Electrolux Enters Single-Serve Coffee Market With Lavazza

First Published Monday, 4th April 2011 01:59 pm - © 2011 Dow Jones


By Sven Grundberg

Of Dow Jones NEWSWIRES

STOCKHOLM -(Dow Jones)- Swedish Electrolux AB (ELUX-B.SK) is to enter the lucrative single-serve coffee industry with Luigi Lavazza SpA by launching a new line of single-serve coffee makers for the domestic market.

The household appliance maker's coffee machines will be launched as part of a joint venture with the privately-owned Italian coffee company. Lavazza already sells single serve coffee products under the A Modo Mio brand and the partnership will face tough competition from European beverage giant Nestle SA (NSRGY) and its market-leading Nespresso brand.

Electrolux is already producing smaller household appliances and the new line of coffee machines is "a step in [Electrolux's] ambition to strengthen its product offering" within smaller household appliances, said company spokesperson Erik Zsiga.

Nestle is the single largest player in Europe with Nespresso. Last year Nespresso sales grew some 20% organically, with annual sales of 3.2 billion Swiss francs ($3.5 billion).

Although Nestle doesn't provide detailed sales figures, it is understood Nespresso's profitability relies on sales of coffee capsules rather than coffee machines. The capsules are sold with significantly higher margins than ordinary coffee.

Electrolux declined to comment on whether it will share revenues from coffee sales with Lavazza.

The coffee machines will be launched this summer in Sweden and Finland, and will then be released in several other European countries

Some 90% of Nespresso sales revenues stem from Europe, according to an estimate from Morgan Stanley, dated April 1. The bank said the U.S. market is likely to be the next frontier for Nestle's coffee system expansion.

"Should Nespresso double its share of the rapidly growing single U.S. serve coffee market, this would represent a five-fold increase in the business there to 2015, implying a possible doubling of global sales to CFH7 billion by 2015," the bank said.

Morgan Stanley said the total single-serve category in the U.S. was worth some $2 billion in 2010. It added the category has been growing at a plus 50% rate in the country for the last couple of years.

-By Sven Grundberg, Dow Jones Newswires; +46-8-5451-3098; sven.grundberg@dowjones.com

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