The coffee capsule revolution: French competition authority opens up market to Nespresso rivals

Following an investigation sparked by complaints
from rival espresso coffee capsule manufacturers, the French
Competition Authority has accepted commitments from Nespresso.

These are designed to open up the French market to rival
espresso capsule manufacturers but are likely to have an impact on the
wider European market, including in the UK. The case may have
implications for other industries where compatibility of secondary
‘aftermarket’ products with primary products is an issue.

According to the French competition authority, Nespresso has a
significant share of the market both for the supply of ‘single capsule’
espresso machines (73%) and for the supply of espresso capsules (85%)
in France. Market shares of this level mean that Nespresso is very
likely to be subject to the competition ‘dominance’ rules, which
prohibit it from excluding its competitors from the market unfairly.
Against this backdrop, the French competition authority was concerned
that Nespresso might have broken those rules by:

  • regularly changing the technical specifications of its
    machines, which meant that competitors struggled to keep their capsules
    ‘Nespresso compatible’
  • indicating on Nespresso machines and packaging and in
    the user manual and guarantee that consumers should only use Nespresso
    capsules with Nespresso machines
  • encouraging consumers, both through the press and in
    Nespresso ’boutiques’, only to use Nespresso capsules with Nespresso
    machines

To address these concerns, Nespresso has offered commitments
to the French competition authority. These are designed to make it
easier for rivals to compete with Nespresso in France. Nespresso must
now provide competitors with advance warning if it plans to change the
design of its machines and give them access to the technical information
they need to make their capsules ‘Nespresso compatible’. It must also
make clear to consumers that use of competing capsules will not
invalidate their Nespresso warranty.

Finally, and perhaps most interestingly, Nespresso will work
with an independent third party to provide information to manufacturers
of Nespresso compatible capsules. According to reports, this information
will be supplied to companies doing business both inside and outside of
France. This means that the French competition authority’s
investigation into Nespresso may lead to cheaper Nespresso compatible
capsules being readily available on the wider European market. So the
impact of the decision – the first into the commercial practices of
Nespresso – is likely to be felt by coffee drinkers both inside and
outside of France.

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