News that Nestle is planning to enter the fair trade coffee market (Marketing, 6 May) is causing ripples through the food industry this week.
Fairtrade Foundation deputy director Ian Bretman says he was taken aback by the news. Despite various informal links with the food multinational, the Foundation had received no approach from Nestle indicating that the company planned a brand that effectively self-certifies itself as fairly traded.
'We would be most disappointed if Nestle chose to do this, because it would undermine consumer confidence in fair trade products. After 10 years of operating the Fairtrade mark we have worked hard to build credibility with consumers as an independent system of endorsement that they can trust. Nestle's decision could lead to a free-for-all, with firms setting up their own schemes.'
Questions remain over the exact nature of the standards Nestle plans to apply to the coffee. The Fairtrade Foundation insists that coffee bearing its mark (principally the Cafedirect and Percol brands) must have been bought from growers at $1.26 (71p) a pound, twice the market rate. Nestle is still making no comment on its plans.
Faltering profits
It is not hard to detect the motives behind the company's thinking. The UK instant coffee market, in which most of Nestle's coffee brands compete, is on the wane. Its value has dropped 12.7% since 1999 to 拢635m last year (Mintel). Worse still, Nestle brands are losing share at a faster rate than rival Kraft (see table).
Fairly traded coffee, by contrast, is a growth sector, reflecting the 46% rise in sales of Fairtrade food and drink last year, according to the Fairtrade Foundation. Cafedirect's figures show that its 5065 instant coffee brand grew 27.8% last year. Although its 拢8.3m value is dwarfed by Nescafe's 拢221m, its growth figures are healthier.
There is also the corporate reputation imperative pushing Nestle into the arms of the fair trade lobby. Last week Breakthrough Breast Cancer rejected a 拢1m donation made by Nestle joint venture Cereal Partners because of worries over the company's track record on baby milk formula.
Its coffee reputation is not as tarnished, offering a platform it can use for its fair trade venture. Nestle was revealed to be making up to 30% in profit margins on instant coffee in last year's report from Oxfam on the global coffee market 'Mugged: Poverty in your coffee cup'. But in the same report, the charity conceded that Nestle's approach was better than most. The company has in the past argued for higher coffee prices to be paid to growers.
Sources close to the Swiss food giant report that it is the UK operation that is pushing for the fair trade variant. Nestle's reputation is weakest in the UK and it is thought that if its fairly traded offer flourishes here, it will be viable in other regions.
So will this strategy reap dividends for Nestle or prove to be an over-ambitious and costly failure? There remains the risk that the media and consumers will regard the decision as a cynical attempt to embrace social responsibility.
Nestle will have to work hard to communicate the details of its plans to justify the undoubted premium that it will be charging consumers for the product. The success of this will hinge on whether the firm will be willing to pay growers the magic figure of $1.26 a pound.
Cautious reception
Oxfam, the most important non-governmental organisation involved in the issue, is unwilling to make any comment before Nestle confirms its plans.
But given that its report recommended that the major coffee firms commit to buying under fair trade conditions, it is difficult to see how Oxfam's attitude could be anything other than positive.
A vocal minority of consumers will inevitably condemn the move and question Nestle's motives. But Giles Gibbons, a partner at social responsi-bility specialist Good Business, believes that the launch could be in with more than a fighting chance of success.
He argues that shoppers are principally buying into the Nescafe brand rather than its Nestle parent, and are likely to have more trust in it.
Additionally, the entrance of Tesco into the fair trade coffee market earlier this year, with an own-label product backed by the Fairtrade Foundation, has helped to introduce consumers to the idea of previously niche fair trade products marketed by big brands.
Even Cafedirect gave the news a cautious welcome, hoping that the entry of Nescafe will give a boost to the entire fair trade sector.
But there are significant caveats to these responses. Cafedirect head of marketing Sylvie Barr says she hopes that Nestle will 'commit fully to the strict Fairtrade criteria and principles'.
The devil remains in the detail. If Nestle is committed to paying farmers something approximating the $1.26 that Fairtrade Foundation-backed brands do, then why doesn't it join the club and use the logo already accepted by consumers?
The danger, as Bretman says, is that a self-certified scheme, however well-intentioned and constructed, is likely arouse the suspicions of cynical UK shoppers.