Thursday 08 December 2022

INDUSTRY NEWS – French watchdog forces Nespresso to “open-source” its coffee capsules

Must read

MILAN – Nespresso France has bowed to pressure from the French antitrust watchdog.

Nestlé, which owns Nespresso, agreed yesterday to lift obstacles to rivals that make knockoff capsules for Nespresso coffee machines in France, after the country’s antitrust Authority (Autorité de la Concurrence) expressed concerns that the popular coffee-capsule maker may be abusing its dominant position in one of its major markets.

Nestlé has made specific commitments to extend the guarantee on its single-serving coffee machines to customers who use pods other than its own, branded ones.

As part of the deal, Nespresso will also remove language on its pods and machines that suggest only Nespresso products can be used together. Nespresso will provide support to users of its machines who use third-party pods and will “abstain from negative comments about other capsules.”

The regulator also ordered Nestle to inform manufacturers of competing coffee capsules / pods three months before it makes any changes to its Nespresso coffee machine, which may not be compatible to the coffee capsule / pods of its rivals.

The French competition authority said that it will conduct a “market test” until 19 May to see if these changes are made, and added that it reserves the right to initiate court proceedings if the barriers to competition are not removed by Nespresso.

The watchdog has the power to impose fines of up to 10 percent of a company’s global revenue.

Two Nespresso competitors, DE Master Blenders and Ethical Coffee Company, complained to the Autorité de la Concurrence four years ago that Nespresso was potentially abusing its dominant position in France, by changing the design of its capsules and coffee machines to rule out the possibility of coffee drinkers using products from a rival.

The antitrust watchdog began an inquiry and found problematic behaviour, it said.

The regulator said that its investigation found that ”Nespresso is likely to have abused its dominant position by tying the purchase of its capsules with coffee machines, without objective justification, crowding, therefore, manufacturers of competing capsules.”

The Authority’s president, Bruno Lasserre, said it was “troubling” that Nespresso appeared to have made a series of technical changes to its machines, just as rivals were seeking to enter the market.

“We do not want to deprive Nespresso of its capacity to innovate, but we also want to widen the choice available to consumers,” he added.

In France, 73% of espresso machines sold are Nestlé’s Nespresso and 85% of coffee capsules sold with Nespresso are its own branded capsules. Nespresso in France generates a quarter of its global turnover.

The competing companies have until May 19 to respond to the proposals, which would be valid for seven years, the regulator said. Nespresso is “confident” that the proposals satisfy the Competition Authority’s concerns, Diane Duperret, a spokeswoman for Nespresso in Lausanne, said.

Jean-Paul Gaillard, founder of Ethical Coffee, said it was a “very good decision that the French competition regulator is bringing back a fair and honest competitive environment.”

Nestlé has fought several legal battles in recent years to protect Nespresso from rival brands.

Last year it tried to block the sale of rival capsules in the UK. It waged a similar war on competitors’ pod offerings in Germany in 2012, and then again in 2013. It also battled with its coffee pod enemies in Switzerland, as well as in France, Belgium, Italy and the Netherlands.

A German court also rejected an attempt by Nestlé to stop Ethical Coffee Company from selling Nespresso-compatible capsules in Germany.

Swiss discounter Denner has begun selling Nespresso-compatible capsules again after being involved in a legal spat with Nestlé.

France is one of Nespresso’s biggest markets, accounting for 25% of global sales of its own capsules.

Latest article