Ethical Coffee aims for 50% of Nespresso capsule market

Ethical Coffee Co is aiming for a 50% market share of the capsules which fit into Nestle's Nespresso machines, defying the food group's determination to be the only one to sell coffee pods for its fast-growing brewing system.

Nestle's premium portioned coffee brand Nespresso has enjoyed double-digit growth for its machine and capsule sales in recent years, but has recently had to fend off multiplying competitors that want their slice of the profitable business.

"We want to take over 50% of the market for coffee capsules that fit into Nespresso machines," said Jean-Paul Gaillard, a former Nespresso executive who founded ECC in 2008, at a media briefing on Wednesday.

"The market for Nespresso-compatible coffee pods is going to grow," he said, adding people were likely to brew more coffee in their Nespresso machines if capsules were more affordable.

ECC will launch its biodegradable coffee pods in Austria and Germany over the next few days and in Britain, Italy and Scandinavia in about two months, Gaillard said.

"The figure (of 50% market share) looks ambitious given Nestle's use of legal means to bar sales and its capacity of some 12 billion capsules," Kepler Capital Markets analyst Jon Cox said, adding the single-serve coffee market was growing above 20 percent annually.

ECC, which first launched its coffee pods in France where 9,600 Casino supermarkets sell them at a 20 to 25% discount to the original Nespresso capsules, has a production capacity of about 1 billion units per year.

"But we are going to open a second factory soon that is going to add about 2 billion capsules per year," Gaillard said.

Nestle and Nespresso have taken legal action in France against ECC and U.S. food group Sara Lee and have obtained a temporary sales ban on ECC's capsules in Switzerland, just days after their launch.

Nestle made a similar move after Swiss supermarket chain Denner started selling its own Nespresso-compatible capsules but Denner has since struck back and is now allowed to sell its products awaiting a court ruling.

Gaillard said Nestle was depriving consumers of their right of free choice. "Consumers want our products. Media Market Zurich sold over 50,000 capsules in only three days last week."

(Published by Reuters - October 5, 2011)