As published by The Economist “Business Strategy 2nd edition”

Nespresso is an espresso coffee-making machine consisting of a coffee capsule and a machine. The coffee capsule is hermetically sealed in aluminium and contains 5 grams (about a teaspoon) of roasted, ground coffee. The coffee capsule is placed in the handle, which is then inserted into the machine. The act of inserting the handle pierces the coffee capsule at the top. At the press of a button, pressurized hot water is passed through the capsule. The result is a high-quality cup of espresso coffee.


Nespresso was introduced in 1986 as a joint venture between Nespresso and Swiss-based distributor called Sobal. The new venture, Sobal-Nespresso, purchased the coffee-making machines from another Swiss company, Turmix, and the coffee capsules from Nestle. Sobal-Nespresso then distributed and sold everything as a system: one product, one price. Offices and restaurants were targeted as customers and a separate unit called Nespresso was set up within Nestle to support the joint venture’s sales and marketing efforts, and to service and maintain the machines.

By 1988, the business had failed to take off and headquarters was considering freezing the operation. However, in 1988-89 Jean-Paul Gaillard, Nespresso’s commercial director, changed the strategy and made the business profitable. Gaillard decided that the coffee side of the operation had to be separated from the machine side. Since Nestle was not in the machine business, he felt he had to focus on the coffee.

Production of the Nespresso machine was assigned to several carefully selected manufacturers such as Krups, Turmix, and Philips. The machines were then sold to prestigious retailers including Jarrods, Galeries Lafayette and Bloomingdale’s. It was the retailers’ responsibility, under the guidance and control of Nespresso, to promote, demonstrate and sell the machines to consumers. It was the responsibility of the manufacturers to service and maintain the equipment.

On the coffee side, the sobal partnership was ended and the operation placed under Nespresso (later Nestle Coffee Specialties). The target customer was changed from offices to households and the distribution of coffee capsules was organized through a “club”. Once customers bought a machine they became a member of the Nespresso club. Orders for capsules were taken over the phone or by fax direct to the club and the capsules were shipped to the customer within 24 hours. The club currently takes 7,000 orders per day.

For more details about this subject, refer to article “Sales Strategy.”