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Nespresso

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Nespresso: Porter’s five forces of the portion-coffee market

Introduction
Portion-coffee is defined as single cup coffee systems, offering individual portions of freshly ground coffee. Portion-coffee systems come in several coffee machines systems like, filter, automatic, pads or capsules . In this segment, Nespresso offers hermetically sealed and colored capsules containing a wide range of tastes. The portion-coffee market could be of great interest for investors, as this market grew by 44% between 2006 and 2007 (see Appendix XX) and has been growing constantly since then. In 2009, Nespresso held 20% of the espresso & filter portioned coffee machines market, and its sales grew 30% annually over the past 8 years . The portion coffee market is one of the fastest-growing segments of the coffee market. Pods represented, 20 to 40% of the value of ground coffee sales in the $17 billion European coffee market in 2010. Moreover, the portion-coffee market is expected to triple to $15 billion by 2012 .

The following sections will analyze the competitive environment of portion-coffee through the five-force analysis. Conclusions are made on the global investment interest of the portion coffee market.
Threat of substitutes
Substitutes of portion-coffee are the following: filter coffee, instant coffee and traditional espresso. Additionally, substitutes of coffee, in general, are also other hot drinks such as tea or non-caffeine products that imitate coffee such as roasted grain beverages.

Portion-coffee is the most expensive system. Costs are high due to the sophisticated machine and capsules. As an example, Nespresso costs about 90 CHF/Kilo (0.50 CHF per capsule), Nescafe instant coffee between 45 and 75 CHF/kilo and a standard molded coffee between 10 and 20 CHF/kilo .

Switching costs to a substitute product are low...

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