Nestle, which owns the world’s largest coffee business, is stepping up investment there as it seeks to put more distance between it and fast-growing No. 2 player JAB Holding Co. JAB in December agreed with other minority investors to buy Keurig Green Mountain for about $14 billion, the latest in a spate of coffee deals that would give its owners, Germany’s billionaire Reimann family, control of 21 percent of the global market, data from Euromonitor International shows.
Nestle’s global market share in coffee was 22.3 percent in 2014, according to Euromonitor.
“We are on high alert … because we see what’s happening out there,” Nestle Chief Executive Paul Bulcke said on Thursday after reporting weaker than expected full-year results.
“We like good competition and it looks like we’re going to have good competition there,” Bulcke said, likening the rivalry to a cycling race. “They’re closing in on our leadership, yeah, but they’re not hanging over our wheel.”
Nestle pioneered at-home, single-cup brewing in Europe with its Nespresso system, but other brands, including Keurig, have been more popular in the United States. Nespresso is expanding its new VertuoLine system, which makes the larger coffee cups Americans often prefer.
“We have the brands, the R&D, the pipelines and we have the competition there to really motivate us to do the right things,” Bulcke said.
The profit margins in Nestle’s powdered and liquid beverages segment, which includes coffee, were down 180 basis points in the year, according to Societe General analyst Warren Ackerman, who also said Nestle’s global leadership gap was “closing quite rapidly”.
Nestle Chief Financial Officer Francois-Xavier Roger said the margin decline was due mainly to fluctuations in the Swiss franc, investments made in Nescafe Dolce Gusto and coffee costs.
“Hedging played against us in 2015, and especially in coffee. We gained in 2014 and we lost a little bit against market prices in 2015,” Roger said. He noted however that organic sales in the segment rose 5.4 percent, and that the company gained market share.