* Brand has 72 percent of China market
* Huge potential as China's tea drinkers discover coffee
* Nescafe ranked no.35 global brand worth $11 bln
* Dolce Gusto brand seen breaking even soon
By Silke Koltrowitz and Emma Thomasson
ZURICH/ORBE, Switzerland, March 26 Nescafe
instant coffee might seem like an also-ran as Nestle
celebrates the 75th anniversary of the flagship brand, but it is
getting a pick-me-up from China and new Dolce Gusto machines
that are tapping booming demand for coffee pods.
"Nescafe is a big brand with different faces," Nestle Chief
Executive Paul Bulcke told journalists at the opening of a
factory in western Switzerland that will produce beverage
systems like Dolce Gusto and the firm's premium Nespresso
Nescafe, whose appeal has been overshadowed in Europe in
recent years by the explosive growth in demand for single-cup
portioned coffee like Nespresso, sees huge potential in the
traditionally tea-drinking countries of Asia.
"Nescafe is growing very well in China, but also in Japan,
which is an important market," Bulcke said. "For example in
Asia, Nescafe 3-in-1 sticks with milk and sugar that are ready
to be used, are very strong."
Nescafe, which competes with offerings from Mondelez
and DE Master Blenders 1753, dominates coffee
markets worldwide except in the United States. The brand had
sales of more than 10 billion Swiss francs ($10.64 billion) in
2012 or more than 12 percent of total Nestle group sales.
"Being a 75-year old brand, it is unsexy to talk about
Nescafe instant/soluble in the new world of 'baristas' and
single-serve coffee machines," said Jefferies analyst Alex
"However, these sexier trends are decidedly mature-market
phenomenons and are unlikely to be material in emerging markets
for some time."
Interbrand ranked Nescafe no.35 of the world's top brands
last year, worth $11 billion, well ahead of the next most
valuable coffee brand, Starbucks, on some $4 billion.
Nestle does not give figures for its individual brands, but
Howson of Jefferies estimates that Nescafe instant represents 70
percent of the firm's coffee sales, compared with 26 percent for
Nespresso and 4 percent for newcomer Dolce Gusto.
Nescafe is also expanding in the "out-of-home" professional
market, where more coffee is drunk than at home, with brands
like Alegria and Milano helping drive double-digit growth in
2012 for Nestle beverage systems for cafes and restaurants.
On Monday, Nescafe unveiled Milano Lounge, a self-service
system for hot and cold beverages that will be sold to petrol
stations and other "out-of-home" customers.
The Vevey-based group launched Nescafe on April 1, 1938 as
the world's first soluble coffee, initially to help Brazil cut a
coffee surplus by creating a product with a longer shelf life
than fresh ground beans. That also helped its popularity spread
among U.S. soldiers during World War II.
Nescafe launched in China about 20 years ago and has seen
growth rates of around 20 percent per year over the last 15
years, giving it a 72 percent market share according to market
research firm Euromonitor.
But Chinese per capita consumption is still only three cups
per year versus 451 in the United States.
"The growth of instant coffee and coffee houses over the
last few years would suggest a change in consumer beverage
choices," said Dale Preston, senior vice president for Greater
China at market research group Nielsen.
"We do anticipate the total coffee market to continue
growing," he added. "Coffee mixes dominate the market as they
are more convenient and the milky sweet taste is more
appreciated in China."
About 55 percent of Nestle's coffee sales are now in
developing markets, with margins approaching 30 percent,
Credit Suisse analysts estimated in a recent report.
"Driven by the powder franchises' dominant market share,
Nestle's developing market sales growth rate has been
particularly strong in the last two years," they wrote.
DOLCE GUSTO: THE NEXT "BILLIONAIRE" BRAND
Meanwhile, Nescafe launched the Dolce Gusto brand in 2006
to profit from soaring western demand for single-cup coffee
systems. A cheaper alternative to Nespresso, Dolce Gusto make
drinks from milky coffees to hot chocolate and iced teas.
Bulcke said on Monday that Dolce Gusto was now at break-even
and about to reach 1 billion francs of sales. Analysts expect
the brand to continue to grow at 30 percent a year through to
Bulcke rejects suggestions that Nespresso - Nestle's fastest
growing brand of recent years with high margins - is suffering
from an increasing number of competing systems and coffee pods.
"Seventy-five to 80 pct of Nespresso is in Europe so you can
imagine if you start growing in the rest of the world, there is
huge upside," he said. "This market is getting a new dynamic."
Some analysts have suggested that Starbucks' launch of its
Verismo coffee and espresso brewer could actually help Nestle by
driving U.S. interest in single-cup machines.
Interbrand is more sceptical: "Attempting to elbow into an
already crowded U.S. market has proven to be a costly venture,
and it remains to be seen if Nescafe can become the category
leader in the U.S. that it is in Europe."