Woolworths expansion into coffee pod machines, a vertical extension of a brand?

Posted by AFN Staff Writers on 5th November 2012

Woolworths’ latest move in the coffee pod market signals a new trend in brand extension and retail diversification.

Woolworths is the latest to jump on the single-serve coffee machine bandwagon, and its exclusive “Caffitaly S14” coffee-pod machine will be one of the cheapest on the market.

The move by Woolworths seems to be an interesting extension beyond the concept of a supermarket selling small kitchen electrical appliances. The move possibly reflects a new trend for companies, and retailers in particular, to up-sell their branded consumables through the sale of their own dispensing machines. Arguably, this can hook customers directly into the brand’s own vertical supply chain.

Woolworths says that the exclusive Caffitaly S14 will save coffee drinkers around $800 a year through cheaper pod prices, compared to buying a cup of coffee.

According to Woolworths, Australians are spending $150 Million on coffee pods annually, and it is now the second biggest coffee-market, next to instant coffee.

Woolworths Head of Own Label, Matt Cole said that the Woolworths system would offer five strength variants of Woolworths Select coffee pods, and four variants of pods made for the machines by Gloria Jean’s Coffees.

“A flat white made in the Caffitaly system with a Woolworths Select espresso capsule costs just 47c a cup, while an espresso is even less at just 37c for a shot; compare this to $3.50 or more in a coffee shop. If you buy five takeaway coffees a week switching to Woolworths compact capsule system could save you $793 or more over an entire year,” Mr Cole said.

Woolworths said that it’s new coffee system “would be available in more locations nationwide than any other machine.”

“Other capsule based coffee machines can be hard to find, only available in a limited number of stores and difficult to locate ‘boutiques’; by contrast Woolworths system will be available in over 875 supermarkets in suburbs and towns across the country,” the Woolworths spokesperson said.

Meanwhile, Australian Food News recently reported that coffee-giant Starbucks had plans to compete with Nespresso by selling a single-serve coffee pod machine. The Woolworths machine adds to the plethora of machinery choices. Yet, it is unclear whether all these competitors will have equal access to customers. In Australia, Woolworths are in a strong position of control over much of Australia’s supermarket shelf space.