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A look into Nestle Beverage Company.

Many tourists flock to San Francisco's famed Fisherman's Wharf as a of Californians travel across the Bay Bridge--what each person shares is the sight of the Hills Bros.' neon sign that has graced the city streets of San Francisco for some 66 years. Originally lit with bulbs, the sign was changed to neon in the late 1930's. That sign, which has withstood several quakes and tremors, symbolizes a rich heritage for San Franciscans. Hills Bros. is a local product, born on the West Coast, and a major player in the Nestle empire of beverage and food products.

The sign towers above the huge complex Nestle Beverage Company now occupies. The company has vacated 2 Harrison Street where, at one time, roasting machinery cooled down coffee alongside the corporate offices. Now Nestle Beverage Company is housed at 345 Spear Street, right next door to the old facility which now is home to a national retailer and a brewery. At the time; of my visit last year, I saw boxes and boxes of transferred employees' belongings, spittoons or miscellaneous coffee equipment. The office also equips the latest technological refreshment stations for employees to imbibe a cup of caffe latte, cappuccino, espresso, regular coffee, or iced coffee. The display and availability is truly impressive.

Nestle USA was formed in 1990. Prior to that, the organization in the U.S. was called Nestle Enterprises Inc. (NEI), and was based in Solon, Ohio (near Cleveland). The Nestle operations for tea and coffee beverages in Purchase, New York, was part of NEI called Nestle Foods, where Taster's Choice and Nescafe were managed. Those two products came to San Francisco in 1990 and Hills Bros. became Nestle/Hills Bros. Coffee Co. Some employees were transferred to San Francisco. In the meantime, Nestle Foods has moved to the Nestle USA headquarters in Glendale, CA. Nestle SA, the food giant based in Vevey, Switzerland is the parent company to all Nestle U.S. operations. Tea purchasing was reassigned to Cain's Coffee Co., in Oklahoma City, Oklahoma before Cain's was sold to Chock Full o'Nuts in October 1992.

People & Facilities

Nestle Beverage currently totals 4,300 employees with 13 manufacturing facilities. Nine of those facilities manufacture coffee and/or tea. R&G coffee is manufactured in plant locations in Casa Grande, Az., New Orleans, La, Union City, Ca., and Suffolk, Va. The old Union City plant was previously the MJB facility and the New Orleans plant was originally Chase & Sanborn. Soluble coffee plants are located in Ripon, Ca., Sunbury, (also the site of decaffeination processing), and Freehold, NJ. The sole tea manufacturing facility is located in Granite City, II.

Hills Bros. also manufactured coffee in Edgewater, NJ, until 1991. The Suffolk, Va. plant was created to replace that facility and allow for better geographical distribution of products. The new facility is equipped with state-of-the-art Neuhaus Neotec roasting equipment. Company personnel told the magazine that they are happy with the performance of the Neuhaus Neotec machinery.

"It's a good machine, (it) puffs up the bean and that's what the consumer wants." The equipment also brings out the oils needed for their Dark French Roast blend.

Back in the 1970's, Hills' advertised its technological roasting break-through puffing process, which they company trademarked 'high yield process.' The process offered more cups per pound with less roasted coffee. Some members of the trade ostracized the process, yet most of the trade had similar products on the supermarket shelves within the year.

While roasting equipment may vary from plant to plant, Nestle intends to replace them, as needed, with the Neotec system. Fres-co packaging equipment produces the valve brick packs which are used for Sark's whole bean product line and brick packs for Hills Bros.

Nestle has been decaffeinating coffee in Sunbury, Ohio using coffee oils. All decaf products use the coffee oil removal method.

Packaging Preferences

Company executives, who overlook new products, shared some pitfalls of market research. Nestle Beverage Company found that consumers were happy with whatever packaging their coffee traditionally came in. While the South and the Southeast readily took to brick packs and prefer them, the rest of the U.S. prefers cans. Thus, when Nestle Beverage decides to launch a new product, it comes packaged in a container that the consumer is already familiar with. To coin a phrase--'Old labels die hard.'

The company sees the gourmet market as a primary growth segment of the coffee market. Nestle Beverage teamed up with Zoegas, a major Swedish coffee roaster, and offered whole bean and R&G coffee via direct mail. Unfortunately, Nestle Beverage found the niche too narrow in appeal and abandoned the project. However, the company is not giving up and expects to approach direct mail again, only this time with a Sarks 'gourmet coffee program

Coffee and tea product lines include: Hills Bros., MJB, Chase & Sanborn, Sark's, Taster's Choice, Nescafe, and Nestea. New products currently include: Nescafe Mocha Cooler (a ready-to-drink coffee cooler), Hills Bros., Perfect Balance (R&G coffee blended with 50% caffeinated and 50% decaffeinated beans), Hills Bros. French Roast, Chase & Sanborn's Lite, MJB Lite, Taster's Choice Calf-Lite (instant coffee made with 50% caffeinated and 50% decaffeinated beans), Nescafe Coffee Crystals (instant coffee), and Hills Bros. Hawaiian Supreme which is being test-marketed in Portland and Denver.

Hills Bros. is considered the mainstream coffee for the company, and Nestle is taking it national. When I expressed my surprise to the business director, that I thought it was already national, he just chuckled and said, "Yes, everyone gets that impression."

He explained that the company has been attempting to distribute the product more national these past few years and that they have successfully expanded into Florida. The cities of Atlanta and Birmingham were the next stops, and then they will complete the distribution from Florida all the way up to New York. When that is resolved, they will truly be national. The company has also experienced some success with the Hills Bros. Perfect Balance half decaf, half caffeine coffee that was launched in April of 1991 with a TV advertising campaign.

Nestle enjoys an 18.9% share in the U.S. roast & ground market. They follow Kraft General Foods and Proctor & Gamble. In the soluble market, Nestle is the leader with a 36.1% share, followed by Kraft General Foods and Proctor & Gamble. In the whole bean market, Nestle holds a small, yet rapidly growing share. The major manufacturers do not have a sizeable share in this market, which is ruled by regional specialty roasters who continue to grow yearly.

The Commodities Team

Nestle Beverage heads up a good cohesive team of coffee buyers. Each buyer has a rich history of training, some beginning in New York, Cincinnati, Texas or California. Several of the buyers have met their spouses in the company and continue to work alongside them. The buyers speak glowingly of their mentors and speaking with Karen Shebek of the commodities group, she compliments the education both she and another buyer received from Manny Rosen, a MJB & Nestle coffee buyer & quality controller who retired about three years ago.

At the time of my visit, international meetings were taking place, television crews were filming either commercials or segments for the daily morning news shows, and coffee was being traded. The commodities group is headed by Dick Thompson, senior vice president of purchasing. He served as president of the Pacific Coast Coffee Association in 1979.

W.C.(Dub) Hay is vice president of commodities. Hay had a purchasing background in Proctor & Gamble before he came to Hills and was a fighter pilot for the Air Force. (Probably nothing seems too hectic for him.) He was a former president of the Pacific Coast Coffee Association in 1987 and was instrumental for establishing San Francisco as a delivery point for the Coffee Sugar & Cocoa Exchange contract. The trading staff is rounded out with Karen Shebek and Joseph Nenning. Nenning originally relocated from the Edgewater facility several years ago.

Trying to convince the Coffee, Sugar & Cocoa Exchange to establish San Francisco as a delivery point took many years of hard work from the West Coast trade. Hay told the PCCA convention attendees in May of 1991, that the designation of SF as a delivery point will allows more flexibility for the traders and roasters and will bring in more coffee to the port. Having coffee delivered to SF allows the roaster the option of selling stocks and not carry covering costs. Several recent factors made SF as a delivery point more attractive to the CS&C Exchange and one of them included the demise of the International Coffee Agreement and its quotas.

The demise of quotas has not made the industry's life that much easier. A credit crunch has affected everyone. Importers are not able to finance as much as they used to and the roasters can no longer obtain a regular supply of freshly milled coffee as growers now sell all their coffee at once.

While the availability of Milds has increased for the U.S. and for Nestle Beverage, the green coffee team must juggle different origins in order to get the proper freshly milled coffee. Nestle Beverage has never relied on any one country for origin except for Colombia, which has proven to be consistent year after year. No other origin, while a good source, seems to be consistent year after year and so the company may proportion its origins differently each year. There is blending flexibility in Nescafe and Taster's Choice. The MJB product line is made up of premium blends of Milds, again optioning from various sources.

The entire Nestle Beverage products line is consistent throughout the nation. MJB has some regionalism as a West Coast coffee, and Chase & Sanborn is considered a price product in regional markets.

Nestle Beverage is also a private label packer with Hills Bros. doing 35% of all coffee-private label in the U.S. Ken Broz, vice president, tells us that Hills Bros. is actually the largest private label packer in the U.S. Hills targets the medium-priced market for its private label and expects also to enter the private label tea market shortly. There is no one specific plant for private label. Some of the regular plants just incorporate private clients' requests. Both Broz and Nora Nenning, marketing manager-special sales, see the growth potential for pursuing private label on whole bean coffees. There is more interest in French Roast, 100% Colombian, and gourmet house blends. Hills packs for several large West Coast supermarket chains and sees real growth in this area of the industry.

Nestle and Hills, Hills and Nestle; it all sounds so confusing as the many coffee companies have merged, but it makes for an excellent blend of product line, experience, taste and personnel comraderie.
COPYRIGHT 1992 Lockwood Trade Journal Co., Inc.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:McCabe, Jane
Publication:Tea & Coffee Trade Journal
Article Type:Company Profile
Date:Dec 1, 1992
Previous Article:Men of the year.
Next Article:Sark's - Nestle's gourmet whole bean coffee.

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