One of my favorite questions when I teach innovation is to ask participants how long it took for Nestlé to succeed with their Nespresso coffee machine. So what’s your answer? One year? Five year? Well no. The answer is 21 years! Based on a technology licensed from the Battelle Institute by Nestlé in… 1974, Nespresso only became profitable in 1995 after much ups and downs. 21 years were needed to make a success of the Nespresso innovation.
From failure to failure towards success
During this period, the project went through severe technical problems several times, a few failed launches, and wrong markets with wrong business models. For instance, one of the first commercialization attempts targeted restaurants. The idea was that a small espresso machine would be appealing to them. Wrong analysis. A small machine saves space but the unit cost of a cup of coffee is much higher than that of a large, heavy-duty machine. But most restaurants have enough space and care a lot about unit cost. Hence the failure. Initially launched within Nestlé, the project was hosted in a separate unit after some time as a result of the widespread skepticism – to say the least – about it within the company. Simply put, nobody believed in it. This is because the product was disruptive in the definition given by innovation expert Clayton Christensen: it didn’t fit the company’s business model, which is essentially to sell light products such as coffee or snacks in packages through supermarkets. Nespresso, on the contrary, involved producing and selling a coffee machine and selling coffee cups to machine owners. In addition, the project required an important budget at the expense of other units who faced stiff competition and couldn’t afford to reduce their own budget for such an uncertain project.
Despite the failures, the project carried on thanks to the political skills of the team. Until then managed by pure Nestlé lifers, the real break for the project came when Nestlé recruited an outsider – Jean-Paul Gaillard, to lead it. Gaillard was known at that time for having successfully launched Marlboro‘s line of clothes. He had no knowledge of the coffee business but knew how to launch a radically new business unit that broke from the company’s main line of business – and that was what mattered. He also came from a different culture from the the traditional, rather conservative and low profile Nestlé culture. Nestlé is a very very well managed company that produces profits year after year like a Swiss clock, so the length of the Nespresso innovation process cannot be explained by saying that Nestlé is not well managed. Market studies were negative, nobody wanted the product, but Gaillard ignored them and finally launched the product with the high-end, consumer positioning we know today.
And it worked. The Nespresso Club, another innovation, added to the premium positioning and helped with word of mouth and direct marketing. Yet another innovation for Nestlé, the opening of shops, owned by Nestlé. The overall project shows many innovations and significant risk taken by the company. It also shows the persistence of Nestlé, or rather of some Nestlé managers, in the face of persistent skepticism and negative market feedback: 21 years of failures, and each and every year the company soldiers on. 21 years, for a coffee machine! But 21 years giving way to one of the most successful and profitable products in the history of Nestlé.
In all, the Nespresso project shed some interesting light on the innovation process: it is not linear, it is difficult to plan, it cannot be reduced to a ‘method’, and it does not fail until it is stopped. One never knows if, after a long period of time, success if only a few weeks away or if it will never come.
This article is extracted from my book “A Manager’s Guide to Disruptive Innovation“. See it on Amazon here.
I live in Japan and this product/machine has had a lot of success here. Basically because nobody knows how to do it. It is an idiot proof machine that makes every house wife a barista. Most of the coffee consumed here is made from syrup and sold from machines in small cans. Hot or cold, with milk or black. Not until ten years ago when Starbucks came to Japan did the average consumer find out about espresso . I have an old Olympia Swiss machine with a manual lever. Nestlé has always had a monopoly in Japan hand in hand with UCC. I suspect that they will just find a way to keep competition at bay. If jean Paul ( we are friends from Lemania business school in Lausane ) wanted to make an incursion in this market it would be on a price basis. Housewives hold the purse strings and are always comparing prices. Men drink it but women buy it. An add campaign should show women having trouble with grinding coffee then trouble making it. In comparison the capsule method would be shown as very easy. The green label would just be an added feature.