Nespresso customers cheat on Clooney in coffee wars

French shoppers are cheating on George Clooney. Sales growth at Nespresso, the Nestle single-serve coffee capsules marketed by the actor, may slow by about 20pc next year.

More consumers are choosing knock-off java in the supermarket to save cash and the hassle of going to a specialty Nespresso store or filling out a form online.

The world's largest food company has built Nespresso into a $3.3bn brand after more than a decade of double-digit growth by marketing the coffee as an affordable luxury exclusively sold in boutiques and on the internet.

Since last year, former Nespresso executives have flooded French and Swiss grocery shelves with versions that work in the same machines for as much as a third less. Rivals are now targeting markets including Germany and the Netherlands as weakening economies and lower incomes entice more shoppers to switch.

"Competition is heating up and will only intensify," said Richard Withagen, an analyst at SNS Securities in Amsterdam. "If there's an innovation as successful as Nespresso, it attracts competition."

Nespresso sales will grow 18pc next year, from 22pc anticipated this year, according to the average estimate of seven analysts surveyed by Bloomberg. The predicted slowdown will lower Nestle's sales growth to 5pc, the bottom end of the Vevey, Switzerland-based company's annual target, according to an estimate by Nomura analyst David Hayes.

Nespresso accounted for about 15pc of Nestle's sales growth in 2010, according to Hayes, who expects the unit's revenue to advance 12pc next year.

Nestle reports nine-month sales today. Organic revenue, which excludes acquisitions, divestments and currency shifts, probably increased 7.2pc, according to the average of 17 analysts' estimates. Sales growth at that level may slow to 6.1pc in 2012, the average of seven estimates shows.

Nespresso's rivals, encouraged by the expiry of some of the Nestle unit's patents next year, are trying to edge in on a market where retail sales may climb 47pc globally between 2010 and 2015, according to Euromonitor International.

"There's definitely room for growth," Nespresso spokesman Hans-Joachim Richter said. "The cake is growing and we get our fair slice. We have to share the cake."

Nespresso sold more than 6.5 billion capsules in 2010, according to Bloomberg calculations.

Nestle shares were unchanged at CHF51.50 (€41.46) in Zurich. They have declined 5.9pc this year.

Nestle has intentionally avoided selling Nespresso through supermarkets to keep direct contact with consumers and maintain service quality, said Julian Liew, a spokesman for the unit.

While originally that helped cultivate an image of exclusivity, former Nespresso executives had a different idea to snag sales.

"The distribution system of Nespresso is all wrong," said Jean-Paul Gaillard, a former head of Nespresso who formed rival Ethical Coffee Co in 2008. "It's too complicated to buy."

Enter the retailers. Lars Olofsson, who became CEO of Carrefour in 2009 after 32 years at Nestle, including three supervising Nespresso's strategy, has stocked France's largest supermarket chain with alternative capsules from Sara Lee, the maker of Douwe Egberts which aims to surpass Kraft Foods to become the second-biggest coffee seller.

Casino's 9,500 stores in France also sell capsules made by Ethical Coffee. "France will be a hot spot where Nespresso's hegemony will have to fend off Sara Lee," JPMorgan Cazenove analyst Polly Barclay said. Nespresso gets about half its sales from France, according to the brokerage.

A pack of 10 Nespresso capsules sells for €3.50 in France, Casino offers Ethical Coffee's product for €2.59, while the Sara Lee version sells for as little as €3. With European consumption slowing because of the debt crisis, Nespresso's exclusive image may become a handicap.

"Price competition will become more difficult in the future," said Jean-Marie L'Home, an analyst at Aurel BGC in Paris. "People who used to only buy Nespresso are now buying half Nespresso and half Casino."

From: independent.ie