Tassimo fights back...

by chee Leng (on coffee makers)
(Singapore)

Tassimo used to be with Starbucks, but they split two years ago, and the latter moved on to developed a relationship with Keurig (GMCR).

Tassimo was single for a while and now they found a new partner with Costa Coffee, the world's 2nd largest coffee chain.

And both of them have their sight zoom in on Europe, in fact Tassimo make a move into Europe last year. If the strategy is well executed, Keurig could well be left out of Europe for good!

Tassimo partnership with Costa Coffee is similar to the one that Starbucks has with Keurig. Costa Coffee range would be available in T-disc and in return, Tassimo brewer would be sold in all Costa Coffee outlets.

Personally, this is a well calculated move. I don't really care about Kraft being the top coffee seller in Europe as reported by Euro monitor (because I believe the bulk of it is Maxwell house).

What I am looking at is the retail and distribution that Tassimo can leverage on. Costa coffee has a huge presence in Europe.

Currently, the market leader for single serve in Europe is Nespresso. But, even though they have won a patent lawsuit against Sara Lee and ECC, the case looks like it would drag on.

And Nespresso main distribution arm remains to be its high end boutique. Keurig is not making much foray into Europe yet.

And my thought is, if Keurig would to look for expansion after US, Asia Pacific should be their priority rather than Europe where Starbucks is not represented in some places.

My $0.02

Why this strategy might work

Starbucks seems to be moving in all direction, while it has a partnership with Keurig, it seems that they are also developing their own single serve coffee machine Verisimo.

Thus, my thought is the execution on having keurig on all their outlets might be delayed. And certainly given historical records, after North America, it is usally Asia Pacific that would be their next expansion destination.

So, Europe for a while should be free of competitors other than Nespresso.

Then comparing Nespresso distribution versus Costa Coffee, the latter definitely have an edge. If Tassimo can gather speed on this execution, they might capture a share of Europe single serve coffee market.

The Consumer's Mentality

If they are willing to go low to buy ECC, L'Oro to be used on their Nespresso machine, it means they are willing to try new things.

While cost is one consideration, variety is the top priority when they choose compatible products. And variety happens to be what Tassimo is able to offer.

So, the consumers is pretty fickle minded and would change to your brand if the price is right. The barrier is of course the machine.

But, if Tassimo can replicate the exchange a coffee machine promotion that they ran in US (i.e. consumer can exchange any coffee machine for a Tassimo), they might have capture good market share.

Sure, this might be an expensive strategy and is no different to buying market share. But, without going for an aggressive strategy, you simply cannot move forward.

Case in point, UCC holds the rights to keurig products for more than a decade in Asia but has yet to make any impact on any Asia's countries.

Ironically, the market leader in Japan (UCC home ground) is Nespresso and not Keurig.

Why Costa coffee is more than good partner

It doesn't matter than Costa Coffee is only available in 25 countries, it is in 2 countries that would make a difference -China and India.

And has highlighted earlier, what Tassimo and Costa needs is speed. If Tassimo is able to offer products in China and India, this would aid in their expansion plans greatly.

The rest of Asia can wait, these two countries are the ones that have the most middle income segment, and the folks that are most likely to visit cafe and be responsive to marketing message.

My thought is, the partnership with Costa Coffee gives Tassimo more than a fighting chance, if executed well, it could potentially move them to be market leader.

The variable that could make that a reality is speed to market.