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Japan: express line to espresso.

In what appears to be the latest step in its tentacular progress across the international marketplace, Nestle has once more joined hands with a foreign company to augment the position of its products worldwide. This time, however, its newfound partner is not another food and beverage company a la General Mills or Coca Cola. Instead, it has chosen to venture out and test Japanese waters by joining hands with Matsushita Electrical Industrial Co., Ltd. out of Osaka.

At first glance, this would seem to be a somewhat implausible union. What would a beverage giant like Nestle be doing with an electrical outfit? An espresso coffee system, that's what.

It may even be a marriage made in heaven. Faced with a sluggish coffee-machine market, Matsushita saw distinct advantages in pairing up with its Swiss partner in the form of a new opportunity to reactivate its marketplace when presented with Nestle's brain child. As in all good partnerships, both parties profit by the union. Nestle provides the coffee makers and the capsules while Matsushita eliminates the nightmare faced product--by using its existing sales network. Nestle gets the revenue from the sale of the capsules and Matsushita gets the proceeds from the sales of the coffee machines. Nestle Japan Ltd. has created a new subsidiary

(Nespresso K.K.), which will be responsible for the sales of Nespresso's coffee capsules (at 65 yen each). There is a similar arrangement between Nestle and KRUPS to sell a similar system in the U.S.

"Nespresso," as the machine itself is called, has been marketed by Matsushita since June 1 of this year for 65,000 yen (about U.S.$125) It is currently planning to import some 10,000 units of this unique capsule-type coffee maker that it expects to sell in a 12-month period, hopefully creating a new, expandable market. The first quarter (June through August, 1992) yielded 1,000 units sold. Sales for the second quarter are expected to reach the 3,000 unit mark.

So what about the competition? Right at the moment, the only other espresso machine competitor in the Japanese marketplace is one manufactured by Philips, not so surprising when one considers that espresso only accounts for 1% of the coffee sales in Japan. Regular coffee machines, however, abound. Companies like Sanyo, Toshiba, Hitachi and Melita, to name a few, play in a crowded field.

Matsushita plans to introduce its new product gradually during the first year, relying heavily on traditional activities such as demonstration and sampling parties at retail outlets plus advertising in magazines and newspapers.

The latest coffee/coffee-machine market numbers read as follows:

The Nespresso system (a Nestle concept) exerts high pressure on an air-tight capsule that contains a filter and about five grams of fleshly roasted and ground coffee, the right amount to make one cup of espresso. And, as its name seems to imply, it does so in record time, too. Thirty seconds, to be exact. Besides speed, Nespresso delivers foolproof quality consistency and convenience, both musts in the Japanese marketplace these days where pressure builds in an ever more frantically-paced workplace within a society struggling to keep its head above waning economic waters.

Designed for home use, the machine itself is both sleek and compact. (It measures 22.5 centimeters in width, 28 centimeters in depth and 28.5 cm. in height -- small enough to be acceptable in the cramped quarters of most urban quarters.) Its high-pressure extraction system, at 12 barometers, packs an impressive punch, the equivalent of its larger kin developed for commercial use. And, like the first Ford vehicles, it comes in any color you want, as long as the color you want is black.

In a nation of green tea drinkers, what hope of success does an espresso coffee machine have? More than you might think, it seems. Perhaps spurred on by the success of liquid canned coffee that the Japanese took to like ducks to water, it may have occurred to the powers that be at Nestle that the taste for espresso was an opportunity just waiting to happen. The coffee market profile in Japan has certainly changed over the years. As recently as the 60's, for in- stance, soluble coffee was drunk with sugar and milk at home. Convinced that it would not be made hearthside, roasted and ground coffee was only available in coffee shops. By the1980's, R&G was available for home use and usually consumed on the weekends. Soluble coffee was most often drunk on weekdays, while canned liquid coffee became increasingly popular for al fresco consumption. With the onset of the 90's, the folks at Matsushita think the coffee-drinking public is ready for something new and different. Enter espresso.

The average Japanese drinks about 800 cups of coffee a year and most of those who take their coffee seriously prefer the more robust flavors of European-made blends as opposed to the weaker brews preferred by the majority of Americans. What better way to satisfy their taste than espresso? Just in case though (in a typical example of the Japanese tendency to cover all the bases), there are make three strengths of capsules: mild, medium, and strong. What's more, the sheer convenience and speed of preparation might translate to making converts out of households where tea is the traditional breakfast-time beverage. It may also help make up for the decrease in instant coffee consumption noted by the All Japan Coffee Association in their 1991 survey, even though it still accounts for approximately half of all the coffee consumed in Japan.

For that matter, the espresso surge has been surfacing elsewhere as well and Nestle could have just as well have taken its cue from Burger King, which started serving up espresso and cappuccino in their Seattle (considered the unofficial coffee capital of North America) establishments last year, a decision that met with such resounding approval from their patrons that Burger King expanded this innovation state-wide.

According to David Boyd, executive vice president of the Boyd Coffee Company out of Portland, Oregon, espresso or espresso-based drinks will account for 50% of all the coffee consumed outside the American home in the years to come. Granted, Boyd does have a vested interest in this prediction: his company supplies the appropriate machinery to restaurants and the food and beverage industry.

It is, however, a prediction that has not fallen on deaf ears. Dean & DeLuca, an exclusive food store in Manhattan, may have been listening when they decided to launch three espresso bars in New York City, and there are plans for more. Kraft, America's largest food company, introduced an instant mocha cappuccino now selling at your friendly local supermarket.

In a joint statement issued by Kazua Toda, director of Mitsushita's Kitchen Appliance division, and Satoshi Okamoto, president of Nespresso K.K., they declared that the two groups "have similar management philosophies regarding customer satisfaction and product quality, and we look forward to working together to advance the market for espresso in Japan." They may not have too long to wait. By all indications, espresso, once the sole province of trendy coffee shops, upscale confectioneries, and fashionable restaurants, is slowly but surely migrating to the express line.

Mauricio Lorence is a freelance writer who specializes in Japanese industries. He resides in Brooklyn, New York.
Market (1991) Market Size
(Growth Rate)
Coffee machines* Y1.4 million
Soluble Coffee Y210 billion
Roasted & Ground Y200 billion
(Up 100/o vs. 1990)
 * Market penetration=40% (Of this, the type
machine represents 1%)
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Title Annotation:Nestle S.A. in agreement with Matsushita Electric Industrial Company Ltd. to distribute and sell Nestle's espresso machines in Japan
Author:Lorence, Mauricio
Publication:Tea & Coffee Trade Journal
Date:Oct 1, 1992
Previous Article:Philippines' coffee production to be rehabilitated.
Next Article:Swiss decaffeinator handles both tea & coffee.

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