June 11, 2013 / 2:10 PM / 6 years ago

Mondelez to take on Nespresso with own-brand coffee pods

ZURICH (Reuters) - Mondelez International (MDLZ.O), the world’s second-biggest coffee maker, is going head to head with larger rival Nestle NESN.VX by launching capsules compatible with its Nespresso system to steal a share of the premium coffee market.

The logo of Mondelez International is pictured at the company's building in Zurich November 14, 2012. REUTERS/Michael Buholzer

The capsules will be sold under the Jacobs and Carte Noire brands in Germany, France, Austria and Switzerland in the second half of the year - the biggest challenge yet for the $4.4 billion (2.8 billion pounds) Nespresso brand that has sued many copycats.

“We see a very healthy coffee market where people like to pay more for a cup of coffee and are becoming increasingly demanding on the quality and variety of their coffee,” Roland Weening, Mondelez vice president for coffee marketing, told Reuters. “We’ll see very strong growth coming out of this particular launch.”

Weening said that sales of portioned coffee pods have been growing by close to 20 percent in western Europe in recent years and could represent a third of the coffee market by 2016.

Nespresso has been Nestle’s fastest-growing brand in recent years, with its recipe for success based on relatively cheap machines and costly coffee capsules, available only online or in exclusive boutiques, prompting rivals to launch cheaper copycat pods through traditional retailers.

Nestle has sued rivals including D.E. Master Blenders DEMB.AS, Ethical Coffee Co and Swiss supermarket chains Migros and Denner, but so far it has failed to obtain a definite sales ban on their products.

“Competition is nothing new for Nespresso and today we compete against approximately 100 competitors worldwide, including 50 that claim compatibility with the Nespresso system,” a Nespresso spokeswoman said.

Asked whether Nespresso would sue Mondelez, she said: “I will not speculate on our future legal strategies, we monitor the market and will take action against products that we believe infringe our intellectual property.”

Mondelez appears unfazed by the possibility of a legal challenge. It has done its homework on the legal implications of the launch and is ready to face any queries, Weening said.

An $8 BILLION MARKET

Weening said that he expects the new capsules to be competitively priced, without giving details, and that they could be launched in other markets at a later stage.

“Mondelez is obviously a much bigger competitor than say D.E. Master Blenders and so I would anticipate quite a big launch later in the year. Of course the additional competition means that Nespresso growth dynamics will likely further slow,” Kepler Cheuvreux analyst Jon Cox said.

Nestle said in April that Nespresso had a slower start to the year due to competition generally in Europe, particularly the introduction of competitor capsules in Swiss Migros shops.

It nevertheless confirmed Nespresso was aiming to grow sales by around half a billion francs in 2013.

Nestle shares were down 2.3 percent at 1356 GMT compared with a 1.8 percent drop in the European food sector index .SX3P. Mondelez was down 1.2 percent.

Global sales of coffee pods were worth $8 billion in 2012, with $5.1 billion in western Europe, Euromonitor research shows.

Mondelez’ new operation should not compromise the company’s ambitions for its own Tassimo beverage system, Weening said. Tassimo, which brews tea, hot chocolate and milky coffees, is expected to join the group’s billion-dollar brands soon.

The snacks powerhouse, carved out of Kraft Foods Inc KFT.O last year, makes Cadbury’s chocolate and Oreo cookies, but 17 percent of its turnover comes from coffee and powdered drinks.

“Tassimo is doing very well ... it’s a profitable business,” Weening said, adding that it is the fastest-growing single-serve system in Europe, with sales up 30 percent in the first quarter.

The Tassimo machine competes with Nestle’s Dolce Gusto drinks maker, D.E. Master Blenders’ Senseo and the Keurig brewer made by Green Mountain Coffee Roasters Inc GMCR.O.

Nor does Weening see economic weakness throughout Europe as an obstacle to success, saying that it has pushed people to drink more coffee at home.

“Greece has been one of our most successful markets in Tassimo and we continue to see good growth in single-serve in Spain - and that is actually the effect of recession,” he said.

Nestle said in March that its Dolce Gusto brand, launched in 2006, was about to break even and sales would soon hit 1 billion Swiss francs (679.70 million pounds).

Editing by Erica Billingham

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