Nespresso Is The Future of CPG
Consumer Products Soon Will Come to You Via Automated Replenishment
I really, really, really love coffee. From delectable pourovers at Jubala in Raleigh to lukewarm gas station swill, its my favorite beverage by far. Coffee is a very unique product as it has many dayparts. We drink coffee at home when we wake up, stop by our local coffee shop on the way to work, we drink coffee at our offices, have business meetups at coffee shops, brew coffee in our hotel rooms, sip an espresso at a restaurant after dinner and if you’re like me, have a late night cup while finishing up work. Coffee is more than just coffee, it is also a relationship beverage, we share a coffee with friends, family and business partners over conversations. All of those occasions are opportunities for brands and retailers to get a share of the coffee cake (see what I did there?).
Like many products, eCom and emerging media are drastically changing the way people discover, engage with and ultimately purchase and consume coffee all across price and quality categories. Just like Starbucks reinvented coffee as a experience, Keurig and Nespresso changed home, office and hospitality consumption while social media has been changing how consumers and brands connect with each other. This is observable in every store shelf as the space allocated to pods has ballooned at the expense of bagged coffee. The future state however will be complete automation of most cpg consumption with smart vertical replenishment systems, much like Nespresso has already done. Using its Prodigio machine, home and office coffee can be automated via connected app. Many products and services are rapidly commercializing automation via a growing deployment of home automation platforms like Nest and Alexa.
Nespresso is ensuring farm to cup coffee quality by working directly with farmers to build in practices which create a superior product experience. Along with ensuring that its coffees are the best in class for single cup brewers, Nespresso pulls a sustainability thread through its platform from the farm to its recycling collaboration with Ag Choice Organics Recycling which creates a closed loop system for its products. Consumers simply return the used capsules in a prepaid envelop and all parts are recycled into aluminum and compost.
For a purpose driven consumer, this system creates increased brand warmth resulting in higher levels of loyalty and #RetailRelevance.
Through my work on the board of Dunn Brother’s Coffee I’ve learned much about the coffee industry. We’ve traveled to farms, mills and even decaffeination plants in Mexico and El Salvador to better understand what goes into growing truly great coffees. Perhaps nothing was as impactful as visiting a small family farm in El Salvador that has won the cup of excellence award and getting a good understanding of what goes into producing a truly great cup of coffee. From the narrow climate bands, altitude to careful harvesting, drying and processing, each step builds on the next long before it ever reaches our cups. The stories of these farmers and craft producers are relatively untold save more traditional mass marketing methods but as everyone in the world has an ability to become a content producer, many people along the value chain will discover the economic value of building emotional connections into their products.
Experiences and stories are going to be increasingly valuable to brands of all types as automated replenishment becomes the norm and consumer choice bifurcates into utility consumption with little consumer engagement or immersive consumption with passionate users becoming some of the most valuable brand equity a product can have.
Not long from now, people will be mystified that they actually went to a store to get toothpaste.
Media in this new retail paradigm is going to be radically different as well. As we discovered building the Walmart Elevenmoms, “people like me” are one of the most potent forms of media in terms of return on invested dollar. Stories from money saving bloggers drove more engagement and subsequently better organic SEO than brand created media. That’s even more true today as a search for “saving money on groceries” STILL delivers an organic post from Cash Cow Couple along with two paid ads from Walmart. Google and other search platforms are favoring organic content precisely because they are preferred by users.
As consumers shift to automated shopping, organic content is going to be critical as consumers easily avoid, block and ignore digital ads and look for information when they need it. Automated shopping will displace in-store displays and promotions which was a primary communications channel and source of discovery for most CPG consumers. Brand switching will likely drop precipitously as once consumers lock into a replenishment selection, they will be unlikely to change, especially if the replenishment is direct from the brand like Nespresso. It was in retailers interest to brand switch to play brands off each other to drive better prices and margins which wasn’t necessary great for consumers. Brands will use some of the additional margin they gain from direct replenishment to create extra value and experiences for consumer benefit and engagement. For example, it will be very easy for Nespresso to surprise and delight its customers and leverage usage data to create individualized communication and programming based on user behavior.
Nespresso just launched EasyOrder, its recurring shipment service which is a step closer to full automation. It won’t be long until it is leveraging all of the connectivity of various home automation platforms to anticipate and fulfill customers needs. Other brands are following this path to various degrees as are retailers which will create a huge jump ball for consumers in the near term. New entrants will emerge such as Dollar Shave Club to challenge existing players creating disruption and investment in CPG customer acquisition. I placed my Gillette razorblades on replenishment from Walgreens over a year ago and every 90 days, I receive an 8-pack delivered to our home with free shipping. I doubt I’ll ever change that order unless Walgreens prompts me to try another product. The good news is, I don’t have to shave with a dull razor because of forgetting to pick up replacements when I’m grocery shopping.
An accelerant for this trend will be transportation. Recently I attended the Angel Capital Association annual conference in Philadelphia and was fascinated by the comments of keynote speaker Fabrice Grinda about the future of transportation. His thesis is that the marginal cost of transportation is going to zero driven by the unlocking all the excess capacity of cars that will come from self driving vehicles. Most personal cars use less than 3% of their total capacity, spending most of their useful lives sitting in garages, driveways and parking lots. Self drivers will help to finish the final mile of home delivery in ways we haven’t imagined. Your car will simply go to the store an pick up orders for you while your working or spending time with your family. Über expects that by 2030, its entire fleet will be self driving creating a delivery logistics system that will dwarf existing models.
So I ask you, do you really want to devote brain power to shopping for routine consumables like paper towels, dog food, cereal, coffee etc.? Wouldn’t you rather have brands and technology simply fulfill these product needs for you exactly when you need them? I know I would and I’m thankful for brands like Nespresso that are leading the way.
note: This article was created for a North Carolina State Global Luxury Management class lecture. More #NCStateGLM program stories are collected here.