NESPRESSO SUSTAINABILITY MBA CHALLENGE 2015 BACKGROUND ON NESTLÉ NESPRESSO S.A.

Transcription

1 BACKGROUND ON NESTLÉ NESPRESSO S.A. NESPRESSO SUSTAINABILITY MBA CHALLENGE 2015 This information may be shared freely but the document as such is for use in the context of the MBA Challenge only

2 TABLE OF CONTENTS 1 INTRODUCTION 3 2 ABOUT NESPRESSO 2.1 A unique business model 2.2 Creating and sourcing the highest quality coffee 2.3 A dynamic and fast growing market THE GLOBAL COFFEE SUPPLY CHAIN AND ISSUES 3.1 Key facts on coffee 3.2 Recent market conditions 3.3 Coffee sourcing programmes PORTIONED COFFEE SEGMENT 4.1 Coffee segments 4.2 Trends in portioned coffee machines SUSTAINABILITY: A KEY BUSINESS DRIVER FOR NESPRESSO 5.1 Creating Shared Value and Nespresso sustainability commitment 5.2 Achievements in AAA 5.3 Achievements in recycling capacity 5.4 Achievements in carbon footprint 5.5 A new strategy: the Positive Cup approach commitments 5.7 What s next? REFERENCES APPENDICES

3 1 Introduction

4 1. Introduction BACKGROUND ON NESTLÉ NESPRESSO S.A. NESPRESSO SUSTAINABILITY MBA CHALLENGE This background document has been co-authored by the Nespresso team and their partners at the Sustainable Markets Intelligence Center (CIMS) and INCAE Business School in Costa Rica. The document is designed to give a broad introduction to the Nespresso business and to explain its commitment to sustainability along its value through its AAA Sustainable Quality Program as well as its achievements in recycling capacity and carbon footprint reduction. Furthermore, it explains Nespresso s new strategy: the Positive Cup and its next challenges in their business model to accomplish their new 2020 sustainability commitments. This document intends to provide useful context for the forthcoming MBA Challenge Case Study that will be published in February The document is based on 2013 Nespresso data, unless otherwise stated. 4

5 2 About Nespresso 2.1 A unique business model 2.2 Creating and sourcing the highest quality coffee 2.3 A dynamic and fast growing market

6 2. About Nespresso The Nespresso concept was the brainchild of a Swiss coffee pioneer and inventor who was determined to create a preparation system that would enable discerning coffee consumers to prepare excellent quality coffee easily at home. 2.1 A UNIQUE BUSINESS MODEL The patented Nespresso system uses a unique extraction method encased in stylish machines to extract consistently high quality coffees from exceptional coffee blends in portioned aluminium capsules. Launched in 1986 Nespresso revolutionized in-home coffee cup quality and pioneered the entirely new home use of portioned coffee. The company has continued to innovate America (VertuoLine). This new system was designed to meet the tastes of the North American consumers, brewing the highest-quality American-style large-cup coffee and authentic espresso. The Nespresso business model is based on three pillars: highest quality coffees, innovative stylish machines and personalized services. The brand welcomes coffee lovers and invites them into an exclusive relationship (those who buy a Nespresso machine automatically become members of the Nespresso Club). A 24/7 service allows Club Members to order capsules, send machines for repair and ask any questions related to their use of Nespresso products. Nespresso has created a brand that stands for exceptional quality, luxury and a lifestyle experience. The individual coffees in the range are described wine industry to denote an excellent quality, and adapted by Nespresso to denote the quality of its coffees). In addition to being able to order capsules online, Club Members can also shop in Nespresso boutiques, more than 327 worldwide at the end of 2013, which are always located in the high-end retail areas of major global cities. The brand s story positions it as ultra premium. In addition to machines and coffee capsules, Nespresso sells coffee-related accessories created by top designers and has sponsored high-end events such as the Cannes Film Festival and the America s Cup. 2.2 CREATING AND SOURCING THE HIGHEST QUALITY COFFEE According to studies conducted on specialty coffee and product sensory Nespresso, only around Nespresso the business, securing a stable, long-term supply of highest quality green coffee became a key priority. Furthermore, there was a growing internal consensus that even if it could secure the coffee it needed, the Nespresso their relationship with the company. 6

7 2. About Nespresso 2.2 CREATING AND SOURCING THE HIGHEST QUALITY COFFEE Nespresso consumers is upmarket, slightly older coffee consumers. The home market of Switzerland and other European proportion of total sales, though the brand is also growing strongly in so called white cup (coffee plus milk) markets such as the US, Asia and Latin America. 2.3 A DYNAMIC AND FAST GROWING MARKET The unique features of the Nespresso system and business model have led to high growth rates, making Nespresso one of Nestlé fastest-growing businesses and a so-called billionaire brand. The company has over 9,500 employees and the brand is now available in 60 countries. One of the brand s main strategic challenges in recent years and in the future will be to manage this growth, in all areas of the business, including human resources, customer service and supply chain management. Portioned or single-serve coffee is now a fast-growing segment and Nespresso s success has drawn the attention of a range of competitors with currently around 45 competitive systems and 150 brands with compatible competitors who entered the portioned coffee sector in 2010, have chosen Nespresso position with regard to sustainability. One has focused on biodegradable capsules (as compared to the Nespresso recyclable aluminium ones) and the other is Figure 1: Nespresso 2000 over 330 employees 2013 over 9,500 employees 7

8 The global coffee supply chain and issues 33.1 Key facts on coffee 3.2 Recent market conditions 3.3 Coffee sourcing programmes

9 3. The global coffee supply chain and issues 3.1 KEY FACTS ON COFFEE Coffee is grown in many countries. However, only a selection of countries are volumes and is generally considered of lower quality than Arabica. Arabica coffee is produced in smaller volumes (frequently on farms of less than 1 hectare, but sometimes on farms of over 1,000 hectares), and is generally of high to extremely high quality. Nespresso and its principal competitors are interested in Arabica coffee and generally compete with each other for supply and suppliers. Arabica coffee is traded on the New York stock exchange and its price historically varies between 150 to US$200 cts/lb. Robusta is traded on the London International Financial Future and Options Exchange in /MT. 100 cts/lb. Coffee prices are highly volatile and do not respond exclusively to coffee supply and demand. An interesting aspect of the international coffee market is that although Arabica and Robusta compete in very different segments, they are frequently substituted for each other in blends produced for mass markets. As a consequence, the international market price for Arabica is highly dependent on the supply and demand in the much larger Robusta market (see chart 1 below). The overall result of market conditions for the past 20 years has been In 1989, coffee markets were made more open when a long-standing producer-country cartel was abandoned. In the following years, producers and producer countries (particularly of Arabica coffees) shifted their emphasis became more important for a variety of international markets and trading companies. This market liberalization opened up new possibilities for traders and roasters. Many companies entered this new market space. In the U.S. Chart 1: ICO indicator prices, nominal (US$ cents/lb) Source: ICO, 2014 ICO indicator prices, nominal (US$ cents / lb) ICO COMPOSITE COLOMBIAN MILD OTHER MILDS BRAZILIAN NATURALS ROBUSTAS

10 3. The global coffee supply chain and issues 3.2 RECENT MARKET CONDITIONS With the increased demand for high quality coffee, many analysts predicted skyrocketing prices for Arabica coffees. However, new entrants in the Robusta market, most notably Vietnam supported by a massive World Bank program, (see Chart 2) driving down Robusta prices, and taking with them the Arabica prices. Vietnam thus became the second largest worldwide producer after Brazil. Chart 2: Coffee production (Arabica and Robusta) of six representatives countries in millions of 60 kg bags Source: ICO, Mb 50 Mb Coffee production (Arabica and Robusta) in bags 40 Mb 30 Mb 20 Mb 10 Mb BRAZIL COLOMBIA VIETNAM INDIA INDONESIA MEXICO The net result of market conditions for the past 20 years has been volatility as well as a decrease in prices for Arabica coffee for the past 3 years, as indicated by the charts below. Chart 3: Nominal prices paid to growers for Arabica coffee from sources reputed for quality Source: ICO (d), Prices paid to growers (Arabicas) nominal US$ cents / lb BRAZIL COSTA RICA COLOMBIA GUATEMALA 10

11 3. The global coffee supply chain and issues 3.2 RECENT MARKET CONDITIONS Chart 4: Real prices paid to growers for Arabica coffee from sources reputed for quality. Price index 2005 =100 Source: ICO (d) and OECD, Prices paid to growers (Arabicas) real terms Producer price index 2005= BRAZIL COSTA RICA COLOMBIA GUATEMALA US$ cents / lb As seen in Chart 3 and 4, the market for Arabica coffee futures had a downward trend in 2011 against sustained market pressure. Nevertheless, according to ICO, the price this last year has stabilized and shown an upward trend when compared to Additional pressure on farmers comes from increased production costs. Compared with 1995 levels, fertilizers have increased in cost by a factor of 4 or more (largely correlated with oil and natural gas prices). Labor costs have also increased. Since chemical inputs typically represent around 1/3 and in many cases eliminated. In other agricultural sectors, prices have also decreased (mostly due to per hectare). However, in the case of Arabica coffee, there have been no major technological changes to increase productivity in the past 20 years or more. In fact, productivity has actually been decreasing in most Arabica- investment in new coffee plants, genetic upgrades, machinery and even chemical inputs. 11

12 3. The global coffee supply chain and issues 3.2 RECENT MARKET CONDITIONS Chart 5: 1 Source: Faostat, Green coffee productivity of selected countries (46 kilo sacks ( qq ) / hectare) Quintals / ha COLOMBIA ETHIOPIA GUATEMALA INDIA INDONESIA MEXICO VIETNAM Furthermore, in a more global context, according to the United States Department of Agriculture (USDA) world coffee production for 2014/15 is forecast to decline 1.5 million bags from the previous year to million due primarily to a weather related shortfall in Brazil. However, the reduction is expected to be partially offset by rebounding production in Colombia and Central America. In this same subject, I&M Smith Company (2014) forecasts that the new Vietnam crop is in full swing and while there have been some rain interruptions to the harvest it is peaking. However, the conservative Vietnam Coffee and Cocoa Association forecasts a 20% lower new crop. Nevertheless, it remains largely ignored by the local and international coffee trade and for the present the perspective is still for a new crop of approximately 27.5 million bags, of which close to 96% shall be made up by Robusta coffees. Concurrently, the Mexican and Central American crops are now picking up in volume and one can presume that the forecasts for increased regional coffee supply for the coming year are a matter of reality. This is however having some impact upon the export differentials for the coffees from this Panama are an exception where dedicated consumer market support from premium differentials for their coffees. Thus in terms of these select few, the negative nature of the softening prices of the New York market reference prices is not having so far the effect upon internal market prices, as it is for their neighbors. 1. Production of coffee in Vietnam corresponds mainly to Robusta coffee. Most Arabica coffee producing countries, like Mexico and Colombia have a trend of a declining total production of coffee. 12

13 3. The global coffee supply chain and issues 3.3 COFFEE SOURCING PROGRAMMES Nevertheless, even with a more positive future scenario, sourcing high 5% of the world s coffee production is given over to Arabica high quality increase. Companies like Illy Café, Starbucks and Nespresso are all seeking to obtain these beans through their respective sourcing programmes. Issues addressed include those of quality, traceability, as well as environmental and about, and that are increasingly viewed as important in the securing of long- as Fairtrade, Organic and Rainforest Alliance have emerged as the main response by other companies to some of the most relevant sustainability issues in the coffee supply chain. The response of Nespresso to these issues and other challenges is its AAA Sustainable Quality Program, a holistic approach embedded in its own sourcing system. Section 5 describes the programme in more detail. 13

14 Portioned coffee segment 44.1 The current landscape 4.2 Trends in portioned coffee

15 4. Portioned coffee segment 4.1 THE CURRENT LANDSCAPE The retail coffee market covers three major coffee segments: Roast and ground coffee, holding 49% of the global market share, soluble coffee with 40% of the market share and the single serve or also called portioned coffee segment with 11% of the market (Euromonitor International, 2013). Portioned coffee has become the most dynamic segment over the recent global coffee landscape; indeed, global coffee s increase in retail value has been driven by portioned coffee growth, which has been recently known as a de-commoditisation trend. AC Nielsen (2012) consolidated data from 26 major coffee markets and showed that even though portioned coffee held close to 6% of the share in terms of volume, it took 20% of the value of the market (Chart 6). Chart 6: Volume and value of the different coffee segments in 26 major coffee markets. Source. AC Nielsen, % 50% % 37 30% 20% % 6 0% Soluble coffee Roast and ground (excluding portioned) Roast and ground (portioned) Cups (478 billion cups total) Value (C36 billion total) According to Ross Colbert, a global beverages strategist of Rabobank, the portioned coffee segment has expanded an average annual rate of 26% between 2007 and 2012, which is equivalent to eight times faster than the remaining coffee categories combined (Jed, 2014). Euromonitor International (2013) estimates that the market segment of the portioned coffee was worth US$ 8 billion in 2012, and its share is expected to constitute 33% of the global coffee market by Currently, the single serve market is geographically concentrated almost entirely in higher income markets (USA mainly), accounting more than 90% of market share in terms of pod sales (see Chart 7). 15

16 4. Portioned coffee segment 4.1 THE CURRENT LANDSCAPE Chart 7: Source: Euromonitor International, % Thousand Tonnes % 30% 25% 20% 15% 10% 5% Freshground coffeepods 2012 Freshground coffeepods 2016 Share of pods 2012 Share of pods France Germany Netherlands USA Belgium 0% Nestlé has been the leader in the portioned coffee market. According to Tea & Coffee Industry International (2014), by 2013 the company held more than a third of the value of the portioned coffee segment with Nespresso with 14,7% of the global share, even though it leads clearly the US market with brewing machines in 16 million American homes and several million workplaces. This American based company has plans to launch in Europe, particularly UK and Sweden in early Portion packs accounted for the 72% of the annual revenue of Keurig ($4,4 billion) by the end of 2013, which grew 21% compared to Lastly, D.E Master Blenders Senseo and Mondelez s Tassimo complete the top 5 global pod brands. 4.2 TRENDS IN PORTIONED COFFEE quality and premiumization, in this sense portioned coffee machines brands have approached these drivers replicating the coffee house experience at households or workplaces. Consumers are looking for high quality coffee experiences and they also want to know more about the coffee they drink, evolving from a coffee drinker to a coffee connoisseur. Even though consumers have not hesitated about paying US$ 0,65 per cup (which means approximately US$30/lb), Pod Pack, a coffee co-packer, considers that the cost of a cup of coffee is also one of the biggest issues. However, many consumers may probably justify their purchase by comparing 16

17 4. Portioned coffee segment 4.2 TRENDS IN PORTIONED COFFEE the cup price to ordering a coffee at any coffee house. Waste (plastic, future trend in the portioned coffee segment. People feel guilty when they day (Tea & Coffee Industry International, 2014). materials that can be fully recycled and that can preserve the sensorial quality a sustainable framework. Most of the consumer concerns and purchasing decisions depend strongly on these former aspects. Competition will be the biggest driver of innovation and future growth in the portioned coffee segment, offering consumers more choices and higher quality. Consumers have already embraced the choices they have in this coffee segment; however, it seems they are still thirsty for more beverage serve cup. 17

18 Sustainability: a key business driver for Nespresso 55.1 Creating Shared Value and Nespresso sustainability commitment 5.2 Achievements in AAA 5.3 Achievements in recycling capacity 5.4 Achievements in carbon footprint 5.5 A new strategy: the Positive Cup approach commitments 5.7 What s next?

19 5. Sustainability: A key business driver for Nespresso Nespresso s sustainability commitment is built on the Nestlé approach of Creating Shared Value (CSV). 5.1 CREATING SHARED VALUE AND NESPRESSO SUSTAINABILITY COMMITMENT This principle, developed by Harvard Professors Michael Porter and Mark Kramer in 2006, maintained that companies had a responsibility to create and share value not just for shareholders but also for the communities in consumers. In the CSV approach they advocate companies identifying a sweet spot or point of connection between the activities and needs of a company and the activities and needs of society, and call this a process of mapping social opportunities. In this way, business organizations can be much more value that is shared with other stakeholder groups. Informed and inspired by the CSV approach, Nespresso social opportunities and areas of interdependence with wider society within its value chain. On this basis, the company has launched an integrated CSV framework 2, to group together its value chain sustainability efforts in the area of coffee sourcing, recycling and carbon footprint. A customer Nespresso interested in the Nespresso AAA Sustainable Quality Program than other customer segments. This fact provided further motivation for the company to develop its strategy. Hence in 2009, the company made the following commitments to be achieved at the end of 2013: Coffee sourcing: Source 80% of coffee from the Nespresso AAA Sustainable Quality Program. Capsule recycling: Increase collection capacity to recycle Nespresso used capsules to 75%. Carbon reduction: Reduce the carbon footprint of each cup of Nespresso coffee by 20%. At this point, 2013 became a pivotal year for the company in its sustainability the 10th anniversary of the Nespresso AAA Program. In addition, it was a year sustainability efforts for the next coming years. As part of this, the Nespresso Sustainability Advisory Board 3 was created which is comprised of experts and thought leaders in the area of sustainability. It has been established to solicit views and provide insight and recommendations to enhance the Nespresso long-term sustainability strategy and to serve as a base for partnerships on 2. Find more details at: or 3. For more information, please go to: 19

20 5. Sustainability: A key business driver for Nespresso 5.1 CREATING SHARED VALUE AND NESPRESSO SUSTAINABILITY COMMITMENT sustainability initiatives. It also establishes a platform for partners to share experiences and provide insights on sustainability trends and issues. The announced new initiatives in areas such as environmental stewardship and farmer welfare 4. VIDEO: AAA Program - 10 years of shared commitment to sustainability The Nespresso innovative program, which helps farmers achieve higher prices, better yields and greater environmental performance and sustainability, is not driven by charity but by creating value. Nespresso and coffee supplies that will be far more sustainable over time. It is this alignment between corporations and social challenges, not a mindset of separation and tradeoffs, which is the key to both economic and social progress. Michael Porter Professor in Business Strategy, Harvard Business School 5.2 ACHIEVEMENTS IN THE NESPRESSO AAA SUSTAINABLE QUALITY PROGRAM Figure 2: AAA pillars Quality Maintaining highest quality Sustainability Respecting people and environment Productivity Farm management A A A Sustainable Value Creation First Second Third The Nespresso AAA Sustainable Quality Program was co-developed by Nespresso and Rainforest Alliance in 2003; it focuses on helping coffee farmers continuously improve their ability to produce the highest quality coffee whilst addressing on-farm sustainability and farm productivity at the same time (see Figure 2 above). 4. For further reference please see attached Appendix 1. Nespresso 20

21 5. Sustainability: A key business driver for Nespresso 5.2 ACHIEVEMENTS IN THE NESPRESSO AAA SUSTAINABLE QUALITY PROGRAM From its original inception in 2003 and through its subsequent evolution, the AAA Program has now grown to be a sourcing program that reaches over 60,000 farmers in eight countries (Brazil, Colombia, Mexico, Costa Rica, to internally by Nespresso as clusters ). 84% of Nespresso green coffee was sourced through the Nespresso AAA Sustainable Quality Program at the end of The backbone of the AAA Program is the large network assistance through farm visits and workshops to help farmers improve performance. As a consequence Nespresso is gradually building ever-closer relationships with its global community of AAA farmers 5. The program not only pays a premium for quality coffee but it also builds partnerships and provides long-term support, which is delivered in two ways. First, through training and technical assistance provided by Nespresso and other partners and secondly through direct investments in a wide range of projects, including: Building a community coffee processing center in Jardín, Colombia that while reducing environmental impacts. Nespresso is seeking to replicate the concept in other regions of Colombia. leading international business school in Latin America. Helping farmers in Caldas and Antioquia, Colombia to increase productivity by rejuvenating their coffee trees and planting coffee varieties that are more resistant to coffee leaf rust. Integrating 3,500 farmers in the AAA program in Ethiopia. A 19-month training curriculum on best agricultural practices, such as mulching or plant renovation was devised to drive improved quality and productivity. About 120 coffee demoplots were implemented in order to train farmers in reallife conditions. Establishing a pilot retirement fund for some 1,200 AAA coffee farmers in Caldas, Colombia through a public-private partnership with the Colombian International. Nespresso follows the progress of the AAA Program in real time, through agronomist farm visits and action plans. Nespresso has compiled detailed information in its centralized AAA database. With more than 10 million data entries accumulated since 2009, it contains information about each farm within the AAA Program, as well quality and sustainability performance

22 5. Sustainability: A key business driver for Nespresso 5.2 ACHIEVEMENTS IN THE NESPRESSO AAA SUSTAINABLE QUALITY PROGRAM indicators. This enables the building of tailor-made action plans for farms AAA Program. In measurable terms there are studies indicating the positive impacts the Costa Rica and Nicaragua, Nespresso has been working with the International a coffee supplier, to train coffee farmers in sustainability and productivity best practices. The IFC measured the impact of the project between 2007 and net income for AAA farms was 27% higher than for farms not part of the Nespresso AAA Sustainable Quality Program. Furthermore, the independent Colombian research institute CRECE conducted a survey among more than 1,200 AAA farmers and non-aaa farmers in Colombia. CRECE applied its sustainability index monitoring to measure AAA farm performance versus the control sample. This study suggested positive progress on social, environmental and economic criteria 6 VIDEO: AAA Program - Cauca and Nariño 6. For further reference please see attached Appendix 2. First impact results of the Nespresso AAA Program in Colombia. 22

23 5. Sustainability: A key business driver for Nespresso 5.3 ACHIEVEMENTS IN RECYCLING CAPACITY Nespresso uses aluminium because it is the best material available today to can also be endlessly recycled without loss in quality 7. By collecting and recycling used capsules, Nespresso is able to reduce its environmental impact; this was one of the conclusions of the Life Cycle Assessment (LCA) by Quantis in In this analysis they compared the environmental impact of several options to make an espresso coffee in a Nespresso machine. Their study showed that when it comes to environmental impact, aluminium capsules that are recycled after use are the optimal way to make an espresso coffee in a Nespresso machine, among all options currently available. In 2009, Nespresso committed to reaching a capsule collection capacity of 75% by the end of By June 2012, Nespresso had surpassed its goal At the end of 2013, Nespresso estimated that its capsule collection capacity had reached over 80% across 30 countries. This has been the result of many efforts that have come together through packaging. This means that Nespresso capsules cannot be collected and recycled in national or local packaging recovery and recycling schemes. Therefore, Nespresso needed a different approach in these countries and pursued different options for the capsule collection: Collection points in Nespresso boutiques; Collection points within the community and at municipal waste centers; Working with courier companies to enable doorstep collection (Nespresso Recycling@Home initiative); Collection points at Nespresso retail partners stores, and in pick-up points in certain markets. Nespresso has established over 14,000 dedicated capsule collection points in 27 countries where national packaging recycling schemes are not available. In few countries, Nespresso is using the existing national packaging recycling scheme, when it s already adapted to accept used capsules. It is the case in 9. Nespresso supports innovation in recycling technology and develops partnerships to improve the recycling of aluminium in general. An example can be seen in France. As small-size packaging cannot always be processed in packaging sorting centers, Nespresso co-founded CELAA, the Club for Aluminium and Steel Light Packaging (Club du Recyclage des Emballages Légers en Aluminium et Acier) in Its mission: to increase recycling capabilities for small-scale aluminium and steel packaging such as Nespresso capsules, bottle caps and aluminium foil. As part of CELAA, Nespresso 7. See appendix 3 for recycling cycle. 8. For a further explanation of the Life Cycle Analysis please see the Quantis - Comparative LCA on Four Capsules Systems For further reference see appendix 4. Countries with capsule-recycling programs. 23

24 5. Sustainability: A key business driver for Nespresso 5.3 ACHIEVEMENTS IN RECYCLING CAPACITY aluminium and steel packaging recovery through the national collection and recycling scheme. On similar subjects, even as a small player in the industry, Nespresso takes a pioneering role in promoting a more sustainable aluminium sourcing. Since 2012, Nespresso has been working together with the IUCN (International Union for Conservation of Nature), civil society organizations and aluminium industry leaders to develop the Aluminium Stewardship Initiative (ASI). The mission of the ASI is to foster greater sustainability and transparency throughout the aluminium industry. In December 2014, the ASI established a standard for sustainable aluminium sourcing to advance responsible leading practices in governance, as well as environmental and social performance. 5.4 ACHIEVEMENTS IN CARBON FOOTPRINT Nespresso uses a life cycle assessment approach to determine where efforts to reduce its overall impact should be focused studies showed that the biggest environmental impact comes from using the Nespresso machine and growing coffee. As a result, Nespresso prioritized improving environmental performance in those areas. At that point Nespresso committed in 2009 to reduce the carbon footprint of a cup of Nespresso coffee by 20% by Naturally, two of the immediate actions involved machine innovation and their AAA Program. Since 2009, all Nespresso consumer machine ranges have been equipped with an automatic power-off function or an automatic stand-by mode. PIXIE, U and Inissia, three recent machines, automatically switch off after 9 minutes of inactivity, consuming 60% less energy than A-ranked machines according to FEA/ CECED standards. Other machines, such as the Lattissima Pro and the Maestria consume 40% less energy than A-ranked machines. impacts on the environment, such as deforestation, use of fertilizers, water management and productivity. Nespresso supports coffee farmers to become more environmentally responsible while increasing the quality of their coffee and their productivity, through training, technical assistance and direct investments. The wide-ranging impacts of coffee growing are more Nespresso directly controls. This is why Nespresso is investing in a solid, integrated and longterm measuring and reporting program for its sustainability performance in the coffee countries of origin. Extensive data collection for the AAA database helps track farmers progress through the AAA Program and helps them better integrate sustainability into their future plans. Moreover, Nespresso operations. As an example, its production centers in Switzerland are equipped with a number of features that seek to reduce their environmental impact. At Orbe, Nespresso incorporated a system that uses river water to cool the factory. Meanwhile, the Avenches facility uses an innovative system 24

25 5. Sustainability: A key business driver for Nespresso 5.4 ACHIEVEMENTS IN CARBON FOOTPRINT that recovers heat from processes to heat the factory, saving 230,000 m 3 in gas each year. 100% of Nespresso green coffee is delivered to the Nespresso production centers by rail. Additionally, although life cycle assessment indicates that it represents less than 5% of the Nespresso carbon footprint, Nespresso is committed to improving the sustainability of its distribution logistics. Nespresso is reducing its environmental impact throughout Europe by implementing the best combinations of rail, road and sea transport to move products between the Nespresso production centers and regional distribution warehouses. At the end of 2013, Nespresso had reduced this carbon footprint by 20.7% compared to Today, we set our ambition of providing the highest quality and most sustainable portioned coffee worldwide. Jean-Marc Duvoisin, CEO Nestlé Nespresso S.A. 5.5 A NEW STRATEGY: THE POSITIVE CUP APPROACH Nespresso has made good progress reaching each of its 2013 sustainability commitments. However, sustainability is a journey of continuous improvement and therefore the company is determined to go further in the future to create shared value for the Nespresso community. At the occasion of the second NSAB in 2014, Nespresso set out an ambitious strategy to accelerate the company s sustainability focus and introduce business, society and the environment. The new sustainability program entitled The Positive Cup will be based on an investment of CHF 500 million over the next six years. The new strategy is supported by members of the Nespresso Sustainability Advisory Board (NSAB) including the Rainforest Alliance, Fairtrade International, the International Union for the Conservation COMMITMENTS The Positive Cup strategy, based on the Nestlé approach to Creating Shared up to 2013 to improve farmer welfare and drive environmental sustainability in coffee sourcing and consumption. It sets out concrete steps that the company will implement to achieve its sustainability goals by The Positive Cup program incorporates ambitious goals in the areas of coffee sourcing and social welfare; aluminium sourcing, use and disposal; Nespresso commits to: 10. For further reference please see appendix 5 25

26 5. Sustainability: A key business driver for Nespresso COMMITMENTS The approach that Nespresso is taking is completely aligned with the vision we have to integrate social and environmental innovations into the heart of business, said Tristan Lecomte, President of Pur Projet. We believe that investing in reforestation of agricultural regions will not only restore natural ecosystems but ultimately also improve coffee quality and productivity and provide better returns for farmers. COFFEE 100% sustainably sourced coffee through the Nespresso expanding the AAA Program in Ethiopia, Kenya and South Sudan, and investing over CHF 15 million in these countries over six years. biodiversity and fair treatment of workers, for example) through long-term partner Rainforest Alliance (since 2003) and Fairtrade. Pursue innovative solutions to farmer welfare, including the expansion of the AAA Farmer Future Program initially through a retirement fund for farmers in Colombia. ALUMINIUM 100% sustainably managed aluminium Expand the capacity to collect used aluminium capsules to 100% wherever the company does business and increase recycling rates. Recycle Nespresso capsules collected by the company into new Nespresso capsules each time it makes sense environmentally. 11 Source 100% of virgin aluminium capsule material compliant with the new Aluminium Stewardship Initiative standard, developed within a multistakeholder programme led by the IUCN. CLIMATE 100% carbon insetting Further reduce by 10% the carbon footprint of the company. Increase farm climate resilience through planting 10 million trees in the AAA coffee regions. This will allow the company to compensate its residual operational carbon footprint within its own value chain, an approach called insetting, and become 100% carbon neutral. VIDEO: Nespresso s agroforestry commitment by For example, in UK, France, Switzerland, Belgium, Luxembourg, Netherlands, Austria and Italy. 26

27 5. Sustainability: A key business driver for Nespresso 5.7 WHAT S NEXT? Through its MBA Challenge, INCAE Business School, CIMS and Nespresso are seeking support from the global academic community to help it develop innovative solutions to its new challenges. This document is a background document that aims to help set the scene for the Challenge. The Case Study will be released early February

28 6 References

29 6. References EUROMONITOR INTERNATIONAL Pod Coffee Market Poised for further Expansion. Available at: Accessed on: December, FAOSTAT Agricultural Production and Yield Statistics. Food and Agriculture Organisation of the United Nations (FAO). Available at: Accesssed on: December, 2014 GIOVANNUCCI, D., LIU, P. AND BYERS, A for Developing Countries. FAO. Rome. ICO International Coffee Organization: Historical Data Available at: Accessed on: December, I&M SMITH Tea And Coffee. Available at: Coffee_Market_Report JED, E In Pod We Trust: Global Beverage Analyst Charts Single Cup Coffee Surge. Available at: Accessed on: December, NIELSEN Portioned coffee global review, June 2014 data. Available at: Accessed on December, TEA & COFFEE INDUSTRY INTL Single-serve advancing but facing wide-ranging challenges. Available at: Consulted on: December, USDA Coffee: World Markets and Trade. Available at: Accessed on: December,

30 7 Appendices

31 7. Appendices APPENDIX 1 NESPRESSO SUSTAINABILITY ADVISORY BOARD KEY INITIATIVES THREE NEW KEY INITIATIVES Expanding the AAA Program in Africa and reviving high quality coffee production in South Sudan Nespresso in partnership with TechnoServe and local governments aims to expand the AAA Program in Africa and to increase high quality coffee production in South Sudan. The goal in Ethiopia and Kenya is to include more cooperatives and smallholder farms and improve coffee traceability to farm level. This initiative has community development programs that aim to revive high quality coffee production in the country addressing key socioeconomic challenges in the coffee growing communities and supporting farmer welfare. Furthermore, in South Sudan s case, Nespresso plans to contributing to economic development and creating coffee supply. AAA Farmer Future Program with Fairtrade International and Colombian farmer cooperatives Nespresso aims to collaborate with Fairtrade International to pilot the AAA Farmer Future Program. The program aims to introduce social welfare Nespresso will market coffee sourced from the AAA farmers cooperatives in Reducing the carbon footprint of coffee farming Nespresso pursues to expand its Agroforestry program, in partnership with the Rainforest Alliance and Pur Projet, to optimise the carbon footprint of coffee farming. The program will help farmers step up their investment in agroforestry, seek to create carbon credits and drive new revenue streams. 31

32 7. Appendices APPENDIX 2 FIRST IMPACT RESULTS OF THE NESPRESSO AAA PROGRAM IN COLOMBIA SOCIAL INDEX CONTROL GROUP AAA 2011 ENVIRONMENTAL INDEX CONTROL GROUP AAA 2011 ECONOMIC INDEX Source: CRECE, For more information, please go to: CONTROL GROUP AAA

33 7. Appendices APPENDIX 3 RECYCLING ALUMINIUM LIMITS IMPACTS ON THE ENVIRONMENT APPENDIX 4 COUNTRIES WITH CAPSULERECYCLING PROGRAMS Argentina Brazil Canada USA Austria Belgium Finland France Italy Ireland Luxembourg Poland Portugal Spain 33 Netherlands Norway Sweden Switzerland UK Czech Republic Hungary Israel Russia UAE Australia Hong Kong New Zealand Singapore South Korea

34 7. Appendices APPENDIX 5 SUSTAINABILITY ACTIONS IN OUR VALUE CHAIN FROM THE CHERRY TO THE CUP 34

35 This information may be shared freely but the document as such is for use in the context of the MBA Challenge only.