Nespresso’s Retail Strategy Converts Customers – One Cup at a Time

Coffee retail is a textbook example of how seemingly ordinary products can be elevated and marketed beyond their actual value.

Howard Schultz did it with Starbucks and paved the way for coffee to become nearly more popular than ordinary water – and with a much bigger markup.  While Starbucks has recently struggled with over-exposure and saturation, the world of mass consumption coffee shows no signs of slowing down. So now that everyone believes they’re a coffee connoisseur, what else could there possibly be to do with coffee besides sell it in a can or a café?

 

Make them a barista in the comfort of their own home or office. The single-serve coffee market is now the next frontier for coffee brands, and last year even Starbucks threw its hat in the ring with their Verismo machine.

 

According to Euromonitor International, a marketing firm that focuses on industry and consumer lifestyle research, single-serve machines accounted for 20 percent of total coffee-maker sales in 2011, and that’s up four percent in just five years. In the same period, retail sales of the machines increased by about 523 percent.

 

Which is why Nespresso, arguably the most deluxe of all the single-serve machine vendors, has fast-tracked its retail rollout of its “boutique bars,” with the newest one in San Francisco’s Union Square – a stone’s throw from Hermès, Emporio Armani, and DeBeers Diamonds.

 

As Frederic Levy, president of Nespresso’s USA explained to us in a recent interview, Nespresso’s strategy is to be at the top of the coffee pyramid, and that means opening luxury shops in high streets like this one, all over the world.

 

“Our Boutiques around the country and the world are a key part of the Nespresso experience,” says Levy. “And they will continue to be as we expand further into the U.S. market. In fall 2013 we will open our sixth U.S. Boutique in Los Angeles.”

 

The San Francisco boutique, located on the corner of Grant and Geary streets, is 7,400 square feet and spread out over two levels. Expensive? Absolutely. But this is not a casual investment in prime real estate. The emphasis here is on creating a highly calibrated brand experience, with a lavish space that encourages one to look and linger rather than grab and go.

 

Top: the Boutique Bar serves sixteen of the brand’s “grand cru” coffees, as well as a breakfast and lunch menu. Below: the staircase to the second floor retail and tasting bar.

 

“We don’t serve coffee to-go at our boutiques,” says Levy.  “We invite our consumers to come in, sit down, and take a moment to enjoy a premium coffee experience in a contemporary environment.”

 

These boutiques are no small part of the Nespresso strategy; if anything, they are pivotal in the brand’s persuasive marketing. Nespresso hired Italian architect Aldo Parisotto and Futurebrand Paris to develop the multi-faceted retail concept, one which is strategically designed to inform and engage both the novice and the “club member” with a menu of in-store experiences and interactions. A “club member,” by the way, is basically anyone who has purchased a Nespresso machine. But the name speaks volumes about how Nespresso wants the customer to feel.

 

The ground floor includes a reception area, bar where coffees can be ordered, a “discovery ring” where the entire product family is introduced in an intimate, sit-down setting, and lounge spaces featuring complimentary ipad stations, and coffee-colored Eero Saarinen Egg chairs.

 

The vortex of the Nespresso experience continues downstairs, where there is the full range of machines and what they call the “Tasting Piano Bar” (all that was missing was an actual piano.)  Off to the side is the “Self-Selection Room,” a mini-supermarket for the brand’s coffee pods. Like the rest of the store, nothing was overlooked in its design, with boxes of pods arranged in perfect column’s, dispensed with military precision from a specially designed wall unit. Self-check-out technology allows members to complete their purchase with the swipe of a card. If God is in the details, then he must really like coffee.

 

 

T0p: The lounge area is as much about experiencing the coffee as it is about showcasing the brand’s lifestyle to the outside world. Below: The downstairs “Self-Select Room” is the first in the U.S., allowing Nespresso members to shop independently for coffees.

 

 

“The Self Selection Room is unique to the San Francisco Boutique,” says Levy. “It’s dedicated to Club Members who are already familiar with the brand and who are looking for a shopping experience at their own pace, all while discovering the individual nuances of each Grand Cru.”

 

 

Yes, you read correctly: Grand Cru. Nespresso’s brand strategy echoes many of the signatures and terminology of luxury brands, including the rarefied world of wine connoisseurship. This strategy is key, especially since the market is fast becoming crowded with other single-serving machine manufacturers and distributors. Nespresso needs to be aggressive in owning the premium coffee pod market. Creating limited editions and “grand crus” is very much a part of how they’re doing that.

 

 

“Last fall we released our limited edition Hawaii Kona Special Reserve,” says Levy, speaking of Nespresso’s first Kona blend, considered to be one of the world’s most premium coffees. “Our coffee experts spent two years developing this Grand Cru.”

 

 

Perceived luxury, of course, is key to the success of any luxury brand (even if it’s not), and some argue that single-serving machines can’t possibly offer the level of taste and aroma found in traditional brewing and extraction. Nevertheless, Nespresso’s brand image of technology, premium quality, and customer service, coupled with the boutique stores, has managed to drive it to the top in customer awareness — and in a relatively short amount of time.

 

   

A display of Nespresso machines, which retail from $129 – $699. The brand’s retail strategy uses the machines to create loyalists and ambassadors. “By purchasing a machine,” says Frederic Levy, president of Nespresso USA, “Consumers become part of our elite.”

 

“The success of our brand has been built on creating long-lasting customer relationships with our Club Members,” says Levy. “Our focus on developing these relationships is what drives the global brand community to be ambassadors for our coffees and machines. By purchasing a machine, consumers become part of our elite.”

 

Like the best luxury brands, becoming part of an “elite” is catnip for the young, upwardly mobile consumer. Indeed, on a recent weekday afternoon visit to the San Francisco boutique, fashionable young men and women browsed and lounged, many experiencing Nespresso for the first time, and poised to become brand ambassadors, one cup at a time.

 

Nespresso San Francisco Boutique Bar | 90 Grant Avenue | Mon. – Fri. 8:00a – 8:00p; Sat. – Sun. 9:00a – 7:00p. www.nespresso.com

 

>> Want more insight? Read analysis from T. Rowe Price on the growing single-serving coffee market. Click here.

 

 

 

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