How will the growing popularity of in-home capsule systems affect our relationship with high street coffee shops?
Sales of in-home coffee systems boomed during lockdown, as millions of people were furloughed or worked from home. This article looks briefly at the development of the coffee capsule (or pod) and examines some of the issues that arise out of using these systems before speculating on the long-term effects of this trend on our industry.
A Half Century of Development
Lavazza introduced the capsule concept in 1989 with the launch of Espresso Point, a home and small office system that still enjoys wide distribution today.By the mid nineties, Nespresso had launched, and the Keurig system started to gain distribution in the US office sector. The early 2000’s saw Lavazza move into Foodservice with the BLUE system and the birth of household names such as Tassimo (successfully partnered with Costa) and Nescafe Dolce Gusto. Illy joined the party in 2007 with the launch of IperEspresso and a wide range of competing systems continued to be launched, as the global coffee players sought to secure a slice of this new market.
As momentum grew for this new concept, the coffee giants encountered a few problems. Firstly, there was the issue of the lifespan of patents. For example, Nespresso operates a closed system of supply which goes direct to the consumer and bypasses the supermarkets. From around 2013, competitors were able to launch compatible capsules which worked in Nespresso machines. This resulted in Nespresso capsule sales being squeezed from above by a range of higher quality, artisan style, products and from below by cheaper capsules available online and in all SupermarketsBumps Along The Road
All the successful early capsule concepts eventually suffered from this lifespan issue. In many cases, they continued to innovate with new capsule types (for example Lavazza A Modo Mio). In some high-profile instances, this was accompanied by the introduction of a barcode in the capsule (ostensibly to control dispense parameters, but also useful in preventing cloning).
A second issue was poor sales performance of espresso systems in certain key markets. For example, although the French embraced Nespresso with Gallic passion, key markets with a tradition for long coffee and instant coffee, (such as The USA and The UK) were more resistant to espresso-based capsule formats. Despite using George Clooney as their figurehead, Nespresso failed to erode the dominance of the K-Cup system in the huge US market, which produced a longer drink more suited to a market raised on drip (filter) coffee and instant. This has led Nestle to develop Nestle Vertuo, which can produce a longer drink without over-extracting the coffee (and uses barcoded capsules).
In the UK, where most of the out-of-home espresso-based drinks are either cappuccino, latte or flat white, the ‘Milk’ issue remains unresolved for in-home systems. Some offer an inferior powdered milk solution, whilst systems using real milk tend to be cumbersome, difficult to clean and prohibitively expensive.
Finally, there is the increasingly high-profile issue of the environmental impact of capsule usage. Capsules can be made of plastic, aluminium or a biodegradable material. In the battle of the packaging formats, aluminium looks to have the best chance to come out on top. Aluminium tends to maintain a reasonable value when recycled and can be re-used repeatedly. Devices such as the ‘Upress’ make separation of coffee and capsules much easier, allowing the empty capsule to be put in with general recycling. The various biodegradable options all seem to have limitations currently. They either don’t keep the coffee fresh or are mis-leadingly labelled and can only be recycled via an industrial process. We chose the aluminium option when we launched our premium organic, Fair Trade Colombian Nespresso-compatible capsules.
A look to the Future
As our society takes steps to restore some semblance of normality, perhaps there are a few rays of light for the independent coffee shop. Much of the coffee we drink at home in the UK is still of the instant variety. The wider use of in-home capsule machines may stimulate the demand for high quality coffee out of home by modifying consumers tastes Also, under pressure from their institutional investors, we are seeing a dramatic reduction in the number of sites operated by restaurant chain brands. A similar pattern in the coffee shop chains could reduce competition on the High Street. It is entirely possible that an awkward comparison will be made between the price of quality coffee at home and the price we are asked to pay at the coffee shop. However, by offering a high quality, value-added service, there is every chance that the independent coffee shop can wean the customer away from their home capsule machines by delivering an experience with more choice and better quality. The adoption of ordering apps on mobile phones can only assist this process.
It remains to be seen how our behaviour patterns will be permanently changed by the pandemic, but coffee shops weathered the financial crisis of 2008 as the ‘affordable treat’ and that psychology may play an important role again as we enter the recovery phase.