Espresso Wars – Starbucks takes on Nespresso

Guest post from David Nichols, Managing Partner and Head of Invention

Starbucks has just launched a major new innovation in the UK – Verismo is a competitor to Nespresso's home coffee machine system. Starbucks has created it’s own take on ‘the perfect espresso at home’, hoping for a large slice of the £831m home coffee making market that Nespresso has grown and dominated. Verismo launched in the US in September and has now reached my local Starbucks (just) in time for Christmas.

Unlike rival coffee chain Costa, who have tied-up with Kraft's Tassimo machines, Starbucks is taking on the complexity and investment of making & selling the machines themselves.
Will this work for Starbucks? Here is a view on the key factors that could decide how well they grow this business.

More Mainstream:

Verismo is good looking and has good design cues…but Nespresso is distinctly more upmarket than Starbucks. Will the more accessible price points + (nearly) as good design open up a new slice of the market and get instant coffee users to go for ‘posh coffee’ at home?

Better Distribution:

Nespresso started slow and built their distribution through department stores until they had enough scale to open their own hugely elegant stores. Starbucks already has the stores on every high street – they must use this distribution advantage to the max to drive sales. How much store space will they devote to Verismo? A square of shelf space or a store within a store? This will be a critical decision in driving growth.

Distinctive Product:

The most obvious difference is that the Verismo system offers milk capsules. Yes, Milk, in little capsules, so that you can make the perfect Latte without having to froth up your cow juice in a separate gadget. This feels like a big gamble. Will the convenience of having milk in capsules outweigh the taste/quality issue of it being not being fresh? Only time will tell. This is a gamble in my view, but could be the key difference.
“Our research and development team cracked the code on being able to create a latte using real milk with a proprietary piece of technology,” said Howard Schultz, the chief executive of Starbucks. “There’s no other single-cup machine that makes a latte with fresh milk just like we make it in our stores.”  

Distinctive Communication:

So far all we have seen is a click-through to a mini-site. It has some interesting testimonials from seemingly independent people. The challenge will be for Starbucks to create distinctive communication that stands out in the crowded Christmas advertising jungle.

In summary it is very early days to judge, but it feels like the right move for Starbucks. They have a very established and hugely successful competitor in Nespresso. And if they leverage their existing stores to get superior distribution they could build a strong new business. I will be watching (and drinking) with interest.