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In the News

Nestle develops the coffee market

Penny Brooks

15th September 2017

It feels as if the market for coffee is following many other food and drinks markets, developing and becoming ever more sophisticated, with consumers seeking more rarefied and exotic coffees. Nestle, the biggest global coffee maker with Nescafe and Nespresso, has just bought a Californian speciality coffee business, Blue Bottle. Blue Bottle is at the high end of the market, operating minimalist coffee bars, selling speciality roasted coffee and bottled coffee drinks in the US and Japan. It operates a subscription service that dispatches its own coffee beans within 24 hours of roasting them. Nestle will continue to operate the business as a standalone entity, recognising the value of its established branding.

It follows a string of similar moves by other coffee makers, aiming to differentiate their product as their market becomes saturated - Starbucks are building 1,000 new 'Reserve' stores which will feature 'roasteries' and tasting rooms. And reports say that in August a blend of coffee, known as Esmeralda Geisha Canas Verdes Natural, was sold at the Best of Panama Specialty Coffee auction for £371 per pound, a new record.

Where does this fit in Ansoff's matrix? Is it product development, as coffee retailers look at their existing market and seek to gain their customers' loyalty with new and more exciting products, or is it market development as they take their existing product, coffee, and aim to extend to new niche markets (of their own creation) by educating their consumers to seek a new experience - or is it simply market penetration? It is certainly a good example of a product extension strategy, adding value to a product for the consumer.

But which stakeholder is being targeted? An interesting feature of theBBC report of the takeover is the suggestion that this move is driven as much by investors seeking better returns, as by consumers seeking better coffee. For example, investor group JAB Holdings, which owns a range of premium brands from Bally shoes to Krispy Kreme doughnuts, and recently sold its majority ownership of Jimmy Choo, has been acquiring a portfolio of coffee brands including Keurig Green Mountain, JDE (Jacobs Douwe Egberts) and Caribou Coffee.This shows the power of different stakeholders in corporate strategy, as it suggests that managers are following the need to satisfy the shareholders as a prime objective, rather than to satisfy the market. 

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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