Nespresso Sustainability Report by Alejandra Martinez

ADMC 251 OLA IMC, Fall ‘19

Sustainable Marketing

By: Alejandra Martinez, Gabriel Carabli, Sofia Acosta and Carly Schmidt

Table of Contents Overview …………. P.3 Sustainability Report Dimensions …………. P.6 A) …………. P.6 B) …………. P.12 C) …………. P.13 Competitor Comparison …………. P.16 Recommendations …………. P. 20 Conclusion …………. P. 22 Work Cited …………. P. 23 Appendix …………. P. 26

Overview The Nestle Nespresso company is an autonomous globally managed business of the Nestle group. Nestle began with a simple idea in 1986. To help people create the perfect cup of espresso coffee and since then, Nespresso has redefined the way millions of people enjoy their espresso coffee. Nespresso is present in over 60 countries and counts over 13,500 employees worldwide. (Nespresso n.d) Nespresso’s business model is successful due to the fact that they use different channels to distribute to their clients as well as knowing everything about their own clients, their business model was not perfect in the beginning. The company decided to use a business to business market in the 1990’s with another machine manufacturer that maintained sales. (Nespresso n.d) This model failed and it almost bankrupted the company. Nespresso had to come up with a new alternative quickly so in the early 2000's they came up with their current business model which shows a year to year growth rate of about 25% (fastest division at Nestle) it revenues about 2.4 Billion. (Nespresso n.d)

Sustainability When it comes to sustainability Nespresso has gone through 30 years of change and growth, Nespresso has learned to keep up with its sustainability performance by creating several programs and goals through their sustainability reports. These reports are released every couple of years based on what the company has accomplished and what they need to work on upcoming years, they always focus on improving: Coffee cultivation, machine use, business operations, and capsules recycling. (Gunther, M.2015, May 27), (Nespresso n.d) The Nespresso AAA Sustainable Quality™ Program was created and launched in 2003 with the Rainforest Alliance. This program focuses on maintaining a long-term relationship with farmers, it sets sustainable practices on farms and the surrounding landscapes and improves the overall quality of harvests. At the same time, it contributes to the livelihoods of farmers and their communities. It is now being implemented in East Africa, in line with their commitment to 100% AAA sourced coffee by 2020. (Nespresso n.d) When it comes to energy, Nespresso is committed to managing natural resources responsibly and efficiently. Nespresso uses a scientific methodology approach called ‘Life Cycle Assessment’ (LCA) This helps the company assess the scope of their environmental impacts in order to reduce its carbon footprint. Between 2008-2012, they reduced the carbon footprint of a cup of espresso by over 20%. (Nespresso n.d)

Lastly, Nespresso’s aluminum packaging became a problem as it created too much unnecessary waste. As a solution, the company created the aluminum capsule recycling program in 1991. Nespresso’s recycling program has expanded globally by creating an easier method for people to recycle their used capsules. Currently in Canada you can drop off used capsules at their boutique shops or send them directly to Nespresso through the mail. Approximately 56% of Nespresso coffee pods sold today are used to create value after they are used, almost half of these are recycled directly and are made into new capsules. (Fromm ,2019).

Sustainability Report Dimensions A) How does the company define and report on sustainability? Nespresso has gone through considerable efforts to be a sustainable brand and share how the are doing so to the public. Information regarding Nespresso’s approach to sustainability can be easily found online and in-store. The brand has ensured to highlight their efforts by making it easily available through their website and their “Positive Cup” shared value reports which covers what Nespresso has been doing to make a better global impact. There are various dimensions of sustainability that the SASB defines. The following will highlight what Nespresso is doing to achieve sustainability practices.

Environmental Recycling Nespresso is a single-serve coffee making machine and coffee product. Due to the single-serve nature of the device, this product does produce a considerable amount of waste. However, Nespresso has plans and innovation behind them to set in place a plan to improve the sustainability behind the product. Their first notable effort to improve their environmental impact has to do with the material Nespresso Pods are made of. Their coffee pods are made from aluminum. (Nespresso, n.d.) Aluminum was selected as it protects the flavor and quality of the coffee inside each pod, while being also being an infinitely recyclable material. (Nespresso, n.d.) Nespresso is proud to be using a material

that is sustainable, responsibly sourced and provides proper protection for quality coffee freshness.

Another way Nespresso has made environmental efforts is by how they are handling waste produced by using the coffee machine. When visiting a Nespresso store or browsing through the website, it is apparent that Nespresso is active in their recycling program. In Canada, there are multiple solutions for disposing the single- serve pods used to make a cup of coffee. There are three methods to properly dispose of used pods in Canada. First, returning used pods to a Nespresso boutique where your empties are happily taken and shipped off to the Nespresso recycling facility where they will dispose of waste responsibly. (Nespresso, n .d.) Second, Nespresso offers free recycling bags that you can keep at home for empty pods and then drop them off at a Canada Post mailbox or post office where waste will be taken to their recycling facility. ((Nespresso, n .d.) Lastly, you can safely dispose of used pods by putting them into “The Green Bag” which is another Nespresso recycling bag that you can put directly into your blue bin at home which again will be taken care of by the recycling facility. (Nespresso, 2019) All recycling bags are free

making this an accessible and easy solution that can help Nespresso reach their sustainability goals.

Social Capital

Nespresso has set a standard for quality in products that consumers love and come

back for. In order to ensure quality of product, Nespresso understands that a great cup of coffee all starts from the source. In 2003 Nespresso launched the AAA Sustainable Quality program with the Rainforest Alliance which was put in place to foster great and long term relationships with farmers. (Nespresso, n .d.) The program focuses on sustainable practices used by the farms and surrounding landscape which helps to improve the quality and quantity of coffee harvested. (Nespresso, n .d.) Further, this effort has contributed to improving the livelihoods of those farmers and their communities. Nespresso has a goal to

spread this program into East Africa so that they can achieve 100% sourcing from AAA Sustainable Quality farms. (Nespresso, n.d.)

Human Capital Nespresso fosters a working environment for people to grow. A career at Nespresso can be found all over the world. There are a number of diverse jobs that the company offers, from sales to human resources to retail. (Nespresso, n.d.) Nespresso has built their success with their passionate team of individuals working together to create excellence. The work environment at Nespresso is concerned with allowing employees to grow and feel supported by each other. Further, this is a diverse and non-discriminatory practice that care about the quality of work and their product. (Nespresso, n.d.)

Business Model and Innovation

Since the beginning of Nespresso, the company has differentiated itself in the coffee

market by introducing a way to make a barista-style espresso with ease by using it’s single-serve technology. (Nespresso, n.d.) The way that Nespresso has evolved over time has proven that this is a product that works with the needs of consumers to deliver a profitable and evolving solutions. To understand more about the Nespresso business model, let's take a look on how the company has changed their approach over time. In 1979 the Nespresso technology was introduced as a business line of coffee machine that would provide single-serve and easy to make café quality expressos. (Lachapelle,2018) In the beginning the model was mainly pitched for the use of restaurants and office environments. (Lachapelle,2018) In 1986 Nestlé - parent company of Nespresso, established Nespresso as a separate company owned by Nestle. In this phase of their business model, Nespresso grew to expand their vision by targeting households. To develop this, Nespresso began to outsource their machine technology from Eugster/Frismag which is an already established coffee machine company. (Lachapelle,2018) Nespresso then focused on their B2C channels by concentrating on production and sales of the single-serve coffee pods. (1, Appendix) In 1988, Nespresso entered a new phase of their business model which started to shape the way Nespresso operates today. (Lachapelle,2018) Machine manufacturing begin to be shared by multiple companies which kept low risk and costs. Pods and products began being made in more varieties and distributed through more channels. Today Nespresso has done an excellent job at expanding their business model to stay relevant on the market and grow towards a more sustainable model. Innovations that have been made to improve

business and sustainability include their recycling program, introducing Nespresso boutiques, AAA Sustainable Quality program, e-commerce experience, celebrity endorsement from George Clooney the Nespresso club, setting goals for recycling initiatives and much more. (Martis, 2015) Nespresso has evolved their business over time to keep their business thriving and sustainable. Climate Change Being a brand that falls under the category of coffee and agricultural products, Nespresso has a responsibility to be aware of climate change. Nespresso understands that coffee cultivation is dependent on the state of the world’s climate. In order to combat climate change, this brand is ever evolving to do what they can to improve environmental performance through all aspects of producing, distributing and selling their product. (Nespresso, n .d.) Some ways in which Nespresso is tackling climate change is always working toward reducing their carbon footprint and working towards strengthening the resilience of farming landscape by extensive tree planting and working with farmers and other partners. (Nespresso, n.d.)

B) Initiatives, Partnerships, and Successes.

Nespresso has created several initiatives and partnerships with lots of success behind them. One of the most important initiatives that Nespresso has created is The Nespresso AAA Sustainable quality program with the rainforest association, this program focuses on maintaining long lasting relationship with the coffee farmers while still keeping sustainable practices on farms and land. This initiviate is very important as it creates safe jobs for farmers while they get paid fair wages. Nespresso’s AAA Sustainable Quality program c ontributes to the livelihoods of farmers and surrounding community by helping them to thrive. This initiative has evolved over time with the help of over 45 global partnerships that provide funding, materials, and training. (Nespresso, n.d) (National Geographic, n.d)

The AAA Sustainable Quality program is a multifaceted strategy, the overall idea is that every cup of coffee can have a positive impact. In the last decade, this initiative has shown the perfect representation of what Nespresso means by creating shared value. Nespresso’s Grand Cru Suluja ti South Sudan was launched in a number of markets, this is the first coffee to be exported from the country. Despite recent developments of violence and the return of armed conflict in South Sudan, Nespresso plans to continue to be committed to local communities and farmers. Nespresso also remains committed to its strategy of coffee revival. In 2017 they launched Aurora de la Paz, a Pure Origin coffee from Caquetá in Colombia, an area that is very exposed to the civil conflict. All of this has been made possible by the peace process and Nespresso’s commitment to make the AAA Sustainable Quality program work among the affected farming communities of the region. (National, Geographic n.d)

C) Marketing Examples Promoting Sustainability. Nespresso’s Website For 30 years, Nespresso has been incorporating sustainability into their organization in order to generate a positive impact in society. “The positive cup” is what today generating a positive impact towards Nespresso farmers, society, and the environment, so as a result, they can present their customers the highest quality coffee, ”cup after cup”. Some of their sustainability information is introduced mainly on their website, on a 52-page pdf divided into four sections. The company, coffee, aluminum, and climate. Further, in their canadian website they have an interesting recycling program that you can return their

aluminium capsules to their store or drop them in a canada post office after use to participate and help the environment. (Nespresso, n.d) Instagram Nespresso’s instagram account is the perfect platform to show their consumers how involved they are in protecting the environment. Recently, they partnered with National Geographic to show their company mission of generating a positive impact on the environment while offering the consumer an exceptional coffee. They filmed a coffee craft in Colombia where the farmers were helped by a Nespresso agronomist by identifying the most sustainable process to get the perfect cup of coffee depending on the farms land. (3) In most of their marketing examples promoting sustainability, it is noticeable how they follow some procedures that without doubt are sustainable. However, it is important to mention that the company is not very transparent in some areas. For example, stating what percentage of the aluminium capsules are recycled every year, or how much water they use in the process of finding the perfect cup of coffee. Ther videography and photography used to promote Nespresso’s sustainability process is beautiful, but they are just showing the accomplishments and hiding the real facts.

Youtube One of their sustainability sections is dedicated to their company engagement in where is linked to a youtube video explained by George Clooney, their brand ambassador. In this 3 minute video, he summarizes sustainability and talks about Nespresso’s recyclable packaging used in their capsules made in aluminum replacing the use of plastics, that can be on the planet for longer than 100,000 years. (3BL Media, 2017) The capsules are 100% recyclable. Also, he talks about what people mean for the company. If their farmers are able to make a great product and they are paid better for their work, their product can be successful.

Competitor Comparison Nespresso is one of the most popular brands in the single-serve-coffee machine space. (The Kitchen Hand, 2019) Since the beginning of this product’s launch over 30 years ago, it has revolutionized the way people are making coffee at home. (Nespresso, n .d.) Built on the idea of easily replicating a barista style coffee at home, Nespresso has continued to expand in offerings to the latest innovation in product and design worldwide. (Nespresso, n.d.) Upon understanding the sustainability efforts made by Nespresso, it is important to take a look at their main competition and what they are doing to be sustainable. According to an analysis released by The Express wire on the single serve coffee makers 2019, Nespresso is one of the top players in the market along with competitor, Keurig. (MarketWatch, 2019)

How does Keurig practice sustainability? Similar to Nespresso, Keurig has made it easy to look their sustainability plan. It is clearly positioned on their website so that people can be educated on what they need to know about the sustainability of this product and brand. When looking into sustainability regarding single-serve coffee products, one of the most important questions is how waste is handled. Keurig K-Cups are the alternative to a Nespresso pod. Keurig is working towards making their K-Cups completely recyclable worldwide in 2020. (Keurig, n.d.) K-Cups are being made with #5 plastic which is recognized as a recyclable material. (Keurig, n .d.) Today in Canada all K-Cups are recyclable but it should be noted that in order to do so you must open up used cups, empty the used product in the compost and dispose of empty cup into the recycling bin. (Keurig, n .d.)

In addition to their goal of making all cups recyclable, Keurig has set more sustainability goals. More efforts are being made towards recycling efforts by Keurig investing $1 million per year in recycling systems and education to boost community recycling. (Keurig, n.d.) The company supports a healthy end market which supports and promotes the use of recycled materials. Further, Keurig is in support of where they are sourcing their coffee and how it impacts farmers and their communities. Areas of focus for them are improving farming techniques, addressing local water issues and planning for climate change while strengthening farmer organizations. (Keurig, 2019) Keurig believes their success comes from the engagement they have with their employees. In order to do so, Keurig has made significant efforts to get their employees involved and engaged in company values and missions. To do so, Keurig has been taking employees to coffee farming facilities around the world. (Keurig, n.d.) These trips allow involvement and appreciation for where their product is coming from while they gain a deeper perspective and relationship with the farmers and their communities. In turn, Keurig has seen a 55% participated of the employees in volunteering programs and hope to expand this. (Keurig, n .d.) Keurig has defined a 2020 sustainability goal report in which they plan to increase efforts such as recycling, employee engagement in sustainability/educations and to achieve zero waste-to –landfill at their owned manufacturing and distributing facilities. (Keurig, n .d.) It is clear that Keurig has a strong grasp on sustainability and what they can do to achieve a more sustainable business model.

H ow does Keurig’s sustainability efforts compare to Nespresso?

Upon looking at Keurig’s sustainability plans there are a number of comparable efforts to Nespresso. Seeing as these two brands are direct competitors, they offer a very similar product. A big difference between these two in regards to sustainability, has a lot to do with the recyclability and waste management of Nespresso pods or K-Cups. Nespresso has designed their pods with aluminum which is an infinitely recyclable material. (Nespresso, n .d.) Keurig is still working towards their goal of making all cups out of recyclable plastic worldwide. In addition to the topic of waste, it should be noted that Nespresso offers a more thorough and extensive methods for recycling. Nespresso provides consumers with a variety of recycling possibilities including taking used pods back to the store for disposal and offering special recycling bags so you can dispose safely at home or the ability to take to the post office. Additionally, Nespresso actually has their own

recycling facility where they handle the waste of their pods and get them ready to be recycled. (Nespresso, n.d.) Keurig and Nespresso have both identified the opportunity to support the source of their products by forming trusting relationships with farmers and the communities where their coffee is sourced. Both of these brands have also made a clear plan on how to operate with climate change in mind, and have made goals and solutions to combat this global issue. Though the two companies are working towards sustainability, Nespresso seems to have a more in depth and extensive goals in how they are actively working to be a sustainable brand.

Recommendations As we know the Nespresso coffee pods are for a single-use. They're made of aluminum and can be recycled only by them in a specific way. Only a small percent of users who used the Nespresso machine can go back to the store and return the empty pods, but the rest they are just thrown away even though it is possible to recycle 100% of the capsule, and that is not helping the planet. “The company’s single-serve aluminum pods create unnecessary waste. A valuable, energy-intensive resource winds up in landfills. That’s bad.” (Gunther, 2015) Nespresso should consider creating pods that help to stop the unnecessary waste of materials. By changing the single use capsules into aluminium bags of 8.8 ounces of coffee

so the consumers can recycle a single bag after used instead multiple aluminium pods. An easier way to recycle from home. Furthermore, the amount of energy required for the Nespresso coffee machine and the environmental footprint it produces is gigantic compared to drip or instant coffee,. not to mention, not everyone can afford to buy the Nespresso machine. Therefore, if Nespresso considers expanding their coffee line and begins to sell different coffee variations such as an instant coffee replacement of the coffee pods, not only they could reduce their environmental footprint but also attract new potential customers in different targets while still keeping their price considering the quality of their products, their branding, and their market positioning. For example, millennials are the largest generation. They love coffee and they care about the environment as no other. Therefore, a brand expansion could mean a reduction of the environmental footprint and a possible increase in sales. The amount of information about sustainability dedicated for their canadian website is minimal and very summarized. They talk about recycling which is great. However, no other form of sustainability is shown, and as a result it makes the company look like they lack transparency towards their consumers. Therefore, it would be good to consider renovating their website. They could include a section dedicated to their sustainability process. They do not need to incorporate their 52-page pdf about sustainability but they can include some segments from their National Geographic partnership because they have great content attractive to current and future consumers.

Conclusion Today, Nespresso is one of the most successful coffee companies in the sector, because of its innovative ways to connect with the customers through their marketing campaigns. As we can see, their AAA Sustainable Quality program shows a high level of growth with the community. The farmers, especially the small ones are the key beneficiaries of the AAA Sustainable Quality program. The most challenging sustainability reality that Nespresso faces can be recycling. The recycling is challenged as it depends on the consumer and the way that they choose to recycle, but it also depends on the recycling systems. Nespresso should look at ways to increase the knowledge to the customers and encourage them to recycle the pods in the proper way. There is still a long way to go to increase the levels of recycling of pods, however the company is going in a good direction. We would like to see more initiative to improve waste management and getting consumers involved in sustainable efforts.

Work Cited Fromm, J. (2019, April 11). The Purpose Series: Nespresso's Core Of Sustainability. https://www.forbes.com/sites/jefffromm/2019/04/11/the-purpose-series-nespressos-core-o f-sustainability/#1c1830b45d89 Gunther, M. (2015, May 27). The good, the bad and the ugly: sustainability at Nespresso. Retrieved from https://www.theguardian.com/sustainable-business/2015/may/27/nespresso-sustainabilitytransparency-recycling-coffee-pods-values-aluminum. Keurig. (n.d.). Sustainability: Keurig®. Retrieved November 3, 2019, from https://www.keurig.ca/sustainability. Keurig. (n.d.). Keurig® recyclable K-Cup pods: Keurig®. Retrieved November 3, 2019, from https://www.keurig.ca/recyclable-kcup-pods. Keurig. (n.d.). Brewing Transformation™ Sustainability at Keurig Green Mountain. B REWING TRANSFORMATION™ Sustainability at Keurig Green Mountain (p. 3–8). 33 Coffee Lane Waterbury, VT 05676. Lachapelle, M. (2018). Business Model Design Nespresso — Evolution Of 0 8-02. Martis, L. D. (2015, December 4). Nespresso Business Model Innovation. Retrieved November 2, 2019, from https://www.slideshare.net/LucreziaDeMartis/nespresso-business-model-innovation. National Geographic: Nespresso. (n.d.). Retrieved from https://www.nationalgeographic.com/beyond-the-bean/stories/coffee-craftsmanship/video -aguadas/. Nesepresso. (n.d.). Coffee. Retrieved November 3, 2019, from https://www.nestle-nespresso.com/sustainability/the-positive-cup/coffee. Nespresso.com. (2019). I Recycle | Nespresso Canada. [online] Available at: https://www.nespresso.com/ca/en/irecycle#red-bag [Accessed 7 Nov. 2019]. Nestle-nespresso.com. (2019). [online] Available at: https://www.nestle-nespresso.com/asset-library/documents/nespresso-positive-cup-csv-re port-interactive.pdf [Accessed 7 Nov. 2019].

Nespresso. (n.d.). Our history. Retrieved November 3, 2019, from https://www.nestle-nespresso.com/about-us/our-history. Nespresso. (n.d.). T he Positive Cup Creating Shared Value Report. The Positive Cup CREATING SHARED VALUE REPORT. https://www.nestle-nespresso.com/asset-library/documents/nespresso-positive-cup-csv -report-interactive.pdf. Nespresso. (n.d.). I Recycle: Nespresso Canada. Retrieved November 3, 2019, from https://www.nespresso.com/ca/en/irecycle. Nespresso. (n.d.). Human Resources. Retrieved November 2, 2019, from https://www.nespressojobs.com/human-resources/. The Kitchen HandYour Personal In-House 'HOW TO' Gastro Master. From Slicing up A Pig for Christmas or Selecting Your Organic Ingredients for that Super Vegan Juice. (2019, February 18). Nespresso vs Keurig - Competition of the Pods - On The Gas: The Art Science &Culture of Food. Retrieved November 4, 2019, from https://onthegas.org/bar-tools-glasses/coffee-machines-tools/nespresso-vs-keurig.A $4 Billion Business Model For Coffee. Business Model Design NESPRESSO — EVOLUTION OF A $4 BILLION BUSINESS MODEL FOR COFFEE. Chartered Professional Accountants of Canada. Retrieved from file:///Users/carlyschmidt/Downloads/01734-RG-Business-Model-Design-Case-Study-1-N espresso-May-2018.pdf MarketWatch. (2019, August 2). Global Single Serve Coffee Makers Market 2019 in-Depth Analysis by Market Size, Share, Key Players, and Regions, Business Expansion Plans Covered Forecast till 2025. Retrieved November 3, 2019, from https://www.marketwatch.com/press-release/global-single-serve-coffee-makers-market2019-in-depth-analysis-by-market-size-share-key-players-and-regions-business-expansio n-plans-covered-forecast-till-2025-2019- 3BL Media (2017). Y ouTube. [online] Available at: https://www.youtube.com/watch?v=Xqab5SMMV9Y [Accessed 7 Nov. 2019].

Images (Citations in order of how they are seen on the document.) Nespresso-logo. (n.d.). Retrieved from https://wearetenzing.com/brand-partnership-2/nespresso-logo/. Nespresso Inissia Espresso Maker (Red). (n.d.). Retrieved from https://www.kitchenstuffplus.com/nespresso-inissia-espresso-maker-red-1. 24

https://www.ebay.ca/itm/NEW-NESPRESSO-ORIGINAL-COFFEE-CAPSULES-PODS-ALL-FLAVO RS-FREE-SHIPPING-/172086127728. Desk, P. B. N. (2018, June 11). Nespresso Canada teams up with Canada Post for capsule recycling. Retrieved from https://www.foodbev.com/news/nespresso-canada-teams-canada-post-capsule-recycling/. George Clooney & Matt Damon Star for Nespresso: LBBOnline. (n.d.). Retrieved from https://lbbonline.com/news/george-clooney-matt-damon-star-for-nespresso/. Discover Nespresso. (n.d.). Retrieved from https://www.thetimes.co.uk/static/discover-nespresso/. Our coffee pods & capsules. (n.d.). Retrieved from https://www.nespresso.com/es/en/order/capsules#!/cafe/espresso/Fresh-Goiaba-Thyme-L atte-Macchiato. kerribreen1. (2018, June 12). Nespresso introduces free coffee pod recycling by mail in Canada. Retrieved from https://globalnews.ca/news/4266434/nespresso-coffee-pod-recycling-canada/. The Choices We Make: Sustainability: Nespresso. (n.d.). Retrieved from https://www.nespresso.com/ca/en/our-choices/sustainable-quality/aluminium-recycling-loo p. Keurig Green Mountain. (n.d.). Retrieved from http://www.writeonnetwork.com/portfolio/keurig-green-mountain/. Stewart, S. (2018, August 23). This is the morning cup of coffee you actually need. Retrieved from https://kitchen.nine.com.au/latest/what-is-sustainable-coffee/f64f9ad7-ac07-402b-8938-c85 3cd2bb5ef.

Appendix

1. Lachapelle, M. (2018). B usiness Model Design Nespresso — Evolution Of 08-02.