➡ Nespresso is challenging Keurig’s dominance in the U.S. single-serve coffee market, growing rapidly from revenues of $300 million in 2013 to an estimated $1.5 billion in 2022. Despite Keurig’s sizable U.S. market share, Nespresso’s direct-to-consumer business strategy and commitment to improving the consumer experience has enabled it to carve out a profitable segment in the market.
➡ Keurig, a pod brewing system popular in the U.S., saw a significant growth in sales between 2010 and 2014 tripling to over $4 billion, potentially due to the recession-induced trend of homemade coffee. Despite recent sales steadying around $4.5 billion, the company’s profitability lies in the continual selling of coffee pods rather than the machines themselves, providing an effective lifelong subscription for customers.
➡ Nespresso targeted the American market, introducing machines that make larger cups of premium coffee and partnering with celebrities for promotions. The US became Nespresso’s biggest market, with market share growing circa 5-6% to 8-10% over the last decade. In 2018, Nestle (Nespresso’s parent company) acquired rights to sell Starbucks products worldwide, which, alongside their Nespresso compatible Kueurig strategy, led to Nestle becoming the largest retail coffee player in the US. The focus isn’t on the machines, but the profitable consumption of coffee pods.

Have y’all heard of nespresso? I know y’all heard of keurig, but nespresso is a company that is trying to compete with keurig and take over keurig in the United States of America. Make sure y’all hit a like for the algorithm. Subscribe to the channel and turn on your notifications. Let’s go through this. Ladies and gentlemen, americans drink an estimated 440,000,000 cups of coffee every day, and the way we drink them has changed a lot over the past decade.

In 2011, only 7% of americans had single serve brewing system in their homes. By 2020, that number reached 40%. Keurig, dr. Pepper and nestle are the two companies responsible for this growing trend. Nestle invented the coffee pod concept with nespresso, and they have the largest market share in the world with nespresso. But in the US. Effectively, the key system is the kcup system that is owned by keurig.

Keurig’s us. Coffee sales surpassed $4. 3 billion in 2022. While nespresso doesn’t break out its US. Numbers from global sales, it’s estimated that they reached $1. 5 billion domestically for that same year. That’s up from just 300 million in 2013. Wait, let me back that up for a minute. That’s a heck of a growth spurt. Estimated to be up from 300 million to 1. 53. That’s a 500% growth rate.

That’s a 500% growth rate from 300 million estimated to an estimated 1. 5 billion. And they’re already encroaching on the $4. 3 billion that keurig made in 2022. That’s crazy. $5 billion domestically for that same year. That’s up from just 300 million in 2013. Nespresso really started as a startup within the big nestler world. You couldn’t replicate espresso at a touch of a button. You had to have certain skill set, you had to have a very, very expensive machine to do it.

And really, for the first ten years, it really was about starting to replicate that experience, to gain penetration, to gain consumer knowledge about this. But soon after, single serve became an extremely successful category worldwide. How much are the pods? Maybe they’re going to say it inside of this video. How much are the pods for nespresso? Because a lot of what they’re doing is they’re taking a concept. And this is one of the things that a lot of the very smart entrepreneurs do or a lot of the innovators do.

It’s the same thing that amazon did. They took an industry and they seen where an opportunity was, and then they disrupted it, right? You look at something that’s already being done, and a lot of business owners is really not taking advantage of this because so many different people are trying to be inventors. You do not have to be an inventor. Let me tell you something. The first business that I’ve ever sold, and I made a lot of money from it.

The first business that I sold, I took a product online that everybody was already starting to get into and I recreated it. And I used my UXUI background and my software engineering background in order to take a product that I thought could be done better and given to the consumer a better product. We made a lot of money off of Google AdSense at that particular time because we was running ads on the site and we were building relationships with different labels that then allow for us to be able to put certain music up once I seen the exit door to exit strategy because there was a lot of large record labels that were starting to come in in order to encroach on the business itself.

I believe that Drake had dropped the mixtape back then. And one of the mixtapes that he dropped was originally it was a mixtape and then they turned it into the album. If you see in this is too late. If you see this is too late. By that time, we had already started exiting the business and we sold the platform over into somebody that then converted it over into their platform.

And then they changed the name and made her sign a nondisclosure agreement about it. But the first business that we sold, we basically took what it was that everybody else was already doing and we reinvented it. We started having a crazy growth rate. We started making noise in the industry and then we got bought out. You don’t always have to come up with a new solution or a new invention.

All you have to do is look at the trends, look at what’s going on in the industry, and then make the adjustment, right? Create something or do something based off of the possibilities or the prospects of what’s in that industry. What’s the growth prospects? What is it projected to be at a certain amount of time, right? How can I then get my little piece in there? And then you just come in and you don’t have to reinvent the wheel, but you just give them a better experience.

All you have to do is give a better experience. That’s it. Give a much better experience, and then it’s going to be a profitable segment. All you got to do is fulfill a need or provide a service that’s better than the ones that already got out there. They don’t have to notice you. And either the competition is going to try to crush you or buy you out. And as you continue to do it, and if you’re nimble enough, and if you’re, um, you minimize costs and you continue to focus on growth, the goal could be to buy out or to go continue to be profitability based off of keeping expenses low and to continue to keep the profits within a company.

But that’s basically what you do, is that you disrupt an industry by providing a better product and not reinventing the wheel. They already created the market for it. Which company is spending its time thinking in an unfussy way, how can I meet the needs of the US consumer. How do I make it something that’s approachable and easy to use? Analysts say that Keurig will likely remain the dominant player in the US coffee pot market.

But nespresso is finally catching up. They’re not trying to beat keurig. They’re trying to carve out their part of the market, which is very valuable part of the market because it is a value added portion which consumers will spend more money but they’re not really trying to dethrone. Curry espresso entered the market in 1986. It was the world’s first single serve coffee system. The targeting was wrong. It was a fish coffee.

The capsule was wrong way too. I don’t even know what he’s saying. To make something like 20% defect rate 25% was just a disaster. People thought that. Listen, I know that you all say that this is like the language of love. What is he speaking? What is his accent? Italian or French? Have you all ever seen that cartoon with the skunk that was always chasing a girl and he thought that she was a skunk? I think he thought that she was a skunk.

He was a skunk. And he used to talk like I don’t even be knowing anything that these people be saying sometimes, but it’d be making sense because as long as they talking money, I’m going to start to decipher. It was the philosophy of the United States of America. It was interesting mock it back then because it was something that was uncurated and we wanted to make sure that yeah, pepe le pew.

Shout out to pepe le pew. I love my audience. Peppy le pew. Peppy le pew used to talk like that. Shout out to the peppy le pews out here selling Nespressos. The thing is going to die by itself. Let’s not worry about it. Galliad stepped in as nestle’s nespresso CEO in 1988. Under his leadership, he says the coffee maker lowered the cost of its capsules by reducing the aluminum content and introduced the direct to consumer sales system called the Nespresso club.

The thinking was that, okay, the thing is going to go bankrupt. Let’s make it a small disaster on this small area, tiny area of Switzerland. We did show that the thing was a real business proposition. It was making money and at very surprising rates. He says the company translation, they was going out of business because they didn’t know how to run it more efficiently than they was. But it was a business proposition.

And so we went in there and we swooped it up and we took it over and we made sure that we made it profitable. He scaled from there first to the rest of Switzerland and then internationally. Its adoption in the US. However, was a slow burn. Three years market. A market that broke even after three years in your tree and started to generate money from your tree. They don’t say three, they say you should make money for onwards.

The US was more like a seven years market. Just as espresso started to generate profits in the US, keurig delivered its first single cup system for office use in 1998. It wasn’t until 2003 that Keurig launched its first home coffee brewer. At this time, Keurig only made drip coffees and Nespresso only made yep, you guessed it, espresso. Well, Nespresso has always been a very minority pod system in the United States.

If you look interesting globally, right. Keurig has almost no presence outside of North America. So the US is a very anomalous market overall. Because of that, Keurig surpassed $1 billion in US sales by 2010. Between 2010 and 2014, the Massachusetts brand more than tripled its annual sales in the US. I wonder if part of that growth let me go back to this graph. I wonder if part of this growth also had to do with timing, right? Because if you look at it, Keurig look at that.

Look at this, right? Keurig actually looks like it’s launch or the timing that this graph is showing that they’re starting to take off with that half a billion dollars in sales is what, top of the recession, when people start cutting costs, right? And they start marketing this and you can actually save a lot more money by just buying it and making it at home yourself. But it’s much easier because you ain’t got to do the same way as they brewed it.

Back in the day, they did a half a billion in sales in 2008. By 2010, it was 1. 3. Now in 2014, over in 2014. And you can see it trying to taper off, right? So in 2014, which is six years later, they were at 4. 1. But in 2022, they’re still at 4. 5. 2014, they did 4. 1 billion in sales. 2022, they did 4. 5 billion in sales.

Let’s continue. Between 2010 and 2014, the Massachusetts brand more than tripled its annual sales in the US. How does it brew such great coffee? Well, inside the brewer are these greenfield. Look at that grown woman you were talking about, the inflection point. We tipped over and became just a sensation that everybody was talking about and a gift that everybody wanted to get during the holidays. And then as we did that, it just snowballed.

During those four years, annual coffee consumption increased by two gallons per person. Honestly, people was stressed the heck out. But here’s the thing. This is the real business proposition. And I don’t think that Nespresso or Keurig is really big on the actual machines themselves. I think that their goal is to sell pods. That’s what a profitability is, is to sell the pods. Throw some 20 cent coffee over into or even cheaper than that, throw some 20 cent coffee, some 15, 10% coffee, because when you start to do it at scale, it gets way more profitable than that.

And hook people into the process. The machine look here’s the thing about business. This is my own personal opinion. I know a lot of people have their own opinions about a lot of things, right? The money is not in the one hits. The money is in the continuous. If you get a customer and I’ve always been taught this. One of my best mentors taught me this. He said, Anton, really do the math of what it costs to acquire a customer for a specific business.

That’s what you know your true cost is. And so that’s the thing that we used to pitch when we used to use our development, know, our web development company, when we would talk to whatever it is or whoever it is that wanted to develop an application, right? And we can say, well, you can create the best application in the world, but if anybody don’t nobody know about it, then what’s the point of spending all of this money and doing it right? So we want to fill a niche, and then we want to, along with that, put the marketing strategy together.

So when you’re coming up with a product, you also need to come up with the marketing strategy. But then, as we were developing a marketing strategy for a lot of people, it always used to beat me in the head from my mentor. And you say, Anton, what’s the true cost of acquiring a customer? Well, the true cost of acquiring a customer is an actual number. And so whatever your marketing strategy is, which Elon Musk does this perfectly because he doesn’t even have a marketing department anymore.

He just got Twitter, right? He can really say that Twitter. And the cost of being able to acquire Twitter and how he’s using it is a true marketing strategy, right? And so the true cost of acquiring a customer, right? Let’s say you run an ad let’s say you run an ad inside of the App Store, inside of the Apple App Store, right? And for every person that click on that ad, it costs you this amount of money.

And then you got to take into consideration how long they hold on to that application and how often they use it and whether or not they’re going to actually spend money within the application. Or let’s say, for example, you run an ad or you run a promotion, hey, I’m going to give you 30 days to try out this product, and then you can cancel it after 30 days or whatever, so on and so forth.

What’s the true cost of acquiring a customer, right? Because I don’t think that the true goal for Keurig or Nespresso is only in purchasing the machines, because that’s already a mature market. That’s why you see that previous graph where it says, let me see if I can go back to it. $4. 1 billion in sales in 2014. Nine years later, eight years later, in 2022, 2023, it’s still $4.

5 billion in sales. But here’s the key. How do you drive the cost out? Increase profitability. Because it’s not just about sales. Sales is just a number that shows the health of a company and their ability to be able to market a product out to the customer. The true profitability of a company is driving out the cost. So how can we keep them invested or truly participating in what it is, the product that we put together while also continuing to become even more profitable by driving a cost out? I’ll give you an example of a company that does it really bad.

Peloton. Remember when we was live streaming during the Pandemic, and I was telling y’all, some of y’all is still around from then and stuff like that. Some of y’all is the early morning show people, because we talk about money all the time. We’ve been talking about money for a long time. And during the Pandemic, I say, y’all, Peloton is a bad move. Get the heck out of Peloton.

And I don’t usually give financial advice, but I’m just going to tell you what I’m doing. I made a lot of money from the Pandemic, peloton, Zoom, all of those companies, but get the heck up out of there. Why? Because their business model, in my opinion, was bad. A, they never made any profitability from manufacturing the bikes themselves, which means that their total cost of acquiring a customer was high.

And then when you seen the sentiment of the customer, they were saying, we just want the bike, we don’t want the subscription service. Peloton was largely dependent on the same business model as Keurig in that A, you have to really have the pods in order for the Keurig to work. So when you then sell them to Keurig, you’re not selling them to Keurig, you’re selling them a lifetime of pods.

That’s why Nespresso wants to encroach upon Keurig’s business. It’s not just based off of the machines that they manufacturing. It’s not it’s based off of the fact that you have to buy the pods in order to use the machine effectively, which is a lifetime subscription for the customer. But when you seen Peloton, the first thing that came to my mind and how it is that I look at whether or not I’m going to invest in a company, was, hey, people want the bike, but they don’t necessarily want the subscription services.

And not only do they not want the subscription services, apple with their Apple Fitness Plus and all of these different things, and the Apple Watch was blowing up and stuff, people already had their ability to be able to service themselves when it came to whatever their workout was. So why would they then subscribe to the Peloton fitness or the classes? They were spending all of this money in order to go and get all of these coaches, and it was popping.

And they had a boost during the Pandemic, which then inspired a bunch of investors to inflate the stock price. And that’s the time that we all got out. And then we left them holding the bag and then Peloton fell off a f and cliff. But my point is, when you’re looking at a lot of these companies, you want to evaluate how they’re long term prospects and how they’re going to make money long term.

That’s why a lot of times you also want to look at these investor calls and hear these CEOs and these people and the CTOs and the CFOs speak to the business prospects of the company and whether they’re a growth stock or a growth company or whether they’re already profitable. What part of the business are they profitable on, and what part of the business are they losing money on? Because I suspect that the business model for most companies is based in the idea that they want to have a customer for life, not just get a one time hit.

Because then that’s when you’re going to find yourself at the bad end of the stick. Let me see if I can fast forward a little bit by two gallons per person. Honestly or peloton. My bad. Not peloton, Marcus. Peloton. Quite high quality coffee for sure, but not necessarily what the average Americans were looking at. That all changed in 2014 when Nespresso introduced its virtual line of machines. We were, I would say, limited to premium espresso coffees.

And now we are launching this new technology which will be able to deliver a large cup, a very premium coffee, large cup. And we know that coffee lovers in US. What they want is a long cup. The launch of the virtuo system coincided with Americans drinking less drip coffee and more single serve. George Clooney had been the face of Nespresso internationally since 2006. But in 2015, he became the brand’s global ambassador and helped introduce virtuo to American and Canadian consumers.

What’s that? Nespresso. Is that coffee? Yeah. In 2020. The US. Became Nespresso’s largest market. The market share of Nespresso in the US. Is about probably, let’s say eight to 10%. It grew from, let’s say five to 6%, maybe 510 years ago. In 2018, Nespresso’s parent company, nestle, purchased perpetual rights to sell and market Starbucks products at retail worldwide. In 2022, Nestle’s sale of Starbucks products crossed $4 billion.

Decade ago, Nestle was the biggest coffee company at retail in every region in the world except one. And that one was North America. Historically, Nescafe was not that big here, whereas it’s huge everywhere else. Globally, Nespresso had only a very small presence and still does ways. And what changed was Nestle bought the rights to Starbucks products at retail. So Nestle went from a relatively small player in retail coffee United States to the biggest player.

That deal was a sea of change for the Nestle strategy into retail for Nespresso compatible Keurig. Green Mountain merged with Dr. Pepper Snapple Group to become Keurig Dr. Pepper in 2018. KDP announced a long term partnership with Nestle in 2020 to continue selling Starbucks branded pods. It’s the pods. It’s the pods that’s the play. Listen, Nestle did not buy and they did not merge. And they say merge, but in reality, everybody got stock options in a company and then they continue to get rich as a result of it or whatever.

And so the play from the companies and the value that they seen in Keurig had nothing to do with the machines. It had everything to do with being able to manufacture the pods. It was leveraging their already built out infrastructure and their plants in order to continue to pump out pods based off of the drinking habits and the consumers that were already built out from this market. The goal wasn’t to purchase them or merge with them based off of the machines.

The machines are the novelty. The pods is the thing that keep you spending where the profitability is. I would be very interested to find out exactly what they make per pot. See, look, I didn’t already sold an espresso machine. I want an espresso machine. Y’all see her in the chat? Y’all see her in the chat. I already want Nespresso. So they could be getting pods and you all can have your little friends over.

Girl, look at this new apartment that we got all over looking over the water. And you all put your little pods going in. Come on, man, I don’t even drink coffee and we wind up getting a bunch of Keurigs just so I can put some hot chocolate in. .