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Nestle's Nespresso sees double-digit sales growth

Nespresso, the premium portioned coffee product that is Nestle's hottest brand, should still record double-digit growth this year despite the economic crisis, the unit's chief executive said.

Nespresso, which aims to replicate a cafe-style brew at home with its coffee in capsules for machines that brew one cup at a time, has recorded average sales growth of more than 30% over the last eight years although that rate slowed in the first quarter.

“We are very confident about double digits for 2009,” Richard Girardot told a news conference as he opened a major new plant in the Swiss town of Avenches.

“We have weathered the storm relatively well,” he said, adding that growth had slowed in the United States without giving details.

Sales doubled in two years to hit 2.26 billion Swiss francs in 2008 and Girardot said the new Avenches plant - which will be able to produce 4.8 billion capsules a year -- would give the capacity to double sales again in the coming years.

As Nespresso is growing so fast he said it is already thinking about where to locate its next major production site, possibly in one of its biggest consumption centers.

Girardot said the company still expected to grow fast, including in established markets like Germany and France, and elsewhere, noting that 90% of sales are in Europe to just 5% in Americas and 5% in Asia.

“Just think of it in terms of potential. It's huge,” he said, adding that it also hopes to break into tea-drinking China, focusing on big cities like Shanghai and Beijing.

“Where there is an urban lifestyle, that is where we could do business,” he said.

Nespresso differs from many of its competitors like the Keurig system from Green Mountain Coffee Roasters, Senseo system from Philips and Sara Lee in that it does not sell its coffee capsules via retailers.

Instead, customers buy the pods and machines direct from Nespresso boutique stores, online or on the phone.

Girardot said 47% of sales are currently online, 35% in its boutiques and 18% by phone, adding he expects 180 boutiques to be open by the end of 2009 from 163 today.

Expanding premium products is one of the pillars of Nestle's strategy, but it comes at a time when slowing global economic growth is prompting many consumers to opt for cheaper products and switch from big brands to private-label alternatives.

But Nespresso has benefited from a shift to at-home consumption in the downturn that has hurt restaurants and cafes including Starbucks Corp, the world's largest coffee chain. (Reuters)