Posts Tagged ‘vending machines’

Whatever you do, don’t call Nestle’s coffee ‘instant’

Friday, August 15th, 2014

According to the business magazine Toyo Keizai, on July 24, Nestle Japan announced that it was quitting four industry groups it belonged to: the Japan Fair Trade Coffee Conference, the All Japan Coffee Association, the Japan Instant Coffee Association and the Japan Coffee Importers Association. These groups have, according to Toyo, had problems acknowledging Nestle’s description of its new manufacturing method for coffee products that it started using last September.

Nestle no longer calls its Gold Blend and Nescafe Excella brands “instant coffees,” but rather “regular soluble coffee,” and insists that others do the same. Two months ago, these associations revised their industry fair competition rules, saying that they couldn’t allow Nestle to use such a description in their advertising, so Nestle decided to not work with them any more.

Nestle's Dolce Gusto capsule-style self-service machine set up in a grocery store

Nestle’s Dolce Gusto capsule-style self-service machine set up in a grocery store

Nestle says the manufacturing method is different, so it has a right to call its coffee something different. Most coffee called “instant” these days is made by freeze-drying liquid concentrated coffee liquor. Soluble coffee, however, is a “unique” blend of pulverized roasted coffee beans and dried coffee concentrate. To the layman and, obviously, other members of the coffee industry in Japan, that description doesn’t qualify as much of a distinction, but Nestle wants to stress that the new method makes for coffee that is closer to the real thing, meaning coffee brewed from ground roasted beans.

An executive of the All Japan Coffee Association explained to Toyo that his group’s reluctance to accept the new designation is based on complaints it’s received from consumer groups that say people may buy Nestle’s new product under the mistaken assumption that it’s “real regular coffee.” And as far as the new designation goes, people who don’t know what “soluble” means may think that regular coffee grounds dissolve in hot water, which, of course, they don’t. In any case, “soluble” is a pretty good description of instant coffee in general, so the distinction is moot.

But Nestle Japan can pretty much do whatever it wants since its products account for 70 percent of the — pardon us — instant coffee market in Japan. It wasn’t until 1960 that the importation of coffee beans to Japan was liberalized. The next year importers started bringing in instant coffee, and by the middle of the decade Nestle’s Nescafe was the best-selling brand in Japan, as it was in the world.

Then, in 1967, Nestle Japan started selling Gold Blend, the first instant coffee to use the freeze-dried method developed by Nestle at its headquarters in Switzerland. The Japan affiliate was nervous, though, because it thought Gold Blend would “cannibalize” sales of Nescafe, so it made two different advertising campaigns: Nescafe for everyone, Gold Blend for more discerning consumers.

The Gold Blend commercials became famous for using well-known “artistic” talent, like novelists, classical musicians and kabuki actors. The ads were a success. Instead of eating up sales of Nescafe (which soon became Excella) Gold Blend’s sales augmented them. Eventually, Excella had a 50 percent share and Gold Blend a 20 percent share.

In 2012, Nestle Japan chalked up ¥7.88 trillion in sales, which boiled down to ¥1.2 trillion in profits. Respectively, those figures represented 2.3 percent and 25 percent growth over the previous year. Nestle is the biggest food-related company in the world. Their products are sold in 140 countries, and the headquarters refers to its Japanese business as a “miracle,” since demand is shrinking almost everywhere else. And it’s not just coffee. Nestle also makes Kit Kat, the most ubiquitous chocolate treat in Japan because of its auspicious associations with entrance exams. Until 2002 Nestle Japan spent ¥3 billion on TV commercials to reinforce this association and now distributes free Kit Kat bars in business hotels where university entrance exam takers stay to study before the test. They’ve become indispensable.

Now Nestle’s big scheme is Nescafe Barista, a series of refill systems it is selling to homes. The system is built around coffee making machines that use prepared single-serving capsules of its soluble coffee, and this is where the designation is important. Though it may be instant coffee by another name, that new name gives more of an impression of brewed coffee, which is important for another new system, called Nescafe Ambassador, that is being promoted to offices. Rather than capsules, these machines use larger containers of soluble coffee.

The pitch is made directly to employees of companies rather than people in charge of office services. An employee registers as an “ambassador.” Nestle then sends him or her a coffee machine, a supply of soluble coffee and a piggy bank. The employee sets up the machine in the office and other employees who want coffee deposit ¥20 in the piggy bank whenever they enjoy a cup. Refill containers last about a month or so, after which the money is sent to Nestle.

Conventional office coffee services involve a company representative who maintains and fills the machines, adding significantly to the cost. Ambassador cuts costs by having the employees take care of everything, and is meant to replace office-set vending machines and even convenience store coffee, which are now the main sources of break-time refreshment, since many companies are doing away with free coffee and tea on the premises to cut down on expenses. Coffee from vending machines and convenience stores cost at least ¥100 a cup/can.

Three months after starting the system in 2012, Nestle had distributed 60,000 machines. Toyo says that the company projects more than 100,000 machines per year from now on. And since there are an estimated 6 million offices in Japan, that’s a lot of potential soluble coffee sales, though it should be noted that canned coffee, which for years was unique to Japan, commands a sizable share of the coffee market, especially among workers, both white collar and blue. But then, Nestle sells canned coffee, too.

The economics of scapegoating vending machines

Monday, May 9th, 2011

Two machines are always better than one

For his part in reviving a crippled Japan, Tokyo governor Shintaro Ishihara has made himself the point man in the demonization of vending machines. “Only in such a country do you see them lined up everywhere,” he groused recently, and suggested that anyone who wants a cold drink buy it in a store and put it in his own refrigerator.

There are various reasons why vending machines are ubiquitous in Japan. From the demand side, Japanese people just like gadgets and don’t always enjoy the face-to-face experience of dealing with store clerks. From the supply side, Japan is a relatively safe country, meaning you can install as many vending machines as the law allows without fear of vandalism. And the law allows a lot. However, if Ishihara and four other Kanto region prefectural governors have their way, vending machine operations will be curbed, at least during the summer peak electrical usage months. According to Sankei Shimbun, the five Kanto prefectures are pushing the central government to implement directives to limit electrical usage of vending machines based on existing ordinances, some of which have been in place since the “oil shocks” of the 1970s.

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Deflation at the vending machine

Monday, November 23rd, 2009

A Wex vending machine in a parking lot near Kabuki-za

A Wex vending machine in a parking lot near Kabuki-za

The “one-coin theory” is a hallowed principle of retailing in Japan, the idea being that if your product can be purchased with one coin, people are more willing to buy it. This principle was formulated through Japan’s extensive vending machine business, in particular vending machines that sold beverages. Until the mid-90s, 100-yen was the upper limit for all canned beverages sold in vending machines since it was considered a kind of psychological barrier. Most vending machines are owned by beverage makers, and no one wanted to be the guy who increased their prices first, even though material costs had been rising for years. If one was going to do it, they all should, and eventually they did. After a short period of sluggish sales, profitability eventually returned and there have been regular rises in prices ever since. The standard VM price is ¥120 for canned drinks and ¥130-¥150 for drinks in larger PET bottles.

But in the past few years, there’s been a marked reversal. Independent vending machine operators have bucked the big manufacturers like Kirin, Suntory, Asahi, Pokka and Dydo by selling their products below the retail prices these manufacturers dictate. The trend has seen prices not only drop back to the one-coin level, but even further. Wex, a VM operator out of Osaka, sells Suntory, Pokka and Kirin products for ¥100, as well as its own private brand of canned coffee called Two Down for only ¥80, all in their own vending machines, and the big manufacturers are seriously ticked off.

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