Issue link: http://read.dmtmag.com/i/491356
52 STiR tea & coffee industry international machine in videos and announced it will begin shipping in late 2014. The machine uses interactive technology to read settings from next generation pods, effectively closing the system for those buying a new brewer. Few details were revealed. Two private label manufacturers filed lawsuits alleging the innovation is solely to protect Keurig's monopoly and is therefore a restraint of trade. Green Mountain's 38 licensed partners together sell three out of every four cap- sules but KGM's share of K-Cups has declined from 80% in the years following its in- troduction in grocery and department stores to 52% in 2012 and now 20%, according to Information Resources, Inc. (IRI). KGM pays a licensing fee but earns significant revenue from pods it manufactures for Caribou Coffee which holds 3% share, New- man's Own (5%) and Eight'OClock (5%). Starbucks (13%) and Folgers (12%) license KGM technology, paying a royalty of up to 6.2 cents on every licensed K-Cup made. In the U.S. T-Discs fit only Tassimo home brewers. Nine brands are available including Tim Horton's, Cadbury, Second Cup and Kraft-owned Gevalia, Maxwell House, Jacobs, Carte Noire, and Nabob along with tea makers Tetley and Twinings. The Tassimo machines control brew time, the amount of water and temperature set- tings by bar code on the capsule lid. These machines brew coffee and hot chocolate. Mondelez competes with Nespresso for equipment sales with its Bosch-manufac- tured Tassimo coffee system and it also sells capsules in grocery and department stores compatible with Nespresso machines. Last year it began marketing non-licensed capsules for Carte Noire and Jacobs Coffee in Germany, France, Austria and Switzerland. In fact there are 50 firms making Nespresso-compatible capsules. These include Ethical Coffee Company, headed by former Nespresso c.e.o. Jean-Paul Galliard, Nicola Cafe in Portugal and L'Or EspressO, a brand owned by DE Master Blenders along with Douwe Egberts and Senseo in Germany. All are sophisticated roasters profiting from sales of millions of non-licensed capsules. HiLine Coffee Company, a New York roaster that launched in July 2013, is typical of competitors "aiming to bring specialty coffees to the popular Nespresso platform, which is an approach that discerning coffee consumers can applaud," said coffee con- sultant Andrew Hetzel. "Capsules, pods and K-Cups are our first credible attempts at making a wine bottle for coffee. Imagine what awaits the specialty coffee industry when, one day, it's as easy to serve good espresso or slow bar pour-over coffees as cracking open a bottle at the restaurant table?" said Hetzel. Nespresso promotes its Grand Crus capsules as the finest of coffee, suitable for discerning chefs at the world's finest restaurants. "Only the top one to two percent of coffee beans meets the rigorous quality standards to become Nespresso Grands Crus," according to the company. Nespresso club members must purchase at least 50 capsules at a time. The capsules arrive in 3-5 business days with a valet service that guarantees delivery within 24 hours. In the U.S. an order of 50 Lungo capsules (65-cents each) that make 110 ml of espresso each totaled $41.77 including $2.32 taxes and $6.95 shipping. A box of 10 HiLine capsules sells for $4.99 about 20% less than Nespresso. HiLine offers 9 blends. Founders Gene Kakaulin and Ted Snyder predict Nespresso's installed base of a million residential machines will grow to 3 to 5 million. "The relationship is synergistic," said Snyder, "They help us get out there and we add variety, more choices." The Club Nespresso has no intention of entering the fray in grocery and department store aisles nor will it diminish the high-end "exclusivity" of the brand for consumers who value the buying experience as much as the coffee. Expect continued expansion of its bou- tiques and enhancements to online delivery to members of the Nespresso Club. "It's a very successful model," explains Duvoisin. The club has a strong social and mobile presence including an online wallet. Mem- ber gain access to coffee specialists and receive a subscription to the Nespresso Magazine. Preferences are tracked in consumer profiles. Members receive reminders when their stocks are low and promotions on accessories and services including recycling. There is even premium courier service with same day delivery. The machines are offered at discount. But heavily discounting capsules would be disastrous as Nespresso depends on coffee sales to sustain its business model. Nespresso is