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An “Ethical Coffee” Challenge To Nespresso Heats Up

Swiss-based Ethical Coffee Company, run by a former top Nespresso executive, ready to crank up its production of its biodegradable, single-use coffee pods.

Nespresso pods

Nespresso pods Joe Shlabotnik via Flickr

ANNEMASSE - The challenge to Nespresso starts brewing here. The Ethical Coffee Company (ECC) has leased a 4,000 square meter factory in the French town of Annemasse, just across the Swiss border. Having laid out nearly 20 million euros for the necessary industrial equipment, production is slated to start in the first quarter of 2011, with a crew of 150 workers.

A direct competitor to Nespresso, with whom it is engaged in an ongoing legal battle, ECC is headquartered in Fribourg, Switzerland, with the mission to produce biodegradable coffee pods made of cornstarch rather than aluminum. The company also lists a 25% lower price tag. 

Nespresso, the Nestle SA-owned unit, that has dominated the single-serving home espresso market, will see some of its patents expire in 2012. It has used legal injunctions to target both ECC and the Sara Lee company, which has also begun producing a competitive brand of coffee servings that is compatible with its machines.

Founded in 2008 by Jean-Paul Gaillard, who was director of Nespresso from 1988 to 1997 and largely credited with its early success, ECC sells its pods in France – Nespresso’s fastest-growing market -- through an exclusive contract with Casino supermarkets. Until now, ECC has produced in local factories in the French towns of Chambéry and Tarbes, selling in 600 test markets across France.

To date, Gaillard says ECC has generated sales of 100 million units in France and 300 million in Switzerland and Germany. He said he has been approached by other French retailers such as Carrefour and Leclerc, but for now prefers to "ensure the continuity of sales” rather than be spread too thin.

To meet a demand growing by 20% to 30% annually, and meet his target of having 30% market share, Gaillard says he wants to create "a cluster of coffee” within a 30-kilometer radius around the city of Geneva, beginning with Annemasse. It will include a production site scheduled to open in Geneva in 2011, with an initial staff of 50 to 75 people, set to quickly expand to 300 to 500. A second production site across the French border is also foreseen, along with a roasting unit.

ECC has the means to match its ambitions. In total, fundraising rounds have put 75 million euros at Gaillard’s disposal. "We have great investors," he boasts, citing 21 Centrale Partners, the Italian Benetton family, Belgium’s Albert Frère, a Swedish fund, a Rothschild company and even the French TV and radio host Jacques Essebag, aka “Arthur.”

Ethical Coffee Company has also indicated the target of going public within three years, both on the Paris and Zurich stock exchanges. But for now, the company’s ambitions are a boon for Annemasse, population 30,000. Says Frederic Di Sario, a local economic development official: "This is the first foreign industry to arrive in the Haute-Savoie region in the last 15 years." 

Read the original article in French

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About this article source Website:

France's top business daily, Les Echos covers domestic and international economic, financial and markets news. Founded in 1908, the newspaper has been the property of French luxury good conglomerate LVMH (Moet Hennessy - Louis Vuitton) since 2007.

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