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Competing with starbucks- beat them or join them?

October 17, 2006

Two of the world’s beverage giants; Coca-Cola and Nestle, appear to be adopting very different strategies when it comes to tackling the threat from the company they never saw coming, Starbucks.

Coca-Cola is jumping in at the deep end and entering the gourmet coffee business itself. In September, Coke opened its first Far Coast concept store in Toronto, this has been followed with other stores in Oslo and Singapore.

Interestingly, Coke’s idea is to service other retailers, providing them the equipment and the products, but has no intention of building a global chain itself.

If the global tests prove successful, Coca-Cola could launch Far Coast in the US within the next 12 months.

Nestle’s approach to battling the Seattle giant has been different. They have been taking them on in the home with their Nespresso machines. This venture appears to have been a success with the company recently announcing plans to open a new production and distribution center for Nespresso in Switzerland by 2008.

Nestle’s goal is to turn Nespresso into a $2 billion company by 2010.

Coca-Cola has for a long time been searching for a canned or bottled beverage to take on Starbucks. Its had lots of success with coffee in Japan, but has failed to translate this into other markets. The company recently launched Blak in the US, in another attempt to gain a foothold.

The strategy with Far Coast seems to be less of a head on assault against Starbucks and more of a desire to generate some incremental revenue from a growing beverage category. In addition, there are clearly some potential synergies to be gained for Coke if they have a coffee line to sell into the fast-food chains.

Nestle built its Nescafe brand by giving consumers and easier (instant) way to make coffee. Nespresso shows the company is sticking to its strengths, but also making them relevant to a new generation of coffee drinkers who are demanding higher quality product.
As anyone who has faced a 10-15 minute wait to pick up their daily fix from Starbucks knows, Nestle could be onto something if they can get the same level of quality to consumers, delivered in a more convenient manner.

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