GENERAL OVERVIEW

•  Founded in 1986

•  Autonomous globally managed business of the Nestlé ® Group

•  Reference in the portioned coffee sector and one of the fastest growing global food and beverage brands

•  NESPRESSO® is present in 60 countries

•  8300 employees and 300 boutiques worldwide

•  Enable anyone to create the perfect cup of espresso coffee

•  Delivering highest quality coffees

•  Ultimate coffee experiences to our consumers

NESPRESSO® PRODUCTS

•  Coffee machines•  30 models designed and manufactured in

collaboration with 6 machine partners. (KRUPS & DeLonghi)

•  In house R&D

•  Capsules    •  Wide range of flavours

•  Accessories–  Mugs, coffee cup, pots

VALUE CHAIN ANALYSIS: PRIMARY ACTIVITIES

Inbound Logistics:•  Suppliers from many different countries

deliver coffee to production centers•  Data warehouse•  Reverse logistics for recycling Operations:

•  The production is based in Orbe and Avenches:ü  coffee roasting up to capsule

packaging stage •  300,000 to 1,400,000 capsules per day

Outbound Logistics:•  Trucks leave from the production

centers to Boutiques and customers home

•  Logistics Partner: DPD, BRT…

PRIMARY ACTIVITIES

Marketing & Sales:

•  Very strong marketing campaign•  Provide all the info through their

website•  More than 300 boutiques in the

best locations allover the world•  Online retail

Services:

•  Nespresso club•  Nespresso app•  Technical assistance

SUPPORT ACTIVITIES

Firm Infrastructure:

•  Headquarter in Lausanne•  Production centers in Switzerland•  300 boutiques in unique location

HR Management:

•  High qualification required•  70% of employees in direct contact

with customer

Technology Development:

•  R&D department in Lausanne•  Balance between the right water

temperature, quantity and speed, along with 19 bars of pressure

Procurement:

•  Long lasting relationships with suppliers

ECOLABORATION

•  Coffee: source 80% of our coffee from the Nespresso AAA Sustainable Quality™ Coffee Program, including Rainforest Alliance certification by 2013.

•  Capsules: put collection systems in place to triple our capacity to recycle used capsules to 75% by 2013.

•  Carbon: between 2009 and 2013, reduce the carbon footprint of each cup of coffee by 20%.

NESPRESSO RESOURCES

RESOURCES CHARACTERISTICS

Nespresso’s resources embed these 3 characteristics:  •  Appropriability: High appropriability due to the

large amount of patents and the strenght of the brand;

 •  Imitability: Capsules can be imitated but not the

brand value and the experience nespresso provided;

 •  Durability: Capsule durability due to stability of

coffee demand and strong customer relationships.

NESPRESSO CAPABILITIES

Corporate functions:

•  Strategic innovation: Capsules•  International management

R&D:

•  Innovative new product development•  Ability to exploit and research new gran

cru tastes•  Led to the invention of unique technology

that delivers a balance between right water temperature, quantity and speed for the best result

NESPRESSO CAPABILITIES

Operations:

•  Efficiency in capsules manufactures

Product design:

•  Ability to balance good design and practicality

Marketing:

•  Luxury brand management•  Building reputation for high quality

coffee

Ecolaboration:

•  skills to conduct a profitable business in an environmentally friendly manner

COMPETITIVE ADVANTAGES

Drivers of Cost advantage:

• Economies of scale: up to 1.4 mln capsules produced per day

• Economies of learning: more than 15 years from the first capsules production

• Standard Product design: many flavors, one capsule design

COMPETITIVE ADVANTAGES

Drivers of Differentiation Advantage:

• Highest quality coffee within the market

• Nespresso’s patents

• Outstanding customer service

• Exclusive Boutique Location

• Unique brand image

• Creative marketing approach

COFFEE INDUSTRY

•  After crude oil, COFFEE is the most sought commodity in the world

•  Brazil is the largest coffee exporting nation

•  Over 2.25 billion cups of coffee are consumed in the world every day

•  There are 3 main types of in home coffee:•  Filtered Coffee•  Espresso Coffee•  Instant Coffee

•  NESPRESSO® is about in-home espresso coffee                        

COFFEE MARKET SHARE

COFFEE INDUSTRY LIFE CYCLE

 Evolution of Industry Structure over the Life Cycle

! GROWTH:!IN+HOME!ESPRESSO! MATURE:!FILTERED! DECLINE:!INSTANT!

DEMAND!Increasing, sector is growing up by 24%

a year

Stable, mass market, price

sensitive customer, +4% year

Decreasing, Obsolescence

TECHNOLOGY!

Standardization of capsules to be

compatible on every coffee machine

Diffused know how Lack of innovation

PRODUCTS!Design & quality

improve; emerging of capsule design

Trend to commoditization Low differentiation

COMPETITION!

First movers: Nespresso and

Lavazza stable on top of the market

Market leader is Lavazza, high

competition tough

High competition between, Nescafé (leader), Folgers, Maxwell House

KEY!SUCCESS!FACTOR!

Fast High quality Practicality

It’s a commodity producing on a large

scale taking advantage on EOS

Speed of preparation Low shipping weight

Long shelf life !

KEY SUCCESS FACTOR

•  High quality coffee

•  Strong marketing campaign

•  Technology development

•  Economies of scale

•  Economies of learning

•  Distribution channels

FIVE FORCES MODEL: IN HOME ESPRESSO COFFEE

- Wide network of suppliers - Low bargaining power- Mostly price takers

- Outside home coffee- Instant & filter coffee

- High price for high quality - Excellent reputation - Club services - Luxury Marketing

- Difficult entrance (due to EOL & EOS)- High capital requirements

•  Nespresso market leader (45%)

•  High Concentration (Illy,Lavazza)

POTENTIAL ENTRANTS SUBSTITUTES

BUYERS

SUPPLIERS

COMPETITORS

NESPRESSO GROWTH FACTS

•  Revenue: $ 3.1 bln, +20% (2012)

•  Net income: $ 800 mln

•  Substitutes average growth in 2012: - 6%

•  Market Share: 45%

STRATEGIC SUGGESTION

Offering home-like comfort in non residential locations:

•  Goal: Increase our Demand Reach introducing a new Nespresso machine in which you can either pay or use your own capsules

•  Where: exclusive frequented places (VIP lounges, country clubs, private universities)

•  Catch: Nespresso Electronic Card

STRATEGIC SUGGESTION

Why:

•  Outside home coffee market takes the 50% of the total coffee market

•  Increase our market share•  Increase sales expectations•  Reach outside home coffe

channels

But…

Keeping niche target and luxury brand prestige