The coffee pods market - France

1.2 Strong growth in the global market

Coffee pod & capsule market World, ****-****, in $US billion Source: ****

The global coffee pod market is in full bloom; between **** and **** the market is expected to grow at a CAGR of *.**% to reach $US **.** billion in ****. 

This growth stems from several reasons, including a more diverse and higher-quality offer which continues to evolve, and the inclination of consumers to purchase coffee machines and re-create the coffee experience at home. 

Moreover, coffee capsules are chosen by coffee producers, owing to their suitability and comfort of use. The proliferation of premium coffee shops, such as Starbucks, has also helped stimulate consumers’ appetite for high-end, fresh-brewed coffee. In partciular, Nespresso and Nescafe Dolce Gusto brands play a significant role in the capsule market globally. 

1.3 Domestic market

Coffee & similar beverages

Market size processing of coffee and the (***) France, ****-*****, in € million Source: ****

The market for processing coffee and tea (***) amounted to €*.** billion in ****. Between **** and ****, the market shrunk with *.*%.

This comes as competition from external players has pressured margins in France. 

Coffee Pods

In France in ****, €*.* billion of coffee pods were sold. This was equivalent to **% of total sales of coffee that same year. [***] Moreover, it represented an increase of *.*% over one year, and confirmed the positive trend in which coffee pods are currently in.

The French coffee pod market exploded in ****, when the concept of the aluminium capsule, created in the ****s by Nespresso, fell into the public domain after a legal battle. Arnaud Deschamps, Nespresso's CEO for France, stated in an interview with Le Parisien in **** that "This made it possible to democratise the use of the individual pod, which has become the norm. It also gave value back to the stagnating market".

Coffee pods (***) are reaping market share from other coffee derivatives. This segment now represents more than a third of the value of coffee sales in supermarkets, or €*.** billion. [***] The leader in this supermarket segment are JDE group via the Tassimo, Senseo and L'Or ...

2.1 Profile analysis: the French coffee consumer

France has been undergoing a shift in consumption of coffee, from traditional ways of consumption (***) towards pods and capsules. In ****, **.*% of coffee consumed was through coffee pods, a segment which is growing in light of the convenicence it brings together with an innovative offer with different features of taste. [***] Below, we cover the demand of coffee and coffee pods in particular.

Daily consumption of coffee France, ****, in % Source: ****

A survey from **** revealed that the majority of French coffee drinkers consume an average of *-* coffees per day. Meanwhile, almost a fifth (***) drink *-* coffees per day. Only *% of the French people drink coffee.

In a global context, the average French person consumes the equivalent of *.*kg of coffee beans per year in ****, placing the nation at **th spot globally, and slighty below the EU average. Finland are the heaviest consumers with a whopping **kg per person per year on average. [***]

Moreover, the penetration rate of coffee consumption in France remains high: **% of the population consumes it. [***]

Market share, sales of coffee and tea in super-and hypermarkets France, ****, in % Source: ****

When looking at consumption patterns amongst French coffee drinkers, and type of coffee in particular, we find that coffee pods are the ...

2.2 Focus: pods

Coffee pods are a very popular means of consuming coffee. According to IFOP, coffee pods made up the largest overall consumption category of coffee in ****, being integrated in **% of cases when coffee was consumed. In particular, the Grand-Est region are avid coffee pod users, and overall the most typical consumer is aged between **-**. For this age range, **% of consumers use coffee pods. 

Proportion of households equipped with coffee machines France, ****, in % Source: ****

The graph above shows that in ****, **% of households were equipped with machines using pods or capsules, thus making it the most common form of at-home coffee consumption. 

Adding to this, a Nespresso Manager in France states that **% of French people are equipped with a coffee machine. [***] Thus, if we use the previous figure (***) we can see that the majority of coffee machines in France use pods or capsules.

Market share of coffee pods, by type France, ****, in % Source: ****

The most common type of coffee pods in **** were flexible coffee pods. These pods, also referred to as soft pods, are almost exclusively owned by the Senseo brand. Close to another third (***) and are often hard pods. 

The second most used form of pod, accounting for a third of consumption, ...

2.3 Demand trends

Indeed, the trend of using pods has come to prevail in the French coffee market, and even reap market share from other coffee consumption methods. Customers are catching on to product offering trends related to coffee: according to IFOP **% of French consumers were susceptible to coffee pods as an emerging trend in ****. The second most popular category was grinded coffee (***). Moreover, solubles and ground coffee have respectively lost *% and *% of shelf space, to the benefit of pods. [***]

Pods have also changed the French's drinking habits, as many coffee drinkers now prefer to sip their coffee at home rather than going to the "coffee shop" to order a small black coffee. And Nespresso, just to mention this brand, is no stranger to the trend. Indeed, the food giant has been able to totally influence the image of coffee among consumers: from a "banal", everyday product, it has succeeded in turning it into a luxury, coveted and gourmet item.

Another trend is hyperpersonalisation in relation to coffee pods. This implies that consumers more or less require unique solutions when it comes to varieties in coffees including short, long, strong, decaffeinated, etc. The different coffees are associated with colour codes at Nespresso, or a ...

3.1 Market overview

Companies and employees in the tea and coffee processing sector (***) France, ****-****, in units Source: ****

The graph above shows the evolution in the number of employees and companies in the coffee-and tea processing industry (***). Although this scope covers more than coffee pods only, it still provides a good proxy on what the overall market structure tendencies have been over the last couple of years. 

Between **** and ****, the number of firms grew by **% to reach *,***. Meanwhile, the increase in employees in the sector was more moderate at *.*%. This evolution implies that the market has become more fragmented.  

3.2 Production is everywhere but in the Western World

The coffee production process consists of * key steps:

Harvesting

The harvest consists of harvesting the ripe fruits of the coffee tree, commonly known as cherries for their orange-red colour. Harvesting periods can last several months. On average, it is estimated that one coffee tree produces *.*kg of coffee cherries per year, or *** grams of roast coffee;

The preparation of coffee beans

Cherries and coffee are then cleaned (***). The coffee beans must then be shelled and sorted before being shipped;

The roasting process

Roasting is a process that consists of heating the raw coffee beans to ***°C in a cylindrical device. The temperature and roasting time can be adjusted according to the variety or the expected result (***). Afterwards, the coffee can be grounded to obtain ground coffee.

However, to obtain soluble coffee, the process is different. This consists of spraying liquid concentrated coffee from an atomizer. The coffee aerosol is subjected to a high ambient temperature, which will dehydrate the drops of coffee and drop the dry particles, which produces soluble coffee. This result can also be achieved by using the freeze-drying process. The concentrated coffee evaporates under vacuum at low temperature.

To obtain capsules, 

Brazil is the world's largest coffee producer, ...

3.3 Distribution of coffee pods dominated by a handful of brands

Distribution of sales of coffee pods in super-and hypermarkets France, ****, in % Source: ****

In ****, almost **% of super-and hypermarket sales in France pertained to Jacob Douwe Egberts. The group includes brands such as L'Or, Senseo and Tassimo. JDE dominates the sales of this type of coffee pods. 

In second place we find Lavazza, which accounted for slightly over a fifth of total sales. The main brand is indeed Lavazza, sold through its' coffee pods. 

From this pie chart, it is obvious that although there exists a large number of firms on the market (***), the brand market structure remains in the control of a few brands only, making sales concentrated.

However, the chart above looks at pods only, and excludes capsules (***). Below we look at capsules as well.

In ****, Capital mapped the supply of all types of coffee pods (***) in France. The distribution is provided in the chart below.

Market share of coffee pod sales France, ****, in % Source: ****

In ****, Nespresso had a market share of **%, and sell waterproof aluminium caps. These are distributed only in the brand's boutiques and on the internet. In ****, the French Competition Authority forced Nespresso to "remove obstacles to the development of other capsule manufacturers operating its coffee machines"; other ...

4.1 Product Overview

Overview

There are two main varieties of coffee beans: Arabica which grows at high altitudes (***) and which is the most cultivated, and Robusta which grows at a lower altitude, and is more concentrated in caffeine. In particular, Arabica beans' caffeine content is *.*% whilst Robusta's is *.*%. [***]

Globally, Arabica accounted for around **% of production and Robusta **%. This distribution is applicable on the French market as well. 

In France, the majority of coffee is consumed at home, which **% of respondents in a survey identified with. [***] In other words, coffee suppliers have a large edge if they can differentiate in the supply of coffee by alterning for example the quality of the product.

Indeed, we are seeing a shift in the supply and thus consumption of coffee in France. In ****, **.*% of coffee consumed was through coffee pods, a segment which is growing in light of the convenicence it brings together with an innovative offer with different features of taste. [***] Below, we cover this product category in detail.

Coffee Pods

There are three main types of coffee pods, which compete with other main types of coffee such as ground coffee and soluble coffee:

Source: ****

Coffee pods are made of a mix between plastic and aluminium. This ...

4.2 Price analysis

Source: ****

4.3 The environmental issue with capsules

Carbon footprint

Coffee pods are practical in the sense that they ensure storage and an appropriate dosage for consumption of a cup of coffee. However, coffee capsules are often made out of plastic, or a hybrid between aluminium and plastic. This, in combination with the fact that recylcing rates are low, has led to a wide criticism of the product. For example, capsules generate, for an equivalent quantity of coffee, ten times more waste than traditional packs according to the Ademe (***), which is then discharged into nature. [***] 

Below, the carbon footprint of a cup of Nespresso's coffee is presented.  

Carbon footprint of a Nespresso cup of coffee World, ****, in % Source: ****

As we can see from this graph, capsule production and packaging together made up **.*% of the carbon footprint, which is almost a fifth of the emissions for a cup of coffee. Packaging indeed remains important.

Recycling

With regards to recycling, aluminium capsules are ***% recyclable. However, only one in five would actually be recycled according to Nespresso. The process of recycling is not that simple, as the capsules have to pass through a sieve to separate the coffee grounds from the aluminium. The latter is then melted and compacted for reuse by ...

5.1 Regulation

There are international standards to coffee production, trade and consumption. The International Coffee Agreement, concluded between the ** members of the International Coffee Council in **** and entered into force in ****, aims to promote international cooperation on the coffee market in order to develop a sustainable coffee economy and promote the quality and consumption of coffee. It also includes the establishment of quality standards for exports and the promotion of transparency in the sector through the publication of more information and statistics on the world coffee market.

France is affected by regulation on a European level. The EU directive ****/*/EC covers guidelines in relation to the product. Included in the scope is for example labelling. Moreover, importing organic coffee to Europe falls under a separate framework, namely regulation (***) No ***/****.

Finally, on a national level, a decree was issued in October **** concerning coffee and chicory extracts. This includes requirements on sales, minimum dry matter content of coffee, relative names of caffeinated products and labelling. For example, a coffee may be labelled "concentrated (***) provided that the dry matter content from the coffee is, by weight, more than **%". [***]

An overview of national guidelines on coffee can be found here.

6.1 Segmentation

• Nespresso (Nestlé)
• Lavazza Groupe
• JDE Jacobs Douwe Egberts (JAB Holding)
• Malongo, Cie Mediterranéenne des Cafés
• Café Royal (Delica AG)
• Ethical Coffee Company
• illy Café
• Segafredo Zanetti (Massimo Zanetti Beverage Group)
• Pellini Caffè
• Carte Noire (Jacobs Douwe Egberts)
• Café Grand Mère (Jacobs Douwe Egberts)
• Maison du Café (Jacobs Douwe Egberts)
• Gimoka
• Caffè Borbone
• Maison Lagrange
• Cafés Reck