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Nescafe's early-bird advantage

Nestle's marquee brand has maintained its leadership in the instant coffee market even in its 50th year in India

Sounak Mitra  |  New Delhi 

“The coffee with life in it. Made in just 5 seconds”. That’s how announced its entry into India, in 1963. Before the ad campaign hit bill-boards across the country, Indian coffee lovers were stuck with the idea that coffee is something that takes minute attention to prepare and cannot be instant.

changed that thinking forever — as it did elsewhere in the world much earlier in 1938 — which is evident from the fact that more than 4,600 cups of Nescafe, the world’s first commercial instant coffee, are being consumed every second.

Year 2013 is an important milestone for in India as it completes 50 years in a country which took time to warm up to the idea of instant coffee.

THE TIMELINE
  • Nestlé invented Nescafé in 1938
     
  • 5th most valuable food & beverages brand in the world
     
  • 53% of sales from emerging markets with 15%+ growth
     
  • 27 factories, 55% in emerging markets, 3 coffee R&D centres
     
  • Launched in India - 1963

Development of Nescafe
In 1930, Brazil had a huge surplus of coffee that needed to be preserved. But there was no way out. The then Brazilan government ended up approaching Vervey-based food company to find a way out. There was no instant solution. Eight years later – in 1938 — came up with an instant product mix – — that became the second most recognised brand in the world only after

Interestingly, processing instant coffee was not a new idea. In 1901, it was actually invented by Satori Kato, a Japanese scientist working in Chicago. Though a handful of companies tried to market it, they could not make it a success.

Max Morgenthaler, a coffee specialist working with Nestlé during the 1930s, developed a new process for dehydrating the concentrated coffee that entails spraying a fine mist of the solution into a heated tower where the droplets turned to powder almost instantly, keeping the original flavour of the coffee. And the result of a seven-year research — Nescafe — became an instant hit among consumers, as they could have it by just adding hot water.

The World War-II also played a role. Nescafe could not secure its popularity instantly in Europe. In the mid 1940s, Nestle started exporting to France, Great Britain, and the US. Surprisingly, American forces played the key role for the success of Nescafe, making it a staple in their food rations.

Still, instant coffee accounts for just about 25 per cent of the global coffee market.

Next is more in India
The coffee retail market in India is growing at 20-30 per cent year on year and is expected to treble by 2016-17, according to Sunil Choudhury, senior consultant, Technova India, a consulting firm. “More than 50 per cent of the Indian coffee market is instant coffee that is dominated by Nescafe, a product which is sold as 100 per cent coffee,” he adds.

The growth of instant coffee has also been fuelled by modern retail that ensures availability and options to the consumers. “With FDI being allowed in retail, this would further expand in the next four to five years. Even smaller cities would have the options available with more retailers opening shops there,” Choudhury says.

Coffee consumption in India grew by three per cent, a growth rate more than the global average, to 1.76 million bags (106,000 tonnes) in 2011 as compared to 2010, according to the International Coffee Organisation (ICO). The country consumed 1.71 million bags of 60 kg each.

The consumption of the brew in India, the world's sixth biggest exporter, has grown at a compound annual growth rate of 5.7 per cent during 2001-2011, according to ICO data. According to a recent study by consulting firm Technopak, there are about 1800 operating coffee outlets across the top 60 cities in India, which could easily absorb about 2,000-2,200 more shops.

By 2015, Nestle hopes to double the amount of Nescafe coffee bought directly from farmers and their associations, purchasing 180,000 tonnes of coffee from around 170,000 famers

The challenges
“Nestle had the early-mover advantage with Nescafe and over the years, it has become a household name in India. However, the real market for instant coffee is rural India which is still untapped. Thus, a huge scope is still left,” says brand consultant Harish Bijoor. The café culture has already made inroads into urban India, so people will tend to experiment with variants of coffee, and could tend to shift to filter coffee, as availability would not be a concern in these markets, unlike rural markets where distribution is still a challenge, Bijoor adds.

And then there is huge competition. The main challenge for Nescafe in India is Hindustan Unilever’s Bru, which has also been selling in small sachets and packs to woo customers. Bru, which has in fact been giving Nescafe a run for its money, is banking on an old mantra – straddling the pyramid. In simpler parlance, offering a product at each price point. And Bru is fighting Nescafe everywhere. So when Nescafe roped in Bollywood actor Deepika Padukone, Bru brought in its own brand ambassadors, Shahid Kapoor and Priyanka Chopra.

But industry experts say both can co-exist for some time because of the low-level of penetration of the drink. Compared to tea penetration at 96 per cent, coffee penetration is as low as 16 per cent.

First Published: Mon, January 07 2013. 00:45 IST
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