How Aldi Australia teamed up with Kruger to take on Nespresso in the global coffee capsule war

MARC Kruger drinks up to 10 coffees per day. As the head of a $3 billion giant teaming up with Aldi, he certainly needs to stay awake.

Kruger chief executive Marc Kruger.

MARC Kruger drinks up to 10 coffees per day.

As the head of German food giant Kruger, the $3 billion family business behind Aldi’s Expressi coffee capsule machines, he needs to stay awake if he’s going to topple Nespresso.

“Oh my god,” he said on a recent visit to Sydney. “I’ve been asked this before. When I say six to 10 cups a day, people say, ‘Geez.’ In the past it was, ‘Let’s go have a cigarette and a chat.’ Coffee is like having a chat, it’s becoming part of the daily culture — so I have lots of chats every day.”

The 36-year-old, who took over running of the family company three years ago, is this week celebrating five years since the launch of the Expressi coffee machine and capsule business in partnership with Aldi Australia.

Since 2011, the company’s capsule business has grown to $190 million in sales annually. While that’s still a tiny chunk of its $2.9 billion turnover, Mr Kruger said capsules were experiencing “tremendous” growth.

The launch, which was supported by a massive advertising campaign at the time, marked one of the first times an Aldi product was marketed as a stand-alone brand. Expressi is now the number one coffee machine sold in Australian supermarkets.

The German discount chain earlier this month revealed record sales of $5.8 billion in calendar 2014 — its most recent filings with the Australian Taxation Office — an increase of nearly $1 billion on the previous year, with pre-tax earnings of $238.5 million.

The retailer currently has about 10 per cent share of Australia’s $90 billion grocery market, and analysts predict that figure will reach 15 per cent within the next few years as it expands into South Australia and WA.

When the Swiss-designed Expressi machines rolled out to Aldi supermarkets in Germany three years ago, it marked the first time a product had been introduced to Aldi’s home market from Australia.

“My father had 42 years of history with Aldi,” Mr Kruger said.

“Aldi was one of the first retail partners he started off with, so it has always been a very strong relationship. Actually the first products we sold into Australia were through Aldi.

“When we looked at the growing market of coffee capsules, we had a good chat to the guys from Aldi Australia. Despite the fact that everybody was looking at doing Nespresso ‘me-toos’, I was saying no, we want a point of differentiation.

“Today it’s written on the side of the carton, ‘Award-winning partnership’, but it has always been a collaborative approach. Normally when you do private label business it’s very transactional. But this was really much more like a marriage. We said, ‘We want to go for the market, let’s go for it together.’ So it was an honour for us — it was like being a knight.”

Mr Kruger said when the Australian launch first took place, it was night time in Germany. “We were having a conference call with our guys here on the ground. They were telling me, ‘Marc, you cannot imagine, the people are queuing in front of the shops.’”

Kruger has a 45-year history with Aldi. Picture: Daniel Leal-Olivas/AFP

Expressi is less than half the price of Nespresso at $80.

Founded in 1971, Kruger started out manufacturing products like instant tea and coffee, before expanding into chocolate, semifinished products like cocoa mass and cocoa beans, milk products like infant formula, and pharmaceuticals. Today it employs nearly 5000 people.

Mr Kruger said the ultimate goal was to be “one of four” coffee capsule players globally, taking on the might Nestle and its Nespresso business, and German investment giant JAB Holding, which has spent some $38 billion on coffee acquisitions over the last four-and-a-half years.

“It’s going to be [those two], us, and someone else,” he said.

“By having multiple partners globally on the platform, that allows us to generate sales volume — from Australia, from the US with Starbucks, from Ireland — and by generating volumes we are able to invest and maintain the cheapest prices.

“But right now if you look at just one country, it’s not possible to finance [those prices], and therefore for us it’s all about scale. In order to get scale we need to be globally present, and on a global scale there are only going to be four platforms.”

Mr Kruger said the success of the partnership relied on Aldi’s low-cost business model. “Nespresso is a unique system, but they have very costly infrastructure, they have George Clooney. When you buy Nespresso you’re buying a world,” he said.

“We want to provide the same quality, we want to give some emotional attachment, but we are not financing the boutique stores on the Champs-Élysées in Paris or Pitt Street Mall in Sydney — it costs a fortune — we cannot afford it, and therefore we focus on the most important thing, and that’s quality.

“The unique footprint of Aldi where they are so cost-efficient, that allows us to generate these kinds of shelf prices. It’s all concentrated on what matters, taking out the other costs. It’s a value for money ratio.”

Mr Kruger said he had no intention of raising the price of the loss-making machine.

Expressi has maintained the price of its machine at $80 since it launched, whereas the basic Nespresso machine now costs $200. For the coffee itself, Expressi capsules retail for 37 cents each, compared with 68 cents up to 84 cents for Nespresso.

The capsule business, which Kruger has spent more than $170 million developing over the past five-and-a-half years, is all about “convenience, variety and customisation”, he said.

“Australia is much more educated [than Germany] in terms of coffee, which for us is a great space to learn,” he said. “Germany is much more traditional. For an innovative product category like capsules it’s perfect, because you can react to trends.

“You don’t have to have big batches, you can have seasonal, you can have single origin. Coffee is a harvest product, so you have the chance through capsules to deliver seasonals from Ethiopia or Papua New Guinea, Kenya, Honduras, so you get the coffee excitement.”

For now, the company is looking to grow its existing base with eyes on key markets in Europe and India. Expressi is planning to introduce higher-rotation seasonal ranges, and is “playing around a little bit in the digital area”.

“I don’t want to say too much at this stage,” Mr Kruger said. “We have a couple of things in the pipeline which are interesting. Hopefully the customer will judge what’s coming next.”

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