Maybe you’ve got one at your office, or perhaps you’ve seen George Clooney and John Malkovich bizarrely hawking it on European commercials, but Nespresso – a brand of espresso machines and proprietary single-serve “pods” – has grown exponentially over the past 20 plus years into a $2.6 billion business. But the brand, which is owned by Nestlé, is facing new competition from cheaper “pods” that are able to work in the pricey Nespresso machines. According to the Wall Street Journal:
Until this month, Nestlé Nespresso SA’s eight million clients could use only the brand’s own coffee pods in its machines, a system that is protected by 1,700 patents. Now two rivals—American food company Sara Lee Corp. and Swiss startup Ethical Coffee Co.—claim to have found a flaw in Nespresso’s patent wall. The companies say they have exploited this to make capsules compatible with Nespresso machines without infringing Nespresso’s patents.
Ethical Coffee Co., one of the off-brand interlopers, was founded by Jean-Paul Gaillard, who not so coincidentally was head of Nespresso until 1997. The generic “pods” will be cheaper and available more widely than the Nespresso versions, which are only available only at its retail stores, online, and by phone. And according to Bloomberg, there seems to be a real demand: Ethical “stopped seeking orders after retailers asked for 4 billion pods, double the amount the company aims to produce next year.”
Gaillard maintained to Bloomberg that there is nothing underhanded about Ethical’s approach, “We know that there is no problem, you can patent the way to get an effect, but not the effect itself. You cannot patent hot water.”
Perhaps without fully grasping the irony of starting a coffee company that manufactures and sells individual coffee “pods” that are designed to work only with another company’s expensive machines, he told the WSJ, “it’s still just coffee.”
For marketing, Gaillard specifically ruled out using Clooney, “No Clooney, no glossy magazine, only coffee.” But maybe Ethical Coffee Co. could find a substitute leading man that they could fit into a similar campaign.