Nov. 27 (Bloomberg) -- In Europe, Nestle SA has made Nespresso its fastest-growing brand by promoting it as sexier than George Clooney, who endorses the espresso in ads. America, where the heartthrob refuses to advertise the product, will be a harder sell.

The world's largest coffee maker is stepping up expansion of its Nespresso single-serve espresso system in the U.S. as part of a plan to double sales of the product to 2 billion Swiss francs ($1.8 billion) by 2009. Nespresso machines only function with pods of coffee made and sold by Nestle.

As demonstrated by Clooney, who doesn't want his image used for any U.S. product endorsements, according to his spokesman, Stan Rosenfeld, what works on one side of the ocean may not succeed on the other. Latte-loving Americans shell out 70 percent of their coffee spending outside the home at chains including Starbucks Corp. Senseo, a similar espresso maker from Royal Philips Electronics NV and Sara Lee Corp. that was a hit in Europe, failed to meet forecasts in its first year in the U.S. Kraft Foods Inc. wrote down the value of its competing Tassimo system this year.

The Nespresso ``concept is very strong, but Starbucks is extremely convenient,'' said Nicholas Parry Jones, who helps manage $50 million at Altanes Investments LLC in New York. ``It will be an uphill road for Nestle.'' He has no plans to buy a Nespresso machine and doesn't own Nestle stock.

Drip Coffee

Nestle shares rose 4.5 Swiss francs, or 0.8 percent, to 540 francs in Zurich today.

Nestle, with sales more than double its closest rival Kraft, needs new products to boost revenue as sales of brands such as Hot Pockets frozen sandwiches and Buitoni pasta decline. Nespresso sales have grown more than 30 percent a year worldwide since 2001. If the company is successful in the U.S., operating profit from Nespresso will triple to 3 percent of Nestle's total in 2010, Zuercher Kantonalbank analyst Patrik Schwendimann forecasts.

Europeans spend more than three times as much on making coffee at home than Americans do, according to ACNielsen research. Single-serve brew accounts for 6 percent of coffee sold in Europe by value, where Nespresso is the most expensive kind. Capsules, which cost 49 cents each in the U.S., comprise 3.8 percent of the U.S. coffee market. Nespresso says it sells 23 percent of the world's espresso machines.

Many Americans also like their coffee to be an experience, not just a quick pick-me-up.

``I don't like to just take a shot of coffee. I like it to be a drink,'' said Melissa Dixon, 28, while drinking a latte in a Manhattan Starbucks. ``Something that I sip over the course of an hour and then throw away when it gets too cold.''

Bloomingdale's Boutique

Nespresso coffee is only sold on the Internet, over the phone or through Nespresso boutiques in luxury shopping areas. The machines are sold in 700 U.S. stores, including Bloomingdale's, Macy's and Williams Sonoma. The company is expanding in the U.S. as the worst housing market in 16 years and rising fuel prices begin to hit spending. Starbucks this month cut its profit target following its first decline in U.S. customer visits.

Nestle has opened its second U.S. Nespresso boutique -- complete with an espresso bar and walls decorated with its multicolored coffee capsules -- in a New York City Bloomingdale's store on lower Broadway and plans to open as many as 40 in the next four years. Their first is on the city's Madison Avenue.

Maintaining Growth

Even for a conglomerate like Nestle, which makes everything from Purina dog chow to Haagen Dazs ice cream, Nespresso is a key brand as it becomes more difficult to pass on higher commodity costs for other products. Coffee is the third-fastest- growing non-alcoholic beverage market, behind water and milk, according to Jonathan Banks of ACNielsen. He said those markets are expanding mostly due to consumption growth, while coffee is growing because of price increases.

To maintain Nespresso's growth rate of more than 30 percent annually for the last six years, Nestle needs new markets like the U.S. Nespresso could reach sales of 50 million Swiss francs to 100 million francs in the U.S. next year, Schwendimann estimates.

Kraft took a $245 million charge this year to write off the value of its Tassimo machine after sales grew less than forecast. Still, they got to the market first, and forecast sales of $200 million next year. Kraft formed an alliance with Starbucks in September to sell the chain's coffee in pods in the U.S. and Canada. Starbucks on Nov. 15 also said it would sell espresso machines for the holidays this year.

Nespresso Club

For Nestle to succeed, ``it will require that they change consumer habits,'' said Thomas Russo, who helps manage $3 billion at Gardner Russo & Gardner in Lancaster, Pennsylvania, including Nestle shares. ``We know the public will pay for premium coffee with Starbucks. It's just more lifestyle.''

Rival Senseo, which uses machines made by Philips and coffee produced by Sara Lee, has grown half as fast in the U.S. as in Europe. Capsule revenue from the business rose at an average of 70 percent between 2002 and 2007, while the rate has been 35 percent since the company started selling the product in the U.S. in 2005, Sara Lee spokesman Ernesto Duran said.

Nestle markets Nespresso in Europe by giving membership cards to all customers and sending them a Nespresso magazine. The publication has featured interviews with Clooney and other lifestyle stories. Nespresso claims the magazine has a bigger circulation than any other in Europe.

`Sheer Pleasure'

Francoise Filippe, a 56-year old Frenchwoman, still uses the Nespresso machine she bought seven years ago to make about 10 cups of espresso a week.

``It's small, compact, easy to use, and it works impeccably,'' she said, exiting Geneva's Nespresso boutique near the Gucci store on Rue du Rhone. ``It's for the sheer pleasure of drinking coffee that we own it.''

Until last month, Nespresso had only one boutique in the U.S., yet Roberto Eggs, director of Nespresso's international expansion, said that market could become one of its three biggest within four years. The company is relying on word-of- mouth marketing and placements in high-profile New York restaurants, such as Daniel and Le Bernardin, in the absence of Clooney.

To adapt to the U.S. market, Nestle is relying on the $699 Lattissima, the first of its espresso makers that can also make milk-based drinks with the touch of a single button, to woo U.S. consumers who prefer lattes and other frothy treats.

Bargain Hunters

Nestle is targeting high-income consumers to buy machines that cost between $179 for an Essenza to $2,099 for a machine by Miele that can be built into a kitchen. Tassimo, which has a list price of $169, sells for $127.63 on Amazon while Senseo machines are discounted down to $62.47 from $106.95.

Aside from Americans' dislike for making their own coffee, the company may also have picked a difficult time to enter the country. Luxury spending in the U.S. may slow as Wall Street bonuses may drop about 5 percent this year, according to an Options Group estimate.

Kosyo Minchev, a sculptor in New York City, is the type of client Nestle is aiming for. He's had his eye on a Nespresso maker since he tried the coffee in Luxembourg, he said. He also likes to hunt for bargains.

``I will buy it, definitely, but not in the regular store,'' he said. ``On eBay, for $150.''

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.

Last Updated: November 27, 2007 11:51 EST

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