Nestle's Nespresso shots propel premium brand profit

, Bloomberg



Nestle has found something even better than single-serve coffee costing twice as much as ground java: a version that costs eight times as much.

While consumers worldwide rein in spending, the Swiss company in October introduced Hawaii Kona Special Reserve, a limited edition coffee for its Nespresso machines. At $2 a shot, it cost four times the price of regular Nespresso. It sold out within weeks, and the company says more such offerings are in the works.

The Kona brew is part of a broader push upmarket that has helped the world's largest food company boost profitability beyond that of rivals such as Unilever and Danone. Analysts say the effort helped Nestle's 2012 sales growth exceed the company's annual target of about 6 percent.

Under chief executive officer Paul Bulcke, the company has accelerated the introduction of such products to give consumers a reason to stick with Nestle brands such as Nespresso, Moevenpick ice cream and Maison Cailler chocolate rather than defect to private labels.

"Nestle is probably more advanced than others in its quest for premiumization," said Marco Gulpers, an analyst at ING in Amsterdam. "The move is clearly away from the middle where you have private label competing with brands."

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