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Nespresso: Porter’s five forces of the portion-coffee market

Portion-coffee is defined as single cup coffee systems, offering individual portions of freshly ground coffee.Portion-coffee systems come in several coffee machines systems like, filter, automatic, pads or capsules[i]. In this segment, Nespresso offers hermetically sealed and colored capsulescontaining a wide range of tastes. The portion-coffee market could be of great interest for investors, as this market grew by 44% between 2006 and 2007[ii] (see Appendix XX) and has been growingconstantly since then. In 2009, Nespresso held 20% of the espresso & filter portioned coffee machines[iii] market, and its sales grew 30%[iv] annually over the past 8 years[v]. The portioncoffee market is one of the fastest-growing segments of the coffee market. Pods represented, 20 to 40% of the value of ground coffee sales in the $17 billion European coffee market[vi] in2010. Moreover, the portion-coffee market is expected to triple to $15 billion by 2012[vii].

The following sections will analyze the competitive environment of portion-coffee through thefive-force analysis. Conclusions are made on the global investment interest of the portion coffee market.

Threat of substitutes
Substitutes of portion-coffee are the following: filtercoffee, instant coffee and traditional espresso. Additionally, substitutes of coffee, in general, are also other hot drinks such as tea or non-caffeine products that imitate coffee such asroasted grain beverages.[viii]

Portion-coffee is the most expensive system. Costs are high due to the sophisticated machine and capsules. As an example, Nespresso costs about 90 CHF/Kilo[ix](0.50 CHF per capsule), Nescafe instant coffee between 45 and 75 CHF/kilo and a standard molded coffee between 10 and 20 CHF/kilo[x].

Switching costs to a substitute product are low (
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