Muscled by Starbucks, Nestle Moves to Stir Things Up With Nescafe
Having watched Starbucks Corp. elbow out its Cafe Sarks brand on grocery store shelves, executives at Nestle USA knew it was time to wake up and sell some coffee.
The Glendale-based company is replacing Sarks with a new gourmet coffee and specialty coffee beverage line in Western states, under the 62-year-old Nescafe label.
Best known in this country as an instant coffee that appeals to parents and grandparents, Nescafe is being recast as a specialty and gourmet line aimed at trendy young adults.
With $51.9 billion in worldwide revenue and a roster of such familiar brands as Carnation, Perrier and Libby’s Juices, Nestle is the world’s largest and, arguably, best-run food company.
Nestle USA hopes to do in this country what its Swiss-based parent company has done overseas: Turn Nescafe into a coffee and coffee-drink powerhouse.
Some coffee industry players question the wisdom of sticking with the venerable Nescafe brand.
“It could be tough, pushing their way into the 18-to-34-year-old demographic,” said John Martin, chairman of the Irvine-based Diedrich Coffee chain. “I’m really surprised that they didn’t acquire a strong regional brand with established credibility.”
Nestle argues that the absence of an image is a positive thing because Nescafe doesn’t have to carry the excess baggage that could saddle competitors that linked themselves to such familiar faces as Marcus Welby (actor Robert Young) and Mrs. Olsen (actress Virginia Christine).
“What Nestle is doing, and doing wisely, is seeing if they can make a turnaround in coffee by opening a new door,” said Tom Pirko, a Santa Barbara-based food and beverage industry consultant.
“They’re playing a really sophisticated game of product analysis and marketing to find out what they can pull out of this trend--how they can regain some market share.”
The Nescafe brand had been swept into the same downdraft as U.S. market leaders Procter & Gamble Co. (Folgers) and Philip Morris Cos. (Maxwell House). Chicago-based Information Resources Inc. reports that supermarket and grocery store sales of regular ground coffee fell by 15.8% to $2.1 billion in the 52 weeks ended July 18.
The sales slowdown is driven by a drop in the number of consumers drinking regular coffee drinks, which slipped to 107 million this year from 109 million in 1998. At the same time, the National Coffee Assn. reports, the ranks of daily specialty-coffee drinkers soared to 21 million from just 4.5 million in 1993.
Nestle, which also makes the Taster’s Choice, Hills Bros., MJB and Chase & Sanborn brands, isn’t alone in targeting consumers with a yen for gourmet coffee drinks. P&G;, which owns the Folgers line, recently acquired Brothers, a specialty coffee brand. And Starbucks coffee is now distributed in grocery stores by Kraft Food, a Philip Morris subsidiary.
Nestle is betting it can reinvigorate the brand’s image with a 20-product line that includes coffee beans, ground coffee, instant coffee and frozen and hot coffee drinks appealing to 20- to 35-year-olds.
“It’s not just black coffee, but the lattes, cappuccinos, the frozen drinks,” said Swiss-born Armin Bieri, vice president of coffee and business innovation at Nestle USA’s beverage division. He maintains that Nestle will offer a wider array of products than Starbucks.
The line initially will be sold through grocery stores in Western states, and gradually will be expanded nationwide.
Nestle isn’t ignoring good old coffee by the cup either. To start, it will make free samples available outside stores with a snazzy fleet of SUVs decked out with coffee-brewing equipment.
The company also has ambitious plans to open permanent coffee bars and kiosks in theaters and such retail stores as Target so consumers can sample the coffee.
The company already has opened coffee bars in Loews Cineplexes Entertainment Theatres movie theater complexes in New York, Orlando and San Francisco, as well as a Red Lion hotel in Glendale and at Denver International Airport. Nescafe also sells coffee through food courts in Target stores and is negotiating for space in other high-traffic locations.
A series of new television commercials created by New York-based McCann-Erickson advertising agency will begin running later this month.
Despite Nescafe’s powerful brand image outside the U.S., some observers question its decision to stick with the brand here.
But Nestle’s Bieri views the lack of brand awareness among younger consumers as a plus.
“We’re much better equipped to start with a neutral base and create something very distinctive and unique,” he said.
Even fast-growing Starbucks has stumbled in recent months, observers note, so there’s no such thing as a sure bet in an industry governed by changing consumer tastes.
Bieri acknowledges that Nestle faces a big challenge.
“We know it’s going to be very competitive, and we know it will take time. But we are making a very long-term commitment.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Coffee Sales Break
Overall sales of coffee (beans, ground and instant) in supermarkets and grocery stores fell 15.8% in the 52-week period ended July 18, although Starbucks’ sales of whole beans and ground coffees skyrocketed. Nescafe doesn’t rank among the top five in any category.
*--*
Sales, 52-week Rank Brand in millions change GROUND COFFEE 1 Folgers $588.2 -14.0% 2 Maxwell House 369.1 -22.9 3 Maxwell House Master Blend 188.2 -6.7 4 Private label 151.3 -23.9 5 Folgers Coffee House 147.7 -16.0 7 Hills Bros. 60.5 -28.8 14 Starbucks 21.3 +398.3 Total 2,109.4 -15.8 WHOLE COFFEE BEANS 1 Eight O’Clock $92.7 -16.4% 2 Private label 32.4 -7.2 3 Millstone 21.5 +14.3 4 Starbucks 16.8 +332.8 5 Brothers 13.6 -11.5 12 Cafe Sarks* 2.7 +16.6 Total 238.2 +0.2 INSTANT COFFEE 1 Folgers $133.7 -6.5% 2 General Foods Intl. Coffee 122.0 -9.0 3 Maxwell House 94.5 -10.9 4 Tasters Choice Orig. Blend* 86.8 -8.0 5 Private label 36.4 -5.3 Total 602.0 +7.1
*--*
* Nestle brand
Figures do not include decaffeinated coffee.
Source: Information Resources
