Nespresso, the premium coffee division controlled by Nestle SA (NESN.S), has not increased prices for its capsules yet despite a sharp increase in benchmark prices for arabica beans, opting to wait and see if the upward trend is sustainable over time.
Alfonso Gonzales Loeschen, the chief executive of Nespresso North America, said in an interview that the company has so far absorbed price increases instead of passing on the higher costs to consumers, until there is more clarity about the market direction.
"It will all depend on how long these higher prices will be maintained," Loeschen said.
High Arabica Coffee Prices
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Benchmark arabica coffee prices on the ICE exchange hit the highest since November 2016 earlier this month, due to smaller production in top grower Brazil and disruptions to the supply chain.
Nespresso, as well as other premium coffee processors, usually pay a large premium over New York futures to associated growers around the world, as a way to guarantee supplies of the best coffees.
Higher Online Sales And Slow Sales To Offices
The CEO, who took over the job in the US early in 2020 just weeks before the COVID-19 pandemic led to lockdowns, said that direct sales to consumers increased 20% during the period, forcing the company to adjust to higher online sales and logistics demand.
Its boutique coffee stores are all open again, but sales to offices are slow and he does not see volumes on that selling channel recovering to pre-pandemic levels until at least 2022.
"It seems that only around 20% of workers are back to offices, and many people will keep working in a hybrid system," Loeschen said, adding that some companies supplied employees working from home with Nespresso packages during the pandemic, a new selling point for the Swiss firm.
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