Case spotlight: Nespresso: Strategy Reset for Growth: The Youth Market

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This case was featured in the March 2024 issue of Connect.

Who – the protagonist

Guillaume Le Cunff, CEO, Nespresso SA.

What?

Nespresso was the global leader in the system based portioned coffee category that it pioneered in the 1980s.

Referred to as the innovative ‘disruptor’ of the traditional coffee market, by the early 2020’s Nespresso was facing more than 400 rivals worldwide that were challenging the company’s leadership in the portioned coffee category. Strategically even more compelling was the emerging reality that the company’s current market base, consisting mostly of older people, was expected to decline in the medium to long-term.

Winning a viable share in the large and growing global youth coffee market was identified as a must-win by the top management team to compensate for the certain decline of its current market.

However, this wasn’t going to be easy.

drinking coffee

Why?

Nespresso’s research had found that the brand was viewed as “sterile” and “snobby” by the new generation of consumers, who thought it more relevant to the lifestyle of their parents’ generation than their own.

Furthermore, the youth market was wary of the eco-sustainability of aluminium coffee capsules. Nespresso’s high investments in reducing its carbon footprint, including recycling of aluminium capsules, had not changed the young consumers’ perceptions.

The tough challenge remained to transform Nespresso into a “relevant” brand that fitted into the values and lifestyles of Millennials and Generation Z.

When?

It was at the start of 2023 when Nespresso was preparing to reformulate the company’s strategy to target the youth market.

Where?

While the Nescafé brand was the global leader in soluble coffees across both emerging and developing markets, Nespresso was the top player in portioned coffee, mostly in developed countries.

Key quote

“The key strategic questions we face are: How to keep delighting our base of loyal customers and, equally important, how to be a relevant brand to the young coffee consumers who will account for much of the market in the near future. Our research shows the youth have quite a different approach to coffee.”
Guillaume Le Cunff, CEO, Nespresso SA.

What next?

Decisions for the 2024-28 strategic plan would be made against the backdrop of a slowing market for portioned coffee and relentless competition from compatibles.

Le Cunff and his top team were searching for a number of pivotal strategic ideas that would enable Nespresso to achieve what he called an “inflection point” in its growth trajectory, one that would put the company on a path to significantly grow its top line.

Making serious and substantive inroads into the youth coffee market was a key objective for the company’s strategic reset and essential for Nespresso’s future.

AUTHOR PERSPECTIVE 

On the reasons for writing the case…

Kamran said: “The Nespresso Strategy for Growth: The Youth Market case is the third case on the company’s 30-year long journey in changing markets captured by our two earlier cases, both among The Case Centre’s bestsellers: Innovation & Renovation: The Nespresso Story, and Reinventing Nespresso? The Challenges of Market Leader Under Attack.

“When we began our case research at the company, it soon became clear that Nespresso is at a strategic tipping point in its history. It’s current customer base, made up of mostly older portioned coffee consumers, is no longer growing and expected to decline before long. On the other hand, the young consumers who account for a growing share of the global coffee market are not into home consumption of portioned coffee due to their distinctly different habits and behaviours.

“With that insight, we decided to focus the case on Nespresso’s existential strategic challenge of making its brand relevant and desirable in the youth market. Or else.”

Nespresso pods

On the case writing challenges…

Kamran continued: “The biggest challenge was inputting the massive data about the market, the young consumers, and the company’s activities and future strategic options in an engaging and easy-to-read document that’s not too long. We now have the same challenge with the teaching note, which we are currently working on, and will include the videos of interviews with company executives. Otherwise, writing the case was for us an exciting and insightful journey.”

On teaching the case…

He added: “Since its publication last September, the case has been taught a number of times in IMD’s executive programmes. It has gone well. Many see in the case reflections of their own companies as they are also trying to cope with a changing landscape of competition and customers. We look forward to seeing the case taught in our MBA programme made up, naturally, of members of the youth market. We expect high engagement with the case and dynamic class discussions.”

On how students react to the case…

Goutam commented: “I’ve used the case a few times and got a really positive reception. 

“The first thing is the surprise element - most executive participants see Nespresso as a trailblazer and disruptor. This is a company that saw new opportunities and created a new category. The surprise is “wow I didn’t realise they had missed an important market and important growth opportunities”. Just this point serves as a wakeup call since it is not disruption by technology (most common examples these days). 

“The next aha is Nespresso’s willingness to cooperate with a competitor - Starbucks. This leads to a good conversation on the pros and cons of the deal. 

“The third is the company’s real investments in sustainability. The question is about whether they can capture the value of the investments or whether the investments are to stay in the game?”

On case writing tips…

Kamran explained: “First and foremost, find a good story with burning issues. Examples include: a strategic tipping point, a start-up with an innovative business model yet to show promise, a manager whose job is on the line if her new initiative fails. Yes, it’s easier said than done! What a case writer should look for are complex, multidimensional real-world issues without easy answers, where analysis and solutions would diverge in class discussion. It is such real-world issues that help to broaden the young student’s analytical horizons and hone their independent judgements.”

Final word…

Kamran concluded: “Nespresso is a well-recognised global brand. Our experience with the first two cases on the company shows that the brand’s top-of-mind awareness is a big plus for case preparation and class discussion. That is true for both the young students and the less-young executives.”

THE CASE 

The case

Who – the protagonist

Guillaume Le Cunff, CEO, Nespresso SA.

What?

Nespresso was the global leader in the system based portioned coffee category that it pioneered in the 1980s.

Referred to as the innovative ‘disruptor’ of the traditional coffee market, by the early 2020’s Nespresso was facing more than 400 rivals worldwide that were challenging the company’s leadership in the portioned coffee category. Strategically even more compelling was the emerging reality that the company’s current market base, consisting mostly of older people, was expected to decline in the medium to long-term.

Winning a viable share in the large and growing global youth coffee market was identified as a must-win by the top management team to compensate for the certain decline of its current market.

However, this wasn’t going to be easy.

drinking coffee

Why?

Nespresso’s research had found that the brand was viewed as “sterile” and “snobby” by the new generation of consumers, who thought it more relevant to the lifestyle of their parents’ generation than their own.

Furthermore, the youth market was wary of the eco-sustainability of aluminium coffee capsules. Nespresso’s high investments in reducing its carbon footprint, including recycling of aluminium capsules, had not changed the young consumers’ perceptions.

The tough challenge remained to transform Nespresso into a “relevant” brand that fitted into the values and lifestyles of Millennials and Generation Z.

When?

It was at the start of 2023 when Nespresso was preparing to reformulate the company’s strategy to target the youth market.

Where?

While the Nescafé brand was the global leader in soluble coffees across both emerging and developing markets, Nespresso was the top player in portioned coffee, mostly in developed countries.

Key quote

“The key strategic questions we face are: How to keep delighting our base of loyal customers and, equally important, how to be a relevant brand to the young coffee consumers who will account for much of the market in the near future. Our research shows the youth have quite a different approach to coffee.”
Guillaume Le Cunff, CEO, Nespresso SA.

What next?

Decisions for the 2024-28 strategic plan would be made against the backdrop of a slowing market for portioned coffee and relentless competition from compatibles.

Le Cunff and his top team were searching for a number of pivotal strategic ideas that would enable Nespresso to achieve what he called an “inflection point” in its growth trajectory, one that would put the company on a path to significantly grow its top line.

Making serious and substantive inroads into the youth coffee market was a key objective for the company’s strategic reset and essential for Nespresso’s future.

AUTHOR PERSPECTIVE 

Author perspective

On the reasons for writing the case…

Kamran said: “The Nespresso Strategy for Growth: The Youth Market case is the third case on the company’s 30-year long journey in changing markets captured by our two earlier cases, both among The Case Centre’s bestsellers: Innovation & Renovation: The Nespresso Story, and Reinventing Nespresso? The Challenges of Market Leader Under Attack.

“When we began our case research at the company, it soon became clear that Nespresso is at a strategic tipping point in its history. It’s current customer base, made up of mostly older portioned coffee consumers, is no longer growing and expected to decline before long. On the other hand, the young consumers who account for a growing share of the global coffee market are not into home consumption of portioned coffee due to their distinctly different habits and behaviours.

“With that insight, we decided to focus the case on Nespresso’s existential strategic challenge of making its brand relevant and desirable in the youth market. Or else.”

Nespresso pods

On the case writing challenges…

Kamran continued: “The biggest challenge was inputting the massive data about the market, the young consumers, and the company’s activities and future strategic options in an engaging and easy-to-read document that’s not too long. We now have the same challenge with the teaching note, which we are currently working on, and will include the videos of interviews with company executives. Otherwise, writing the case was for us an exciting and insightful journey.”

On teaching the case…

He added: “Since its publication last September, the case has been taught a number of times in IMD’s executive programmes. It has gone well. Many see in the case reflections of their own companies as they are also trying to cope with a changing landscape of competition and customers. We look forward to seeing the case taught in our MBA programme made up, naturally, of members of the youth market. We expect high engagement with the case and dynamic class discussions.”

On how students react to the case…

Goutam commented: “I’ve used the case a few times and got a really positive reception. 

“The first thing is the surprise element - most executive participants see Nespresso as a trailblazer and disruptor. This is a company that saw new opportunities and created a new category. The surprise is “wow I didn’t realise they had missed an important market and important growth opportunities”. Just this point serves as a wakeup call since it is not disruption by technology (most common examples these days). 

“The next aha is Nespresso’s willingness to cooperate with a competitor - Starbucks. This leads to a good conversation on the pros and cons of the deal. 

“The third is the company’s real investments in sustainability. The question is about whether they can capture the value of the investments or whether the investments are to stay in the game?”

On case writing tips…

Kamran explained: “First and foremost, find a good story with burning issues. Examples include: a strategic tipping point, a start-up with an innovative business model yet to show promise, a manager whose job is on the line if her new initiative fails. Yes, it’s easier said than done! What a case writer should look for are complex, multidimensional real-world issues without easy answers, where analysis and solutions would diverge in class discussion. It is such real-world issues that help to broaden the young student’s analytical horizons and hone their independent judgements.”

Final word…

Kamran concluded: “Nespresso is a well-recognised global brand. Our experience with the first two cases on the company shows that the brand’s top-of-mind awareness is a big plus for case preparation and class discussion. That is true for both the young students and the less-young executives.”

THE CASE 

The authors

Goutam Challagalla
Professor of Strategy and Marketing and dentsu Group chair of Sustainability Strategy and Marketing
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