PORTER'S FIVE FORCES ANALYSIS: NESPRESSO & MALONGO

We’re going to deal with the following sections as an analysis of the competitive environment of portion-coffee through Porter’s five-force analysis for both famous coffee brands that are Nespresso and Malongo.

First, there is the threat of substitutes that is always pending above any product. Indeed, substitutes of portion-coffee are the following: filter coffee, 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 as roasted grain beverages. Portion-coffee is the most expensive system. Costs are high due to the sophisticated machine and capsules.

Switching costs to a substitute product are low. In terms of price, consumers have a propensity to switch to substitute. Nevertheless, portion coffee has a high-perceived product differentiation, which prevents substitution. Portion-coffee systems focus on coffee lovers who are willing to pay the difference in price, in order to enjoy high quality coffee. As portion-coffee sales keep growing at impressive rates, it seems that portion coffee buyers are not price sensitive and do not show propensity to substitutes over other products and hence substitute products do not impose a high threat to the industry.

Secondly, there is the obvious competitive rivalry with any industry. Competitive intensity of the market is strong because of the many multinational that manage the market and who have a couple of coffee brands each one. Furthermore, Nespresso did have a patent for his capsules. But now, different companies have the right to manufacture capsules. Nespresso has not the monopoly on the portion capsules market now, and the rivalry is constantly increasing between the giants of the coffee market. Therefore, even though Malongo is a french based company there are now free to produce their own capsules and provide the entire french market and be a threat for Nespresso.

Thirdly, there is the bargaining power of the buyers. Buyers have no bargaining power with brands that manufacture and/or distribute this portioned coffee. These are brands that are mostly multinational companies leading dance on the market and impose their choice distributors and consumers. For example, Nespresso chooses not to distribute its products in popular point of distribution. When you want to buy some portions you have to go to the nearest concept store, and we know that if you don’t live in a big city it is impossible to find, or you have to order by Internet. But, even if it is not the easy way for consumers to buy, sales continue to increase. Malongo and Nespresso seem to share this exclusive in-store experience only which in someways protects them from having buyers have a say about it elsewhere. There are only Nespresso or Malongo's rules that are pending and that's all!

Finally, when it comes to the bargaining power of suppliers, Nespresso has nothing to fear because they are the only one behind the production of their capsules. The only thing that can seem problematic are the supplier of primary materials needed for their capsules such as Aluminium and Coffee beans price. The threat for substitute of new entrants is quite low when it comes to Nespresso because they are so improved in their field of application that it is hard for their regular competitors to threaten them. New entrants that are often weaker have no chance of competing with the coffee giant Nespresso. Malongo on the other hand seems to have less larger structures to benefit from. Therefore, Malongo is more likely to be the subject of direct threats or bargaining from its producers or suppliers.

Chouaib El Khaoudi

Sources:

http://faculty.insead.edu/adner/Final%20Projects%20May%20June%2005/Nespresso.pdf