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Nestle aims at crowded U.S. market with new Nespresso plant

September 11, 2015
Consumer Packaged Goods

(Reuters) – With a new Nespresso plant to supply the bigger portions favored by drinkers in the United States and Canada, Nestle (NESN.VX) aims at grabbing hold of a rare hot spot in the tepid packaged food sector.

The coffee-capsule maker’s third Nespresso plant, at Romont, nestling in a grassy valley between Switzerland’s Lakes Geneva and Neuchatel, will become the only production site for its new large-cup Vertuo line, Nespresso Chairman Patrice Bula said.

Nespresso, pioneer of at-home single serve coffee brewers, faces tough competition in the U.S. market. Even the one-time stock market darling Keurig Green Mountain Inc (GMCR.O) lowered its outlook in August and said it would cut jobs as it grapples with new rivals that are stepping up promotions.

In an effort to stand out in a crowded marketplace, Keurig is launching Keurig Kold, which will make soft drinks including those sold by Coca-Cola Co (KO)N>, one of its shareholders.

Nestle Chief Executive Paul Bulcke said that North American Nespresso sales had increased since launching the Vertuo line and that the brand had also launched new boutiques there this year, bringing the total number of U.S. stores up to 36.

The U.S. capsule market is valued at $5 billion and is a key growth market for Nespresso, spokeswoman Yvonne Iwaniuk said. Nespresso is strong in Europe, but still small in the United States.

Nestle declined to comment on maximum output and whether the site would eventually operate at full capacity.

It was originally announced that Romont, which cost 300 million Swiss francs ($308.29 million) to build, would employ 300-400 workers, but it currently employs 125, a sign of the headwinds Nestle faces.

“The strong franc is only one challenge on the list,” Bulcke said. “What is more worrying are the constant changes in (legislative) framework conditions.”

All three Nespresso plants are in Switzerland and Nestle conducts two-thirds of its research and development in the country, Bulcke said.

But immigration curbs could make it difficult for Switzerland to maintain its competitiveness and allow Nestle to continue to employee the one hundred nationalities represented in its headquarters, Bulcke said.

By Brenna Hughes Neghaiwi (Editing by William Hardy)

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