Mondelez isn’t the first supplier to launch Nespresso-compatible pods but previous challengers - primarily CaféPod and Dualit in the UK - have been relatively small.

With Nestlé’s biggest rival rolling out Carte Noire-branded coffee pods compatible with Nestlé’s Nespresso machines from Tuesday, however, it’s the first major fmcg player to park its tanks on the Swiss giant’s impeccably manicured lawns.

Nestlé is not inclined to take such challenges lying down. Which is hardly surprising when you consider Nespresso has global annual sales of around £2bn.

Major UK players

Mondelez: From next week is widely rolling out a range of Carte Noire capsules in four flavours: N°3 Élégant, N°5 Délicat, N°7 Aromatique, N°9 Intense (rsp: £2.79/10-pack)

CaféPod: Launched in 2012 into Waitrose and going into Tesco next week. Two more SKUs to be added to current range of five later this month.

Dualit: Sussex-based Dualit, which sells its pods through stores including Sainsbury’s, doubled its production capacity last year and plans to do so again in 2014.

But in a move that shocked some observers, this week Nestlé made public tech specs for a key component in its latest machines, after reports in French and Swiss newspapers suggested that the world’s biggest food manufacturer had modified its latest machines to make them incompatible with rival pod manufacturers.

Nestlé hasn’t been shy of taking suppliers of compatible pods to court to protect its IP in the past. That’s because Nespresso is a status symbol - the Apple of kitchen appliances - and its marketing, fronted by George Clooney and with the tagline ‘What else?’, has been designed to reinforce the exclusivity of the format and brand. Nestlé has also guarded its premium status by allowing shoppers to only purchase official pods directly from the Nespresso website or Nespresso ‘Boutique’ stores (found in just four UK cities).

This boosts the cachet of the brand, and gives Nestlé total control over pricing. It’s a business model admired by many, including former Tesco boss Sir Terry Leahy who refers to it glowingly in his autobiography. But that model could be threatened by a further influx of third-party pods.

While compatible pods are already sold in retailers including Sainsbury’s and Waitrose, CaféPod suggests as few as 5% of British Nespresso users are aware of their availability. That is likely to change when Mondelez puts its marketing clout behind the category.

Nestlé may also be concerned about the effect on pricing. Currently, third-party pods are typically slightly cheaper than the 29p to 35p price of Nespresso’s own. If sold at rsp, Carte Noire 10-pod packs work out at 28p each, while Dualit sells at 25p a pod in Sainsbury’s. However, the availability of multiple brands in the top five (Tesco, for example, will be rolling out CaféPod to 600 stores next week) may ultimately push prices lower.

“It was always a matter of when, not if, pod coffee would become a major UK market,” says Mintel analyst Jonny Forsyth. Mondelez will be a “massive threat” to Nespresso, he adds. “Carte Noire has good awareness in the UK and is seen as a premium brand - so is a good fit with Nespresso consumers,” he says. “In some European markets - such as France and Switzerland - Nespresso will be more protected by brand loyalty. I can see Mondelez being a particular threat in the UK, where shoppers are so price-conscious.”

Lawyers kept busy

With the stakes so high, Nespresso has sometimes turned to the courts to protect its patents, of which it has 1,700. But intellectual property law is complex, and although being granted a patent at the European Patent Office gives protection across most of Europe, “enforcement of rights and protections may differ in Spain from the way it is enforced in France,” wrote beverages analyst Jonas Feliciano in a 2012 report. “This potential for multiple interpretations has created a minefield of potential legal disputes for companies seeking to challenge patent protection.”

For example, the EPO ruled in favour of Nespresso in 2012 when it sought injunctions preventing the sale of pods launched by Sara Lee, but enforcement was struck down by a German court. More recently, the High Court ruled Dualit was not infringing a Nespresso patent with its pods.

Nestlé has ongoing actions in seven EU countries so it is hardly surprising Mondelez has conducted due diligence, and says it will “continue to monitor the changing legal landscape” with regards to its new pods. Carte Noire brand manager Hortense Foult-Rothenburger says Mondelez has “taken the necessary steps to obtain legal protection of our capsules.”

Nestlé this week said it would continue to follow the processes in place to protect its intellectual property - including legal action - when it believed rules had been broken. However, news that Nestlé has released tech specs for the new blades used in its latest machines (see p4) suggest it may be looking at other strategies.

New tactic?

While some say the move is PR-driven, one patent law specialist suggested Nestlé could be considering licensing out its IP: “This would be a change in tactic by Nestlé, which has so far sought to keep competitors out, but the effectiveness of this strategy has seemed to fade over recent years.”

Certainly, Nespresso will need to do something as more players encroach on its territory. One option would be reducing the cost of its machines, with the lowest currently priced £89. “It’s a great brand but you can be too exclusive,” suggests Mintel’s Forsyth, “Nespresso needs to find a middle ground.”

He adds that NPD will also be key, something Nespresso UK MD Brema Drohan clearly agrees with: “Continuous innovation and our passion for perfection have been key drivers in our quest to consistently deliver the highest quality coffee.”

But will it be enough?