New scenarios and main developments

One of the most promising market, with the highest development rates in the consumer goods mass market, it also features a wide offer.
The portioned coffee market has shown a surprising fast development, started in the years 2002/2003 and still currently undergoing a rapid and tumultuous expansion. From the traditional supply of a “simple” raw material / commodity (beans or ground) it has become a product/service for the consumer (the drink ready in the cup).
The new consumption trends and the explosive dynamics of the varied supply of open, semi-open and closed systems as well as of multi-beverage systems, confirm such development. Plastic and aluminium belong to the so-called closed systems, while it is in the paper sector that the offer of open systems has shown a major development, giving the consumer a broader and freer choice. The potential for all those systems is still huge.
The new proposals in the portioned coffee market, with an adequate support in terms of distribution and information, gained premium price positions and immediately got the consumer approval, with the opportunity to make him loyal with long-term subscriptions and accessories.
Far more than a mere development, rather it is a revolution which meets the consumer needs. The key point is to make anyone, expert or not expert, able to prepare a good coffee. In a simple, clean, effective way, and also with a respect for ecology as in the case of the paper pod.
In the past it was a perk of few sophisticated connoisseurs who used to prepare their espresso at home (using a significant space of their kitchen: grinder, espresso machine and accessories); nowadays the espresso (and not only) is consumed in a simple and clean way (since it’s already portioned and packed), occupying a very small space at home, at office, in the restaurants, aboard airplanes and so on. Consequently, it is also suitable for all those places where the limited amounts consumed would never justify or allow for the use of “professional” machines.
From not more than ten years, this is possible thanks to a “system” (machine + portioned coffee) which allows anyone, even if he is not an expert or consumes just few coffees a day, to obtain an excellent result ready in the cup.
Totally in line with the best tradition of coffee making (and the paper pod clearly conveys it), some elements which are important for the quality of the beverage (size and consistency of grind, water temperature, time of making, etc.) have been resolved upstream, reproducing the excellence of the barman’s skills also outside the bar.
Up to about five years ago, the market was dominated by few big operators providing only “closed systems”. The same company provided both the machine e and the portioned coffee, and they could be used only together. Therefore, customers could use only the products they were provided with. Today the situation has changed dramatically, because along with those systems now there are “semi-open systems” and totally open systems (such as machines and pods carrying the ESE brand). As a result, the consumer also enjoys the freedom of combining different coffee brands with different coffee machines.
The E.S.E. Consortium deemed it important to provide the portioned coffee market with a guideline, to start defining its basis and systems. In 2005 it officially opened the dialogue between the spearheads of the portioned coffee industry, organizing the “First International Symposium on portioned coffee”, a unique event for the presence of leading worldwide coffee roasters and espresso machine producers.

What the market offers

What is a system? It is a combination of an increasingly sophisticated technology for the coffee machines with a coffee portioning system using capsules or paper pods.
What does this system offer? Service and quality. It offers the consumer with the right answers to his needs, enabling him to find in the service the simplicity he is looking for, as well as a quality guaranteed by the barman’s experience, based on which the espresso machines and coffee portions are adjusted, to achieve a product and service system in line with the demands of the final consumer.
How can the systems be divided? In the market we can find both open systems and closed systems.
Open systems. An open system enables different coffee brands and machines brands to be used with a predefined standard. The consumer can choose the machines and coffees of his choice and the producers adhere to one standard enabling the industry to create, plan and work in a more interactive way with the market. The only open system now available in the market is the E.S.E. standard.
Semi-open systems. Small clubs for some producers only. They can also be open in actual fact, even if not officially or legally authorized.
Closed systems. Also defined as proprietary systems. They are patented systems, covering both the machine and the pod. Once the consumer has chosen that system, he can only buy that brand and that type of coffee. During next meeting we’ll examine several cases of companies that launched their proprietary systems, which they control directly, but with different approaches to the market.
Product types. Pods are made of paper, while the capsules are made of aluminium or plastic. Paper pods can be in turn divided into: compact pods, which offer a result closer to an espresso, and soft pods, which on the contrary are closer to the European culture of the sieve and the “long” Italian coffee.
Channels. Ho.re.ca, offices and families. Each firm targeted some of these market segments, or tried to expand to all of them.
Coffee making. A further divide is between espresso and long coffee. For the Italian consumers it is quite simple to tell the difference, but this is not true for the European consumers. Each system to some extent can be ascribed to one part or to the other.
New proposals. Multibevarage systems providing not only coffee but also other drinks. Already available for offices for some time, today they are also suitable for families.
Systems that offer more versatility in terms of espresso and long coffee making. Depending on the occasion, such systems can provide both types of beverages with the same machine. These markets need large investments and today the offer renewal takes place at a very fast speed.
Several players are entering the market, starting from different positions. For all, the key to success is to provide the consumer with an integrated system.

The "weight" of the portioned coffee

In the portioned coffee market there are some certainties, such as the considerable investments made by the companies, the very fast renewal of the offer for machines and single-doses, the increase of the players and the success gained by the systems providing the consumer with an integrated service.
Still there are many uncertainties, since the market is very fragmented, very fast, and still poorly defined and developed in the different segments (home, HoReCa, vending). Such features do not facilitate the collection of numerical data.
The portioned coffee market saw double digits growth rates. Some countries, like France, showed even a triple digits growth rate, when large scale retailers put the espresso machine and its pods or capsules on the same shelf. This is quite unusual, because coffee is usually sold in the food department while machines are sold in the household department. In other words, this market offers excellent results when the life of the client/consumer is made easier.
Italy is somewhat lagging behind in comparison to the European market, still its growth rates remain interesting, the Italian market is showing a double digit growth in the pods sector overall and in the retail sector the average growth, over the last three years, was in the region of 20 – 25%. Plastic and aluminium are also showing considerable growth.
According to an IRI research conducted in 2005 in three European countries, the pod systems are increasing steadily, while the traditional roasted coffee is showing a downturn. In terms of value, the pod systems attain significant percentages (40% in Holland, 20% in Belgium and 15% in France). The industry deems this phenomenon destined to change the appearance of the shelves in the large scale retailers and in the market overall.
As for the soft pods, which offer a coffee similar to the sieve, a 2005 Nielsen research shows that the market has grown three times in two years, for a value of about 460 million euros, such result being achieved in a very short time.
Segmentation by channel: companies have segmented their offer, specializing or extending to more channels; with a further segmentation in the express segment (typically Italian) and coffee segment (typically north European) and each system has its positioning (+-Italian and European).
The multi-beverage systems and the versatile systems are other emerging elements.
Over the last few years, E.S.E. has tried to explore this market with a survey conducted on (56) companies active in the portioned coffee segment, for both coffee roasters and espresso machine producers.
In 2004, the world market of portioned coffee accounted for a volume of over 3.5 billion servings and almost 1.4 million machines. In Italy, 1.4 billions of coffee servings and more than half million machines have been sold. Concerning the volume of portioned coffee in Italy, plastic capsules account for two thirds of it and paper pods for the other third; aluminium capsules begin to gain importance, while at world level they undoubtedly bear more significance. The cost of an espresso machine is 100-120 euros on average, while the price of a capsule or a pod varies between 20 and 40 cents. Obviously, in the market there are both more expensive and cheaper offers: it depends on the positioning of each single brand.
The four systems: paper pods, soft pads, soft paper and compact paper in the E.S.E. area; aluminium and plastic capsules show an increase (from +12.7% for plastic to +81.8% for soft pads) and they share the market in a balanced way. The rate of growth is strong and in 2005 it showed further increase. As for the data on the machines, the 2004 DataBank figures showed, at world level: that the paper pods account for 2/5 of the market while aluminium and plastic capsules account for 3/5 of the market.

The new competitive challenge

“Co-evolution: the new competitive challenge”

Are the various players acting effectively to shed light on their activity as a category, as a system and as an industry and have the consumers appreciate all what they are doing in this market?
The possible starting points are two: in complex systems, cooperative behaviours are more rewarding than competitive behaviours; this does not imply the elimination of competitive behaviours, rather it means that in complex systems it is advisable to promote some cooperation amid strong competition to achieve good result.
In this type of market, there are some pre-competitive dynamics that can orientate the consumer better than in a totally competitive environment, and it is possible to find a common language which the consumer is able to understand and valorise.
This would avoid the risk of consumers postponing their purchase decisions due to an excessive confusion in the offer side.
Cooperation involves a particular attention to the consumer, who currently is a butterfly consumer. If we do not manage to shed light on the sector, the main risk is that consumers tend always to favour new comers, due to a lack of transparency in information.
In the new scenario of hypercompetitive markets, the most recognized guidance criterion is the convergence process which drives the development of many companies.
Many companies, to cope with the market and its complex needs, should integrate the asymmetric capabilities of other firms or other competitors.
The challenge of co-evolution is not only a neologism, but also a new and less orthodox competitive attitude.
In complex systems, cooperative behaviours are more rewarding than competitive behaviours to achieve good results.