Nestle’s Dolce Gusto Coffee Debuts at Wal-Mart Stores

Nestle SA, the world’s biggest food company, will begin selling Nescafe Dolce Gusto coffee makers in 2,000 Wal-Mart Stores Inc. outlets across the U.S. this month, taking on Green Mountain Coffee Roaster Inc. in its main market.

Wal-Mart stores are selling the machines at prices starting at $89.88, said Melissa Hill, a spokeswoman for the Bentonville, Arkansas-based retailer. Green Mountain’s Keurig website offers brewers from $99.95, though cheaper prices are available from online retailers such as Amazon.com Inc.

At stake is a larger share of the fastest-growing segment of the U.S. coffee market, where Green Mountain has about an 85 percent share for single-serve brewers with its Keurig machine, according to Janney Montgomery Scott LLC. U.S. grocery spending on coffee will increase 40 percent to $11.5 billion in the five years through 2014, Euromonitor International estimates.

“It will take some hard work to unseat the early market share advantage of Keurig,” said Tom Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania.

Dolce Gusto’s sales will probably reach 400 million francs ($409 million) this year, Nestle Chief Financial Officer Jim Singh said Aug. 11. The Swiss food company, which got $28.3 billion in August from selling a stake in Alcon Inc., said the same day it plans to increase spending on the brand before Christmas. Nestle started selling the capsules in 2006.

‘Very Good Competitor’

Dolce Gusto, whose drinks range from cappuccinos to latte macchiatos, is unlikely to unseat Green Mountain from its lead in serving mainstream consumers who like simple, plain coffee and who account for the largest part of the market, said Mitch Pinheiro, an analyst at Janney Montgomery in Philadelphia.

“It’ll be a very good competitor, but with a limited audience,” said Pinheiro. “It’ll struggle, but because of the patience Nestle has, they will stay with it.”

Pinheiro has a “buy” rating on Green Mountain, which said this week that regulators are investigating how the company recognizes revenue. The Securities and Exchange Commission’s enforcement unit sought documents and information in an inquiry the Waterbury, Vermont-based company said is probably related to revenue accounting and the relationship with a vendor.

Green Mountain shares dropped $1.12, or 3.6 percent, to $30.07 at 10:09 a.m. in New York. Nestle fell 10 centimes, or 0.2 percent, to 52.25 francs at 4:09 p.m. in Zurich trading.

Nestle, based in Vevey, Switzerland, began selling Dolce Gusto in the U.S. in September 2008 through retailers including Sur La Table and Bed, Bath & Beyond Inc., as well as online, spokesman Ferhat Soygenis said. The company is adding more retailers to distribute the product, which it recommends selling at about 56 cents a capsule, he said. Most Green Mountain cups retail for about 58 cents, according to Keurig’s website.

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

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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