Nespresso agrees to break down barriers to coffee rivals

(Reuters) – Nestle’s Nespresso
capsule coffee business has bowed to pressure from French
competition authorities and agreed to make it easier for
competitors, even outside of France, to produce coffee pods
compatible with its machines.

Nespresso, which reported underlying sales growth of more
than 20 percent in 2010 and 2011 but has not published full
results in the past two years, is now facing increasing
competition from rivals offering cheaper capsules for Nespresso
machines and has sued several it considered to have infringed
its patents.

The company made specific commitments in April to lift
technical, legal and commercial barriers to competitors, but
Thursday’s agreement with the French competition authority
(AdlC) includes even stricter terms, the watchdog said.

Nespresso has undertaken to provide competitors with
information on any future technical changes to its machines and
abstain from discouraging consumers against using other brands.

Notably, the warranty of its machines will still be valid
even if consumers use non-Nespresso pods, the regulator said.

Nespresso will work with an independent third party to
provide information to current or potential manufacturers of
capsules that claim compatibility, even if they are doing
business outside France, company spokeswoman Diane Duperret said
in an emailed statement.

The AdlC initiated proceedings after complaints lodged by DE
Master Blenders and the Ethical Coffee Company, which
both make Nespresso-compatible capsules.

Kepler Cheuvreux analyst Jon Cox said the watchdog’s success
with Nespresso is part of the dismantling of the legal barrier
to entry to what had been a fast-growing and attractive market
for Nestle over the past decade.

“It is still a fast-growing market but Nestle is growing at
a slower rate because competitors are coming in and taking
share,” he said, adding that he estimated Nespresso’s operating
margin at 25 percent this year.

Nespresso Chief Executive Jean-Marc Duvoisin said in a media
interview last week that the company would meet its target to
increase sales by 500 million Swiss francs this year. He said it
had reached annual turnover of more than 4.25 billion Swiss
francs ($4.59 billion).
(1 US dollar = 0.9262 Swiss franc)
(Reporting by Silke Koltrowitz; Editing by David Goodman)