The French market for single portion coffee machines and capsules is a popular growing market. The leader on this market is Nespresso which realizes 25% of its worldwide sales in France.
In December 2010 and May 2011, two competitors on this market, DEMB Holding BV and Maison du Café (“DEMB”) and Ethical Coffee Company, complained to the French Competition Authority (“FCA”) that Nestlé Nespresso SA, Nestec SA and Nespresso France SAS, subsidiaries of the Nestlé Group (“Nespresso”), implemented exclusionary practices by tying the purchase of the Nespresso capsules to the purchase of Nespresso coffee machines.
According to FCA analysis, coffee machines and capsules are likely to be considered as complementary but distinct markets as these products may be independently manufactured by different manufacturers. The FCA noted that in 2012, Nespresso held respectively 73% and 85% of these market shares so that Nespresso was in a dominant position both on the coffee machines market and on the capsules market.
During its investigation, the FCA found that Nespresso appeared to have implemented several practices destined to encourage consumers to use only Nespresso capsules in their Nespresso coffee machines without any objective reason. In its preliminary investigation, which it sent to Nespresso, the claimants and the Government Commissioner in March of 2014, the FCA held that Nespresso was likely to have abused its dominant position at three different levels: technical, commercial and legal.
At the technical level, the FCA pointed out the numerous modifications made to the Nespresso coffee machines which rendered the competitors’ capsules incompatible with the new models (repositioning of a seal, changes made to the capsule perforation system, addition of grooves and hooks in the extraction cage).
At the commercial level, the FCA noted that in Nespresso Clubs and in press releases, Nespresso clearly encouraged consumers to use only Nespresso capsules.
Finally, at the legal level, the FCA indicated that on the coffee machines themselves, on their packaging and on their instructions for use and notably in the warranty section, Nespresso affixed a clear wording encouraging consumers to use only Nespresso capsules with their Nespresso coffee machines.
After three years of discussions, and after having received the preliminary investigation report, Nespresso adopted a conciliatory stance and proposed to abide by several commitments with its competitors.
At the technical level, Nespresso committed to provide to those of its competitors manufacturing capsules who made a request a technical update of all modifications made to its coffee machines which would require modifications of their capsules, at least 3 months prior to their coming into effect.
At the commercial level, Nespresso proposed not to comment (whether in Nespresso Clubs or in press releases) on competitive capsules.
At the legal level, Nespresso proposed to implement new warranty conditions which would apply regardless of the brand of the capsules used in the coffee machines unless the damage or malfunction was caused by the use of such capsules.
In particular, prior to Mothers’ Day which is very profitable in terms of sales, Nespresso agreed to implement several commitments concerning its new coffee machine Inissia (commercialized in France in March 2014 for EUR 99) so as to limit potential exclusionary effects related to the change in the capsule perforation system.
The FCA is currently running a market test until May 19, 2014 to allow interested third parties to submit their comments and remarks on Nespresso’s proposed commitments. At the end of this time period, the FCA will organize a hearing during which it will examine the proposed commitments in parallel with the comments and remarks filed. The FCA will then decide whether Nespresso’s proposed commitments are deemed sufficient. If they are, they will become binding as of July 2014 for a duration of seven years. In that event, if Nespresso were found in breach of its commitments, it would be subject to a fine of up to 10% of the worldwide turnover of its parent company Nestlé.
It now remains to be seen whether the FCA will be convinced by Nespresso’s commitments at the end of the market test period.