The inquiry by the French Competition Authority (AdlC) was instigated after coffee competitors, Demb (brand Gold Espresso, formerly known as Sara Lee) and the Ethical Coffee Company (private label and brand Espresso) complained that Nestlé was unfairly blocking the use of their compatible capsules in Nespresso machines.
Nespresso said it had done no wrong but would undertake three commitments, valid for a period of seven years, to address the authority’s concerns and lift competition barriers.
“The views presented by the AdlC represent their preliminary evaluation of the market situation and do not constitute a finding of wrongdoing. The commitments proposed by Nespresso do not imply acceptance of the AdlC’s analysis, but do signify our desire to cooperate with the AdlC to bring this matter to a close.”
The AdlC, which spoke with various stakeholders, is the first antitrust authority to look into this business practice.
Capsule communication
Nestlé has come under fire for customer warranty conditions that encourage the exclusive use of Nespresso capsules, with this message also being communicated by the firm in the press. The AdlC said: "At this stage of the investigation and given the evidence gathered, it appears that Nespresso is likely to have abused its dominant position by tying the purchase of its capsules, without objective justification, excluding, therefore, manufacturers of competing capsules."
On the proposed changes, Nespresso said: “Specifically, we are proposing revisions to the way in which we communicate and to the information we provide to customers and potential customers on capsules that claim compatibility with Nespresso machines; internal trainings and other tools to ensure adherence to our new communications guidelines; and provision of information regarding technical modifications to Nespresso machines, to manufacturers of capsules that claim compatibility, in advance of their commercialisation.”
The authority said the firm had promised to change its conditions of warranty to include the use of other capsules, unless damage or dysfunction was caused by the use of such capsules in which case it would have to prove that equivalent capsules were to blame.
It was no longer permitted to make comments discouraging consumers from using competing capsules, the French authority said.
The company said these initiatives demonstrated the company’s commitment to “fair and open competition” and directly addressed the concern of the AdlC that consumers may be dissuaded from purchasing capsules that "claim compatibility".
The compromises will be followed by a period of public comment running until May 19th 2014 led by the AdIC.
Market evolution
According to the authority, over 25% of French households were equipped with a pod espresso machine, with 73% of those sold in 2012 being Nespresso and 85% of capsules compatible with Nespresso machines being Nespresso branded. France represents a quarter of worldwide turnover for Nespresso, the AdlC said.
Demb and the Ethical Coffee Company were the first competitors to invest in capsules compatible with Nespresso machines in France, launching ranges back in April and May 2010 respectively. Since then other manufacturers have entered this market.
This latest development signifies another twist in a long running battle between Nespresso and its competitors. In 2012 The Ethical Coffee Company (ECC) launched a law suit accusing the food and beverage giant of a "systematic smear and defamatory" campaign to discredit ECC's coffee capsules.
At the time, Nespresso told our sister publication BeverageDaily that the claims had no merit and were part of an “ongoing pattern” of accusations against them.
In October last year Nestlé lost a battle to retain patented rights to its coffee pod which it claimed was a “unique innovation inherent in the design of the Nespresso system”.
“The competitive environment in the portioned coffee category in France has evolved over time, as has the way Nespresso operates in the market. These proposed commitments mark another step in this evolution,” Nespresso said.