Cafe X Case Study
Café-X In Search of Strategy: Nestlé’s New Espresso Maker 1
In 1986, the Swiss giant Nestlé introduced a new type of espresso machine in the Swiss market. It represented one of the most innovative new products developed by its R&D department. Through the use of coffee capsules, the patented system combined the taste of real espresso coffee with convenience and ease of use. However, despite an enthusiastic reception from connoisseur coffee drinkers and very promising market research, the first few years after its introduction, the CoffeeMaker was far from living up to its expectations. In fact, the dedicated business unit was losing money. Therefore, in March 1988, Nestlé appointed a new, young Managing Director, called Jean-Paul Gaillard. Gaillard was considering what to do to improve the new product’s fortunes. He realized that, unless sales of the CoffeeMaker would pick up considerably soon, Nestlé would have no choice but to stop investing in the new product. He wondered whether he should give the current strategy more time to play itself out, or should he proceed with a new strategy? Coffee Industry Trends Market research showed that in existing coffee sectors, consumers were becoming more adventurous in their buying behavior and tended to favor the premium and super premium end of the market. These new markets were growing at the expense of instant powdered coffee. Other changes taking place in the coffee market included: (1) increasing popularity of cafes and coffee bars; (2) rising brand consciousness; and (3) the rising price-consciousness of the mass market consumer, who switched to supermarket brands if the price of coffee rose. The Rise of Espresso Espresso coffee is coffee of the greatest possible strength. Its quality is determined by the "fineness" of the coffee used. The fineness of coffee depends on the grind as well as on the type of appliance in which it is used. Espresso machines, in which water and steam are forced through the ground coffee
In 1986, the Swiss giant Nestlé introduced a new type of espresso machine in the Swiss market. It represented one of the most innovative new products developed by its R&D department. Through the use of coffee capsules, the patented system combined the taste of real espresso coffee with convenience and ease of use. However, despite an enthusiastic reception from connoisseur coffee drinkers and very promising market research, the first few years after its introduction, the CoffeeMaker was far from living up to its expectations. In fact, the dedicated business unit was losing money. Therefore, in March 1988, Nestlé appointed a new, young Managing Director, called Jean-Paul Gaillard. Gaillard was considering what to do to improve the new product’s fortunes. He realized that, unless sales of the CoffeeMaker would pick up considerably soon, Nestlé would have no choice but to stop investing in the new product. He wondered whether he should give the current strategy more time to play itself out, or should he proceed with a new strategy? Coffee Industry Trends Market research showed that in existing coffee sectors, consumers were becoming more adventurous in their buying behavior and tended to favor the premium and super premium end of the market. These new markets were growing at the expense of instant powdered coffee. Other changes taking place in the coffee market included: (1) increasing popularity of cafes and coffee bars; (2) rising brand consciousness; and (3) the rising price-consciousness of the mass market consumer, who switched to supermarket brands if the price of coffee rose. The Rise of Espresso Espresso coffee is coffee of the greatest possible strength. Its quality is determined by the "fineness" of the coffee used. The fineness of coffee depends on the grind as well as on the type of appliance in which it is used. Espresso machines, in which water and steam are forced through the ground coffee