph: Fabrice Coffrini/AFP/Getty Images

Sat, May 17, 2014, 01:00

The head of Nestlé has acknowledged “tougher” competition in the $80 billion (€58.4 billion) global coffee market, but brushed off the challenge to the Swiss group’s dominance from the merger of the second- and third-largest coffee groups.

Bankers expect coffee consolidation to heat up after Mondelez International of the US and Netherlands-based DE Master Blenders 1753 agreed to combine their coffee businesses, posing a threat to market leader Nestlé.

In his first comments since last week’s merger, Nestlé chief executive Paul Bulcke said: “This creates a fantastic player and we love good competition. It’s getting tougher, but I never knew a market that isn’t getting tougher.”

Growing competition had spurred the group to accelerate its global rollout of Nespresso – the George Clooney-endorsed coffee capsules – especially in the US, he said.

Nestlé’s US market share is small compared with Keurig Green Mountain’s pods. The Nespresso VertuoLine system, which dispenses larger cups of coffee to cater to US tastes, had been doing “very well” in the first two months since its launch, said Mr Bulcke.

Nespresso has also stepped up the rollout of its high-end boutiques in emerging-market cities, where it is targeting wealthy urban elites.

The Mondelez deal is the most significant yet by JAB Holdings, the investment arm of the billionaire Reimann family, in its challenge to Nestlé.

JAB took over DE Master Blenders for €7.6 billion last year, following the $340 million acquisition of the Caribou Coffee chain and the Peet’s Coffee & Tea chain for $1 billion. It has control of the new Jacobs Douwe Egberts group – named after the main coffee business of Mondelez and DEMB – with a 51 per cent stake.

JAB co-head Bart Becht said the deal was unlikely to be the last, given the high margins, growth prospects and rising coffee prices. – (Copyright The Financial Times Limited 2014)