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Packaging showdown; Nestlé sues Sara Lee over Nespresso cartridge

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The Wall Street Journal reports today that Nestlé is suing Sara Lee for patent infringement on its Nespresso capsules.

Nespresso machines and capsules have been around for 25 years. As a business, Nespresso has grown to $2.6 Billion, annually.

New Entrants

On April 28th 2010, The Wall Street Journal reported that in addition to a host of new formats arriving in the market, there were now two cartridges that are compatible with Nespresso machines. These cartridges are introduced by the American company Sara Lee and a new Swiss start-up, Ethical Coffee, using separate technologies.

Ethical Coffee founder Jean-Paul Gaillard ran Nespresso until 1997. Sara Lee manufactures Senseo cartridges, the biggest selling coffee system among 31 competing systems which overtook Nespresso several years ago. Its cartridges sell for ⅓ of the price of a Nespresso capsule.

Lucrative Business and High Growth Rate

Nespresso commands the premium market with larger margins, and is growing rapidly with sales having doubled since 2006. In 2009, Nestlé sold 5.5 Billion cartridges. This high growth rate makes the premium market attractive to Sara Lee, Ethical Coffee, and other potential entrants. Nestlé cartridges cost 33 Euro cents in Europe, and 55¢ in the US. Nestlé uses its ~200 boutiques and an internet based mail order club to sell its cartridges.

Working Around Patents

Both companies claim that they have come up with a way to work around Nestlé’s 1,700 patents without infringing on them. Since France is the biggest market for Nestlé, both Sara Lee and Ethical Coffee decided to introduce their cartridges there. Sara Lee’s version is a plastic cartridge introduced under L’Or brand in April this year. It costs 30 euro cents. Ethical Coffee, which introduced their cartridge in May, has 5 billion cartridges on order, and has not yet been sued by Nestlé. Its cartridges sell at a 25% discount under private labels like Casino and Monoprix in discount retailers like Carrefour.

You might also want to check out our article titled Outpresso, green convenience for Nespresso capsules published on April 19, 2010.

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