September 17, 2014 / 7:19 AM / 4 years ago

Variety is key in Mondelez coffee growth strategy

LONDON (Reuters) - Offering an array of hot and cold single-serve drinks is central to the growth strategy of Mondelez International Inc’s (MDLZ.O) European coffee business, which will soon merge with D.E Master Blenders 1753.

The logo of Mondelez International is pictured at the company's building in Zurich November 14, 2012. REUTERS/Michael Buholzer

With regulatory approval expected in coming months, the merged business, to be called Jacobs Douwe Egberts, will continue to invest heavily in a single-serve coffee business able to compete better with Nestle’s NESN.VX market-leading brands Nespresso and Dolce Gusto, said Roland Weening, president of coffee for Mondelez Europe.

“We already have over 90 drinks and we believe there is a market for more. Watch this space,” Weening told Reuters.

Mondelez’s Tassimo system sells portions of Jacobs coffee, Milka hot chocolate and Twinings tea that can be served hot or cold, while D.E Master Blenders’ Senseo system sells L’Or Espresso cups compatible with Nespresso machines.

Coffee in single-serve packs for use with at-home brewing machines is a global retail market worth $10.8 billion, according to Euromonitor International.

About 61 percent of that market is in western Europe, where Nestle has a 41-percent share. The merged businesses of Mondelez and D.E Master Blenders would have a near 25-percent share in western Europe.

Worldwide, the retail market grew 22 percent last year, much faster than traditional coffee or bottled drinks, as it appeals to well-heeled consumers who like the convenience of fast, barista-style espressos and lattes at home.

Weening is bullish on machines that serve hot and cold drinks, but is not yet convinced of the opportunity for carbonated soft drinks, which is being pursued by rival Keurig Green Mountain GMCR.O with Coca-Cola (KO.N).

It is “something that others are looking at but we don’t see that yet as a significant development,” he said, declining to say whether the company would engage in a similar partnership.

“I’m not speculating on any of the potential things we might do in the future, but of course it is a growing market with a lot of opportunities ... so we clearly want to continue to take advantage of all opportunities out there,” he said. “Who knows what the future may bring?

“To have a multi-beverage system as we have with Tassimo, that is able to do different drinks — hot, cold, etc — is where I think in the future, the game will be,” he said.

Mondelez, which also sells Cadbury chocolate and Oreo cookies, increased spending on Tassimo by 40 percent last year, in marketing, research and development, and production capacity. Spending is on track for a similar rise this year, Weening said, and the brand should remain “a top priority” next year.

While the Tassimo machine and its compatible packs are positioned at the higher end of the market, with some drinks costing as much as $0.50 per cup, Weening said Senseo was cheaper, and therefore did not overlap too much.

Jacobs Douwe Egberts, which will be the world’s biggest pure-play coffee company with annual revenue of more than $7 billion, will be controlled by JAB Holding Co, the investment arm of Germany’s billionaire Reimann family. Mondelez will own a 49 percent stake and Weening will stay on as a member of its executive committee.

Editing by Keiron Henderson

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