As we wrote about in March, Nespresso's historically proprietary capsules were slated for competition this summer -- and it's about to get real. Both Sara Lee's L'Or capsules and the Ethical Coffee Company's biodegradable capsules have hit the market and Nestle has begun an avid defense of their ~1700 patents on how the espresso is produced on their machines.
With lawsuits in the works and police raids of manufacturing facilities in France, it's clear that Nestle's Nespresso business model is designed around a lack of competition. Since we're ardent supporters of competition and believe it to be in the best interest of the customer, it's hard for us to empathize with Nestle's position on this one.
As with the machines themselves, there seems to be different target markets for each of the competitive capsules being produced and that kind of diversity will only serve to increase the reach, accessibility and attractiveness of the equipment itself. If you have people concerned about the environmental impact of the capsules, they can purchase the equipment and go with Ethical Coffee Company's capsule approach; similarly, if someone is more budget conscious and willing to take a bit of a reduction in quality, it sounds like the L'Or capsules are cheaper but maybe not quite as tasty as the original. In both cases, Nestle should see the competing products as another marketing arm that feeds into their machine sales. Obviously, their model is designed around lower cost machines that are supported economically by capsule purchases over the life of the equipment, but the biggest complaint and 'no' factor we see on the retail side is this lack of easily accessible capsules.
On the US front, Green Mountain and Lavazza are in final negotiations to team up and take another stab at Lavazza's capsule-based espresso in this market, so the competition will be equipment based, as well, within the next few years. In our opinion, both pressures will result in better options for the customer at the end of the day, so we're all for it.