Nestle's Special.T to get first big test in tea-loving Japan

ZURICH (Reuters) - Global food company Nestle NESN.VX is to launch its high-tech tea-maker, modelled on its Nespresso coffee brewer, in Japan, the first time the product will go on sale in a big tea-drinking country.

Members of the management of Swiss food maker Nestle arrive for the company's annual general meeting in Lausanne April 11, 2013. REUTERS/Denis Balibouse

Nestle launched the tea-maker - Special.T - in 2010 in a few European countries, largely copying the business model of its $4 billion Nespresso coffee brand, its fastest-growing business for years.

The tea-maker allows tea lovers who don’t mind spending about 0.40 euros ($0.53) for a cup to discover new varieties of black, green, white and even blue teas. The machine brews them into what Nestle calls “the perfect cup” in less than a minute at the press of a button and without worrying about infusion times and water temperature.

The tea-maker uses aluminium capsules filled with a variety of high-quality teas in a specialised brewing machine. These will go on sale on the brand’s Japanese website from next month and in shops in Japan from September.

“We see big potential in Japan because the Japanese love quality tea and they love technology,” Pascal Lebailly, Nestle’s head of Special.T, said in an interview.

“We’d like to offer (Japanese consumers) a complement to the traditional tea ceremony for those moments of the day where they have less time or are on their own. There are many one- or two-person households in Japan,” Lebailly said.

Compared with single-serve coffee, the market for tea pods is still small, at $300 million in 2012, but it is likely to continue to grow strongly over the next few years, Euromonitor analyst Hope Lee said in a study.

The market research firm said the market for coffee pods almost tripled since 2008 to reach $8 billion in 2012.

Vontobel analyst Jean-Philippe Bertschy said the potential of Special.T was large, but he didn’t expect it to contribute significantly to Nestle sales or earnings in the mid term.

Kepler Cheuvreux’ Jon Cox said Special.T sales might reach 100 million Swiss francs in the next couple of years. “It could be something of a slow burner - more tea is consumed in the world than coffee but most of that is in the emerging world. So the economics are a bit different.”

The retail value of global tea consumption rose to $40.75 billion in 2012, up more than 50 percent on 2007, with China being the world’s top tea-drinking nation, followed by Japan and Russia, according to data provided by Euromonitor.

Lebailly said it was Nestle’s aim to introduce Special.T to one percent of all tea-drinking households in the countries where it launched the product. “We’ve already reached that goal in Switzerland and we are getting there in France.”

“We have seen very good growth rates every year since the launch. We have ambitious growth plans that we have met every year so far,” he said. “Nespresso started in the same way 25 years ago.”

Special.T, which sells a welcome set with a tea maker for 119 euros and ten tea capsules for 3.70 euros in Europe, was first launched in France and Switzerland and then rolled out to Germany, Austria and the Benelux countries last year. Of these, only Germany is among the world’s top 10 tea drinking countries in terms of value, but way behind Japan.

Lebailly said capsule prices in Japan would be slightly higher than in Europe, while prices for the machines would be modelled on price tags in Japan for Nespresso and Dolce Gusto machines, another capsule beverage system developed by Nestle.

Nespresso, which has succeeded with reasonably-priced machines and more costly coffee capsules, has seen growth slow recently as rivals launch cheaper copycat pods for its machines. Its growth rate had reached more than 20 percent.

The world's second biggest coffee maker Mondelez MDLZ.O will start selling Nespresso-compatible pods this year. Its vice president for coffee marketing Roland Weening said he expected the fast-growing coffee pod segment to represent a third of the coffee market by 2016.

Lebailly said there were no rivals yet in tea. “We launched three years ago and there are no rival machines yet, probably because the technical challenge is significant.” He said Special.T was protected by many patents.

“Currently, the single-serve tea beverage system market is not as crowded as the coffee market,” Euromonitor’s Hope Lee said, adding it would make sense for Unilever to also develop its own tea pod machine.

The world's No.1 in tea, Unilever ULVR.LUNc.AS, announced a deal with Green Mountain Coffee Roasters (GMCR) GMCR.O in March to offer Unilever's Lipton hot and iced teas in pods to use in GMCR's Keurig single cup brewing systems.

($1 = 0.7545 euros)

Editing by Jane Merriman