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
The campaign in 2007...
SOUNAK MITRA
New Delhi, 6 January
“T
he coffee with life in it. Made in
just 5 seconds”. That’s how
Nescafe 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.
Nestle changed that thinking forever —
as it did elsewhere in the world much earli-
er 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
Nescafe in India as it completes 50 years in
a country which took time to warm up to the
idea of instant coffee.
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 Nestle to find a way out. There
was no instant solution. Eight years later –
in 1938 — Nestle came up with an instant
product mix – Nescafe — that became the
second most recognised brand in the world
only after Coca-Cola.
Interestingly, processing instant coffee
was not a new idea. In 1901, it was actual-
ly invented by Satori Kato, a Japanese sci-
entist working in Chicago. Though a hand-
ful of companies tried to market it, they
could not make it a success.
Max Morgenthaler, a coffee specialist
working with Nestlé during the 1930s, devel-
oped a new process for dehydrating the con-
centrated 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 consult-
ant, Technova India, a con-
sulting firm. “More than 50
per cent of the Indian coffee
market is instant coffee that is
dominated by Nescafe, a prod-
uct which is sold as 100 per
cent coffee,” he adds.
The growth of instant cof-
... and now
fee 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 retail-
ers 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, accord-
ing 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 con-
sulting 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
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
amount of Nescafe coffee bought directly
from farmers and their associations, pur-
chasing 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 avail-
ability would not be a concern in these mar-
kets, 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 bank-
ing on an old marketing mantra – strad-
dling 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-lev-
el of penetration of the drink. Compared to
tea penetration at 96 per cent, coffee pene-
tration is as low as 16 per cent.