Coffe Capsule

The coffee capsule wars are set to heat up on Thursday when Starbucks, the US coffee chain, rolls out its inaugural machines to compete head-on with Nestlé’s Nespressos.Coffee capsules are a rare bright spot in the global food and drink industry.

By apeing the business model of printers and razors, manufacturers hope owners of the machines will become captive buyers, tied into buying their premium-priced single serve coffee pods.

However, that and estimated profit margins of 20-30 per cent have attracted a host of imitators.

The 50 or so systems now available have left Nestlé staunchly defending its turf, enlisting actor George Clooney to front its ad campaign while teams of patent lawyers take action against copycats.

Starbucks’ Verismo machines, making espresso-based coffee drinks such as lattes, will initially go on sale in the US, Canada, France, Germany, Austria and the UK.

The chain already sells its own capsule coffee in the US, where it sold 100m of its K-cup packs within two months of launch in November last year.

“This is one of our biggest bets in the coming year,” said Michelle Gass, president of Starbucks for Europe, Middle East and Africa.

“We are putting lots of resources behind it for the launch.” The so-called premium single serve market grew 143 per cent last year, she added.

The machines, made by Germany’s Krüger, will go on sale in the UK for £149 and €149 in Europe. In the US they will sell at $199. The pods will sell at £5.99, €4.99 and $11.95 for a pack of 12.

Yet while the market for coffee capsules, worth $6.6bn in retail value according to data agency Euromonitor, continues to grow faster than beans, grinds and instant, there are signs the froth may be coming off.

Green Mountain Coffee Roasters of the US, which sells the single cup brewers that use – among others – Starbucks’ coffee capsules, has seen growth decelerate sharply in the past year. In the third quarter, net sales increased 21 per cent year-on-year compared with a 64 per cent jump over the same period in 2010.

Green Mountain’s shares, which have been on a declining trajectory, were hit last autumn when Starbucks first announced plans to launch the Verismo machine. The Keurig-branded devices made by Green Mountain are low pressure that produce only brewed coffee.

Ms Gass said Starbucks had been examining the market for several years, searching for the right partner and technology. Unusually, the capsules can contain milk – which rehydrates in the pod, thus creating what Ms Gass called a natural taste and allowing owners to make a whole range of coffees in the home.

The machines will be rolled out across other markets in Europe after the initial launch. “We have been keeping our partner Krüger busy,” said Ms Gass.