Understanding

Marketing
Strategy of
Nescafe
Marketing Study
This document states our understanding regarding marketing strategy for
Nescafe (the world's favourite instant coffee brand) in India. This report
documents our findings regarding various aspects including Nescafes
marketing strategy, Marketing Environment and competition in the industry.

By GMP 2014-15
(G14007) Amit Bharadwaj
(G14032) P. Soumen
(G14038) Radheshyam Patil
(G14041) Ranadip Chandra

Marketing Strategy for Nescafe

Table of Contents
1.

Introduction to Product and Competition.........................................................2

2.

Category Analysis............................................................................................ 2
2.1.

Aggregate Market Factors.........................................................................2

2.1.1.

Market Size......................................................................................... 2

2.1.2.

Growth................................................................................................ 3

2.1.3.

Seasonality......................................................................................... 3

2.1.4.

Profits.................................................................................................. 3

2.2.

Macro Environment Factors.......................................................................3

2.2.1.

Technological...................................................................................... 3

2.2.2.

Political............................................................................................... 4

2.2.3.

Economic............................................................................................ 4

2.2.4.

Social.................................................................................................. 4

2.2.5.

Legal................................................................................................... 5

2.3.

Micro Environment Analysis......................................................................5

2.3.1.

Competitor Analysis............................................................................5

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1. Introduction to Product and Competition

Nescafe is a brand of instant coffee owned by Nestle. The name is a combination of the
words "Nestle" and "cafe", in which Nes- means magic and -cafe means coffee. Nestle's
flagship powdered coffee product was introduced in Switzerland on April 1, 1938 after being
developed for 7-8 years by Max Rudolf Morgenthaler, a Swiss food chemist considered to be
inventor of Nescafe. In the United States, the Nescafe name was used on its products until the
1960s.
Nestle has association with India for over 100 years. The Moga manufacturing and packaging
facility in Punjab is dedicated specifically for the production of instant coffee by Nestle.
Coffee Board of India awarded Nestle as leading exporter of Coffee from India in 2012-13.
Nestle follows a region specific marketing strategy, housing different brands of instant coffee
under the umbrella brand Nescafe.
With already established brands, the competition in coffee market is stiff. The other major
players in this segment are Tata Coffee and BRU. Nescafe is the leader with about three
fourths share, with Hindustan Unilever's Bru at second slot.

2. Category Analysis
2.1. Aggregate Market Factors
2.1.1.Market Size

Coffee is worth over $100 billion worldwide. The world consumption of soluble coffee is
rising relatively strongly after a number of years of stagnation, expanding from 21.4 million
bags (green bean equivalent) in 1999 to 81.12 million bags in 2013. According to the
International Coffee Organization statistics of year 2013, India is the fifth largest coffee
producer in the world. Karnataka alone is responsible for producing 70% of the total coffee
output of the country. India is responsible for producing only a 4% share of world coffee
output and the industry directly provides employment to about 6 lakh people.
Indias coffee plantation industry has grown to a production level of about 275,000 tonnes of
coffee beans. In the past, India has been exporting most of its production of coffee beans.
However, currently domestic consumption is on the rise. Now, more than a quarter of the
coffee beans are used for domestic processing and consumption. Furthermore, volume of
sales has increased by about 30% in the last 5 years. Apart from establishing numerous
manufacturing units the company has also gone a step ahead and installed numerous coffee
machines in various public places. The company has a record of selling almost 700mn cups
of hot and cold coffee per day.

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2.1.2.

Growth

Consumption growth in many Asian countries has been driven primarily by demand for
Robusta coffee, which is used in soluble coffee and ready-to-drink products such as 3-in-1
mixes (coffee with whitener and sweetener) or 4-in-1 preparations (coffee with whitener,
sugar and flavourings or dietary additions). In India, Nestle continues to lead coffee with a
value share of 38% in 2013, mainly due to its long-established presence in instant coffee.
Nestles brands including Nescafe Classic and Nescafe Sunrise enjoy huge popularity
amongst consumers.
The Nescafe enjoys countrywide distribution and widespread presence in all retail formats.
Company sells small single sachets of instant coffee at affordable price at Rs 2-5. Sachets are
quite popular amongst consumers in rural areas and tier three cities, as well as with
consumers who only consume coffee occasionally.
Over last 5 years, Nescafes market share in India has stagnated or moderately reduced by
about a per cent annually due to entry of coffee chains such as Caf Coffee Day, Barista, and
Starbucks. Furthermore, the HULs Bru, Nescafes major competitor in domestic markets
have managed to penetrate into many semi urban markets of tier-II cities. As per the annual
report of Nestle, India, the coffee business growth was supported by good growth of Nescafe
Classic and Nescafe Sunrise. The re-launch of Nescafe in the new, premium jars and the
focus shift to cups led the growth for the brand.
2.1.3.Seasonality

Normally colder seasons attract more customers towards coffee businesses which in turn
results in better sales, however because of drastic changes in seasons especially because of
global warming, monsoon is getting disturbed and day by day years are getting hotter.
Though we could not see any significant variation of demand in coffee consumption across
India seasonally, the trend of coffee consumption seems to be on the rise over last decade
2.1.4.Profits

Worldwide Nescafe is the largest profit making category with different ranges of coffee
starting from instant coffee to coffee specialties. Instant coffee market in India is a duopoly of
Nestl and HUL for decades. They also differentiate their products through branding. In fact,
instant coffee can be considered as a part of a larger beverage market with numerous
competing products. With trade liberalization, imports have also started trickling in. Thus,
circumstantial evidence regarding degree of competition or the market power in the instant
coffee market is rather mixed one. Despite all these challenges, Nestle is focused on its
efforts towards breakthrough innovations, value chain improvements and impactful
advertisements. Since Nestle India does not breakup its profit figure among different lines of

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business such as Nescafe, Maggi, milk products etc, specific data regarding Nescafe is not
reported.

2.2. Macro Environment Factors

2.2.1.Technological

Fast technological advances at production as well as communication methodology levels are

having much impact on globalized operations for coffee brands. World is getter closer and
fast growing communication technologies making marketing efforts more effective. Most of
the channels such as Facebook, YouTube, Twitter, World Web, Mobility adding extra value to
the marketing strategies of these brands. Nestle is also using all these promising modes to
make customers aware about their brands like Nescafe.
Technologies are a vital part of Nestles R&D. They have engineers working in R&D in a
variety of fields from packaging and equipment, to food processing technologies and
manufacturing new beverage systems such as Nespresso, Nescafe Dolce Gusto and Special.
Foam booster technology produces the creamy head for Nescafe Cappuccino, with less fat,
and which is much denser and longer-lasting than regular foam. Somewhere around 2002,
Nestle re-launched Nescafe Cappuccino with new foaming mix products, which were created
using this foam booster technology.
2.2.2.

Political

In a country like India, any legislation or political situation will have a direct impact on the
performance of any business. Especially during election season, democratic countries might
also experience few incidents of politically motivated attacks on business entities. Also
discussions regarding FDI take various shapes as per the political agendas of the ruling and
opposition parties.
Though huge population, large proportion of the young people, unemployment and
underemployment provides an abundant supply of potential employees, illiteracy acts as main
hurdle on labour productivity in the work force as a whole.
Antiquated laws, unionization of labour and their links with political heavyweights gives rise
to random challenges and hence only way ahead in these situations is to successfully pressure
provincial governments to exempt them from many of these antiquated Laws which
ultimately lead to corruption.
2.2.3.Economic

After 1991, India liberalized trade and economic policies. With continued effort towards
removal of barriers in international trade, the Indian government is successful in enhancing
economic growth and strengthening local industries. As a result of these reforms, India has
emerged as one of the most promising markets in today's global economy. Similarly, these
factors have resulted in significant increases in consumer demand for imports.
Hence looking at the possibility of reaching out to the Indian low income population, Nestle
is coming up with cost effective products and processes while maintaining the same standard.
With reliable supply of high-quality raw materials Nestle brings sustained growth for the
local economy. It also contributes to increase in agricultural production, the socio-economic
status of the farmers, rural communities and in production systems to make them more
environmentally sustainable.
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2.2.4.Social

Because of the diversity, there are lot of parameters which needs to be taken into
consideration while doing business in India. Different region and culture leads to different
behaviour and perspective, hence for Nestle, its very important to note these differences and
avoid any possibility of any conflict between India culture and company culture.
Consumer awareness regarding the health risks due to excessive intake of coffee and its
extensive media coverage may need to be tacked by Nestle for brands like Nescafe. It has
been observed that the consumers are not reacting to these by simply eliminating coffee
intake altogether and they are actually looking for more premium or quality variants, such as
Nescafe.
With growing influence from leading coffee makers, consumers have started to consume
coffee at home, as an alternative to tea. This trend is gaining popularity in almost all regions
of India, where tea was considered as a traditional daily drink. This is a driving force for
Nestles Nescafe.
Hence in country like India where the people are more inclined towards milk products is
profitable market for Nestle. Moreover looking at increasing young population, nestle can
introduce new flavours of its coffee line with added health benefits as well.
2.2.5.Legal

Though India has several laws and regulations (e.g. Prevention of Corruption Act, 1988; The
Code of Criminal Procedures, 1973; The Companies Act, 1956; and The Indian Contract Act,
1872) that address corruption, corruption remains one of the biggest hurdles for foreign
investors while doing business in India.
Moreover, things like unionization of the labour force and that too having good linkage with
political parties or influential politicians may play a spoilsport in path of the business.
For most of the employers, one of the key obstacles is antiquated set of draconian Labour
Laws.
For example:

Companies with employee strength more than 100 must seek government approval
before they can fire workers or close down (and getting such permission is almost
impossible)

Women may not work night shifts.

Hence Nestle shall try at their best to have good compliance with business related laws and at
the same time they should have good understanding and working relationship with labour
force.

2.3. Micro Environment Analysis

2.3.1.Competitor Analysis
2.3.1.1.

Threats of New Entrant

The saturated condition of the coffee industry in India and South Asia is a strong deterrent for
any emerging players to come into the picture. The large players are well established backed
by brawny financial supplements. Though in recent past emerging brands such as Star,
backed by Tata group of India has seized market share from Nescafe and Bru. The brand is
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marketed over the retail outlets of Tata and is the sole supplier of Starbucks coffee shop
chain. The Super group Singapore is eyeing a 100m $ acquisition of major instant coffee
local brands of Indonesia and Philippines and soon to target India and other part of the
subcontinent. Niche players such as Trung Nguyn are to follow suit. The following are few
factors new entrants shall take into consideration and their speculative impacts on Nescafe.

Advantage of efficient production to Incumbents

Since the incumbent brands have achieved minimization of cost through years of
operation, the new entrants will be at a cost disadvantage and will have little surplus
to invest in research whereas brands like Nescafe can produce large volumes at lower
cost.

Incentives and Freebies offered

New entrants will find it difficult to attract the consumers with any incentives or
discount. Nescafe can offer a plethora of other products by Nestle (chocolates and
health drinks) as freebie to attract sales or give discount at bulk purchases. Bru along
with Tata Caf too are part of large conglomerates and have impressive tie ups with
their other in-house products.

Loyalty
Established brands have greater customer loyalty and consumers will find it hard to
switch brands as they are accustomed to the taste of the existing brands hence
emotionally attached to them.

Initial Capital Requirements

The new entrants shall require significant capital for R & D and advertisements and
marketing cost.

Distribution and logistics

The shop owners and retail stores have very limited space to store coffee items and
generally favour the incumbent brands, so it is difficult for new entrants to get
visibility, distribution channels and capture imagination of the people.

Price Wars
The incumbent brands can lower their prices to counter the threats from new brands as
they have significant financial backing and come out as winner in price wars.
Nescafe is a well-established brand and have financial backing. New entrants do not
pose threat to the brand but the expansion plans from other major Asian players in
new markets may challenge Nescafe in the near future.

2.3.1.2.

Bargaining Power of Buyers

The price elasticity of demand of coffee is generally very high. As seen in the industry of
commodity products, the differentiations from competitors are not remarkably significant and
products are replaced if there is any change in the prices.
Nescafe buyers are generally private consumers who are loyal followers of the brand. The
brand enjoys higher bargaining power with buyers compared to its competitors as it has
successfully launched higher price range labels (Premix, Gold and Caramel Macchiato)
with profitability. Nescafe reaches out to consumers through feedback channels and social
media. The brand has taken social outreach initiatives and has increased popularity among
youth through connections in popular websites. The My Nescafe section in their website is
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targeted to build strong relationship with buyers. The brand still holds more than 50% share
in Instant coffee market and growing in R & G coffee market.
Bru also enjoys popularity among sophisticated self-independent and young higher and
middle income demographic who have accepted higher price labels Bru Gold and Bru
Exotica.
Tata Coffee concentrates on sales through their retail outlets and their growing power in the
retail industry adds significant customer channel to the brand.
In recent time health consciousness crusades and campaigns about ill effects of caffeine
intake has diminished the bargaining power. The same has been countered by Nescafe and
Bru by significant investments in advertisements and awareness about health benefits of
coffee.
2.3.1.3.

Bargaining Power of Suppliers

Farmers are the basic suppliers for Nescafe, India. Nestle hold more bargaining power than
its suppliers. The suppliers are not having adequate fund and are not in position to raise the
prices. Nescafe prefer to have long term relationship with its suppliers, which ensures quality
of its coffee. Nestl supports farmers in conducting assessments and obtaining certification
from the Common Code for the Coffee Community (4C Association). Nestle established
three 4C units at Kushalnagar, Kalpetta and Mudigere in 2012. Nescafe provides training on
better farming practices, soil testing / recommendations and also medical check-up facilities.
Nescafe offers advices to its suppliers on how to reduce cost and perform effectively. Nescafe
involves themselves in the lives of suppliers through trade fair or help their technical issues.
The Coffee Board of India which is involved in research, development, extension, quality
checks, market information and the domestic and external promotion of coffee from India is
supported by Nestle.
2.3.1.4.

Pressure from Substitutes

The biggest pressure for Nescafe substitute in India is Tea. Tea is preferred over Coffee in
most of regions of India. Going beyond the scope of hot beverages, Coffee finds stiff pressure
from soft drinks. Most portion of India lies near equator and temperature is on higher side,
this regional attribute leads to the preference of cold soft drink. Nescafe Coffee faces pressure
from substitutes such as pasteurized drinking yogurt, beer, sterilized milk, alcoholic drink,
soya milk, fruit juices, etc.

Hot Beverage Market Segmentation

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2.3.1.5.

Current Rivalry in Category

ET Brand Equity survey 2013: Nescafe amongst the Top 5 brands in Hot Beverages and in
the top 100 most trusted brands. The rivalry in coffee is stiff, which already established
brands. The major players in this segment are Tata Coffee and BRU. Nescafe is the leader
with about three fourths share, with Hindustan Unilever's Bru at second slot.
Bru in spite of capturing 2.6% of market share of Nescafe, Bru is still number two. Nescafe
India, is promoting its coffee through coffee outlets and vending machines, which Bru is not
doing.

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